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TMI Blog2017 (10) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... actions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee. Unexplained expenditure u/s 69C - assessee must have incurred commission expenses @ 5% of the LTCG - Held that:- As already held that the transactions relating to LTCG were genuine and not the accommodation entries as allege ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hendra Kumar Baid also, except with variance figures. 2. Thought the assesee had raised several grounds of appeal, the following common issues are involved in both the appeals and the questions raised thereon the reframed as under :- 1. Whether on the facts and circumstances of the case, the Id CIT A was justified in upholding the addition made by the Id AO u/s 68 of the Act in respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee s claim of long term Capital Gains (LTCG) on sale of those shares. 2. Whether on facts and circumstances of the case Id CIT A was justified in upholding the action of the ID AO in treating the transactions in shares of kailash Auto Finance Limited (KAFL) resulting in long Term Capital Gain as bogus and thereupon making addition u/s 69C on the presumption that commission @ 5% was paid for arranging the aforesaid bogus Long Term Capital Gain. 3. Whether on the facts and circumstances of the case, the ID CIT A justified in upholding the disallowance made by the ID AO u/s 14A read with rule 8D of the Act. 4. Whether on the facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Re. 1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The Id AO, considering the weak operating profits of CPAL., suspected the issue of bonus shares in the unrealistic ratio of 1:55. He held that the probable reasons were with a view to provide large amount of LTCG in the hands of beneficiaries after amalgamating the said company with KAFl. 3.3 The Id AO further observed that CPAL was incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non genuine transactions of its shares which resulted in fetching exorbitant and unrealistic considerations in the scheme of amalgamation. While arriving at the aforesaid conclusions, the Id AO also doubled the scheme of amalgamation. 3.4 The Id AO referred to the statement of Shri Sunil Dokania recorded u/s 131 of the Act by the Investigation wing on 12.06.2015, wherein, Shri Dokania has explained the modus operandi of providing of LTCG in the scrip of KAFL. He stated that by way of amalgamation of CPAL with KAFL. Mr Dokania, in the aforesaid statement shares of KAFL as against shares of CPAL. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were restrained from accessing the securities market and buying, selling or dealing in securities. The Id AO concluded that the indepth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL. Were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL., The Id AO Further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. 3.7 The Id AO made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his shares broker viz. Ashika Stock Broking Limited. The Id AO found that the buyers of the shares had weak financials and therefore he doubted the genuineness of the transactions. The summons issued to the said parties came back un-served and/or no response was received thereon. The id AO referred to his test check analysis of one the buyer of shares sold by the assessee viz. M/s Rajwanshi Promoters Private Limited was the funds received from different entities and observed that the ultimate source was case depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Assessment Year 2012.13. (ii) Bank Statement showing payment of the purchase consideration of shares of CAPL to Brijdhara. (iii) Balance Sheet of the Assessee for the FY 2011.12 to 2012-13 to show that the investment in the shares of CAPL was duly disclosed. (iv) demat Statement with United Bank of India, a Depository Participant (DP) showing the aforesaid shares of of CPAL in the account of the assesee. (v) The letter dated 8 th June. 2013 of KAFL informing the assessee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allited shares of KAFL as against the shares of CPAL in the ratio of 1:1. (vi) The Demat statement of the assessee with United Bank of India showing receipt of Shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of Ashika Stock Broking Ltd. Share broker though whom the assesee sold shares of KAFL in the FY 2013-14 relevant of the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s Ashika Stock Broking Ltd. By account payee chaeues. (ix) Demat statement showing delivery of shares of KAFL on sale of shares. 5.1 The Id AR submitted that the purchase of shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Investigation). Kolkata in the matter of transactions of KAFL. The Id AO relied on the statements of different persons including Sri Sunil Kumar dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The Id AR has shown that the list of beneficiaries provided by the these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4 The Id AR, on the other hand, relied on the ad interim exparte order dated 29 th March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible investors had been lured into the trading of shares of KAFL and had been entrapped in the price fluctuation of the script. This finding of SEBI supports the case of the assesee. In this case, the assessee was lured to purchase shares of CPAL, when he knew that the company allotted bonus shares in the ration of 1:55. The assesee sold that sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack in the file of individuals and HUFs in the from the bogus LTCG without paying income tax on it. In process the bogus Short Term Capital loss is also booked by the entitles who wants to reach reduce their Taxabili ty. 5.8 The Id AR submitted that there is not allegation by Shri Sunil Dokania and/or the Id AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the Id AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The Id. AR also referred to the statements of various other persons annexed with the Assessment order to show that one of the said persons names the assessee to have been benefitted by them in respect of LTCG claimed by the assesee. The Id AR submitted that the Id AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry unlade from BSE to find out the names of the buyers who ultimately bought the shares sold by the assessee, On the basic of such enquiry, the Id AO prepared a cash trail to allege that cash deposited in 5 th or 6 th layer were the unaccounted income of the assesee. It was his submition that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has ploughed back his own unaccounted money in the from of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the from of LTCG. The Id AR referred the judgement of Special Bench of Mumbai Tribunal in the case of GTC industries Ltd. Vs. ACIT [2017] 164 ITD 1 (Mumbai Trib.) (SB) The Tribunal observed as under. 46. Ultimately the entire case of Revenue upon the presumption that assesee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money, It is quite a trade law that suspicion howsoever strong may be but cannot be the basic of addition except for some material evidence on record. The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favorable factors in his side, The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to support huge losses claimed in the transactions of purchase and sale shares were stage managed . The Hon ble High Court held that the opinion of the Id AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the Id AO but he miserable failed have been the view expressed by the Id AO but he miserable failed to substantiate that . The High Court held the transaction were at the prevailing pirce and therefore the suspicion of the Id AO was misplaced and not substantiated . ( ii ) CIT V . Lakshmangarh Estate Trading Co . Limited [ 2013 ] 40 taxmann . com 439 ) ( Cal ) - In this case the Hon ble Calcutta High Court held that on the basic of a suspicion howsoever strong it is not possible to record any finding of fact, As a matter of fact suspicion can never take the place of proof . It was further held that in absence of any evidence of record, it is difficult it not impossible, to hold that the transactions of buying or selling of shares ware colorable transactions or were resorted to with ulterior motive . ( iii ) CIT V . Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assesee through banks . On these facts, the appeal of the revenue was summarily dismissed by High Court . 5 . 12 . The Id AR submitted before us that where the purchase and sale transaction are supported and evidenced by Bills, Contract Notes . Demat statements and bank statements etc . , the transactions of purchase of shares were accepted by the Id AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and / or the orders of SEBI and / or the statements of third parties . In support of the aforesaid submissions, the Id AR in addition to the aforesaid judgements, has referred to and relied on the following case :- ( i ) Baijnath Agarwal vs . ACIT [ 2010 ] 40 SOT 475 ( Agra ( ii ) ITO vs . Bibi Rani Bansal [ 2011 ] 44 SOT 500 ( Agra ) ( iii ) ITO vs . Ashok Kumar Banssal - ITA No . 289 / Agra / 2009 ( Agra ITAT ) ( iv ) ACIT vs . Amit Agarwal Others - ITA Nos . 247 ( Kol ) of 2011 ( Kol ITAT ) ( v ) Rita De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l - ITA No . 289 / Agr / 2009 ( Agra ITAT ) ( ii ) ACIT vs . J . C . Agarwal HUF - ITA No 32 / Agr / 2007 ( Agra ITAT ) 5 . 14 . The Id AR further submitted that the Id was not justified in taking an adverse view against the assessee in the ground of abnormal price rise of the shares and price rigging . It was submitted that there is not allegation in orders of SEBI and / or the enquiry report of the Investigation . Wing to the effect that the assessee and / or broker was a party to the price rigging or manipulation of price in BSE . The Id AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the Id AO was not justified in refusing to allow the benefit under section 10 ( 38 ) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- ( i ) ITO vs . Ashok Kumar Bansal ITA No . 289 / Agr / 2009 ( Agra ITAT ) ( ii ) ACIT vs . Amta Agarwal Others ITA Nos . 2478 ( Kol )/ of 2011 ( Kol ITAT ) ( iii ) Lalit Mohan Jalan ( HUF ) vs . ACIT ITA No . 693 / Kol / 2009 ( Kol ITAT ) ( iv ) Mukesh R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . , aregistered share and stock broker with BSE . , The assessee produced all evidences to explain the source of the amounts received by the assessee from M / s Ashika Stock Broking Ltd . The Id AO was not justified in assessing the sale proceeds of shares of KAFL as unexplained cash credit under section 68 if the Act . 5 . 17 The Id AR submitted that on the facts and circumstances of the case and on the basis of incontrovertible evidences produced by the assessee, the Id AO was not justified in concluding that the assessee s transactions relating to LTCG on sale of shares of KAIL were bogus, The Id CIT ( A ) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee s claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and / or on law by the Id CIT ( A ) , On the other hand, he assessee s transactions of LTCG were bogus ignoring all legal evidences furnished by the assesseee in support of the genuineness of the transactions resulting in LTCG . The Id AR prayed that the order of the ID CIT ( A ) be set aside and the exemption under section 10 ( 38 ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities/promotors/brokers/entry operators. In the instant case, the shares of CPAL were purchased by the assesee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL. The assessee was allotted equal Number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits roder to have a good retun on his investment. We find that the assessee and/or the broker Ashita Stock Broking Ltd. was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI S order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and/or Ashita Stock Broking Ltd s name is not reflected at all. Hence the allegation that the assessee and/or Ashita Stock Broking Ltd. getting involved in price rigging of KAFL shares fails. We also find that even the SEBI S order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 2 raised hereinabove is decided in the negative and in favour of the assessee. 8. The next common issue in the appeals relate to disallowance u/s 14A of the Act. The Id AR of the assessee submitted that the Id AO disallowed expenditure u/s 14A of the Act without recording any satisfaction in terms of section 14A(2) pf the Act read with Rule 8D(1) of the Rules, having regard to the accounts of the assessee. The assessee submitted before the Id AO that did not incur any expenditure in relation to exempt income except demat expenses which the assessee did not claim any deduction. The Id AR placing reliance on the judgement of Hon ble Calcutta High Court in the case of CIT vs. REI Agro Ltd. in ITAT No. 161 of 2013 submitted that the disallowance made by the Id AO be directed to be delated in the absence of satisfaction recorded by the Id AO with reference to the books of accounts examined by him. The Id DR vehemently relied on the orders of the lower authorities and argued that for the year under appeal, the provisions contained in Rule 8D(2) of the Rules are very much applicable and hence the some had been rightly worked out by the Id AO. 8.1. We have considered that rival ..... X X X X Extracts X X X X X X X X Extracts X X X X
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