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TMI Blog2017 (11) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... rranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting invo2lved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form 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 ld AO 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 ld AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of SOICL as undisclosed income of the assessee u/s 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of SOICL between 13.1.2010 and 2.3.2010 at ₹ 197.35 per share for ₹ 1,27,92,983.48. The assessee computed long term capital gains as under:- Sale Consideration for 65000 shares 1,27,92,984 Less: Cost 65,000 Long Term Capital Gain -Exempt 1,27,27,984 3.2. The assessee filed the following documents during the course of assessment proceedings:- a) Gift deeds, duly notarized, as evidence with respect to acquisition of 65000 shares; b) Income tax records of both the donors who had gifted the shares to assessee including their full address and PAN; c) Contract notes issued by SEBI registered stock brokers namely Toshith Securities (P) Ltd (SEBI Regn No. INB 030965439/Code No. 03/720) and P.Didwania Co. (SEBI Regn No. INB 030658515 / Code No. 03/711) with respect to sale of 65000 shares by the assessee through the prescribed online mechanism of Calcutta Stock Exchange Limited along with a summary sheet containing full particulars about such sale; d) Photocopy of bank statements and all relevant share ledgers wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso issued a notice u/s 131 of the IT Act 1961 to the assessee to appear on 20/03/2013 and to produce the donors but the assessee expressed inability to produce them on that day due to their pre- occupation. Thus the ld AO concluded that capital gains on the sale of shares of SOCIL could not be explained properly and therefore the ld AO treated the capital gains of ₹ 1,27,92,984 as cash credit u/s 68 of the IT Act 1961. 4. The assessee submitted that he had fully discharged the initial burden placed on him to furnish supporting evidences as regards the transactions claimed to have been carried out by him and had furnished all the evidences reasonably expected to be in his possession. The ld AO had not found anything irregular in the evidences submitted by the assessee. The assessee submitted that the distortion to the nature of the income has been made without examining the relevant evidence like contract notes, payments received against sale of shares, delivery instructions, relevant entries appearing in the bank statement of the assessee and in the bank statement of Kolkata brokers. He also submitted that none of the communication collected by the ld AO from the stock br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment banker will refute the simplistic and novice calculation of the Learned Assessing officer since the Sensex is an average of a bouquet of shares and not all move in tandem with the Sensex. The Learned Assessing Officer has questioned the validity of transactions occurring through The Calcutta Stock Exchange, perhaps, not realizing that the said exchange is one of the oldest authorized stock exchanges in the country and is recognized by Sebi and transactions happening through the Exchange are valid for the purposes of Income Tax Act, 1961. It appears that the Learned Assessing officer has exceeded his brief while trying to evaluate the Exchange. He has tried to develop a relationship between the earnings of the company and the stock price movement of the same. It is too simplistic and this mode is no more in vogue in the investment banking world. Some shares like Ross Muraka Finance Limited, Nargarjuna Fertilizers Limited etc. had substantial EPS but their stock price only reflected a fraction of the book PE of the shares. The world of stock market and stock price is an exceedingly complex on e and some of the best brains in the world are engaged in the evaluation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forgotten that India is a Union of States and free passage of goods, gifts and services has been guaranteed by the Constitution of India without any hindrance. On this count also it can be said that the assessment order is unconstitutional. d) On page four 11th line from the bottom the Learned Assessing Officer has held that the ''prices of the shares are rigged and having stated so, being a quasi- judicial authority, he ought to have taken action for the same which he has not done. He has again forgotten that the Government of India has appointed a regulatory body through statute namely SEBI to ensure smooth running of the stock exchanges. It appears that the learned Assessing Officer has questioned the working of such regulatory authority. Under the circumstances, since the Learned Assessing officer has gone extra territorially beyond the realms of power given to him and since all his surmises are based on prejudicial figment of his mind without having any connection with the material on record, thus, his rejection of the transaction of gift cannot be accepted and it is humbly requested that such a surmise of the Learned Assessing Officer should be struck down. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, as a measure of safety in some cases, the brokers insist on prior delivery of shares and more so in the case where the shares are thinly treated so that they can fully execute the sale order as issued by the clients as and when possible. Therefore, as required by the situation and the margin prescription issued by the stock exchange, the shares are delivered either on the day of transaction or a little prior to post the transaction. It is permissible. In the instant case, since the share was thinly traded, the stock market authorities had perhaps imposed a substantial mark to market margin which would cause the stock brokers to insist on delivery of shares prior to the execution of the transaction. The apathy of the Learned Assessing Officer towards deriving a fair assessment order is evident from the fact that the tabulation done by him on page 7 about the number of shares is not correct. The number of shares delivered on 21st January 2010 is not 4000 but 5000 and he has missed a transaction that occurred on 3rd February, 2010 amounting to 6500 shares. (Kindly refer to documents enclosed). It appears that the learned Assessing Officer was in a hurry 10 make the addition and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h credit. Your goodself will appreciate that in the instant case, pursuant to section 44AA or otherwise of the Income-tax Act 1961, the assessee is not required to maintain books of account and hence question of invoking section 68 does not arise. The above premise on which the addition has been made is itself erroneous. Further, the Learned Assessing Officer has questioned the credit worthiness of the Donors. In Additional CIT V. Hanuman Agarwal (1985) 151 ITR 150(PAT) it was held that the assessee is not bound with a duty to know the acceptability of the cash creditor. Where the assessee has officially filed full particulars about the creditor namely name and address, income tax number and confirmatory letter about the transaction and thereafter the department did not summon the creditor under section 131, any addition under section 68 was held unjustified. It was similarly held by the Bombay High Court in CIT v. U. M. Shah (1973) 90 ITR 396. In the instant case, the declaration of the Donors was filed, and reply to notices issued to them too were taken on record. Since there was no material on record for doubting the veracity of such declaration and reply, any addition unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 shares through the said broker in two lots, one for 4,000 shares on 17.9.2003 @ ₹ 86.06 per share and other on 19.9.2003 for the balance 4,500 shares @ 85.36 per share and delivered the possession of all these shares from his Demat Account to broker's account. In the process, the assessee had received two Account Payee cheques for ₹ 3,48,240 and ₹ 3,84,120 respectively and these are duly reflected in the assessee's bank account. In support of all these transactions, the assessee has filed copies of bills and contract notes of share broker, bank statement, details. of Demat account with the bank, Bye Laws of the Calcutta Stock Exchange and print-outs from some web sites on penny stocks. We further find that the A. O. has alleged that the assessee failed to produce the stockbroker, although in response to notice u/s. 133(6), the said share broker M/s. Bubna stock Broking Services Ltd. had filed copies of ledger account, purchase sale bills and contract notes before the A. O. also issued notice u/s. 133(6) to the Calcutta Stock Exchange Association and gathered information from them that no trading of the shares in question was done by the said share br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and we are in full agreement with the Tribunal that on mere suspicion the claim of the assessee should not be denied. (ii) Identical matter has been dealt with by the I. T.A. T , Mumbai Bench in the case of Mukesh R. Marolia vs. ACIT, which is relied upon by the assessee and reported in [2006]6 SOT 247 (Mum). In that case the A. O. observing that purchase and sale of shares were not reflected in records of Bombay Stock Exchange held that claim of the assessee regarding purchase of shares was bogus and no such shares were purchased by the assessee and, consequently, sale of shares was also bogus. The sale proceeds were, therefore treated as unexplained investment u/s. 69 of the Act,. This position was upheld by the CIT(A). The Tribunal allowing the assessee's appeal held as under:- (iii) The above circumstances have made out a clear case in support of the book entries reflecting the purchase and sale of shares and ultimately supporting the money received on sale of shares and finally investing the same in the purchase of flat. The chain of transactions entered into by the assessee have been properly accounted, documented and supported by evidence. (iv) Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital gains as unexplained cash credit hence all four grounds are disposed together. I have carefully perused the assessment order and the written submissions and explanation given by the learned authorized representative during the course of appellate proceedings. In my opinion, the appellant deserves to succeed. The AO carried out extensive investigation during the course of assessment proceedings but the main point which have not been properly considered by the him or have been totally ignored are as under:- a) Gift Deed with respect to gift of 50,000 shares and 15,000 shares totaling 65,000 shares by the donors to the assessee. As stated by the AO in his assessment order itself, the donors have admitted having made the gift. b) Demat account of the assessee reflected the entry and exit of the said shares while acquiring as well as selling. c) Particulars about the sale of such shares through SEBI Registered Stock brokers on the prescribed on line mechanism of a SEBI recognized Stock exchange. d) Contract notes issued by SEBI Registered Stock Broker with respect to sale of shares in terms of Securities Contract (Regularization) Act, 1956. e) Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank Ltd account no 0131062148900. The appellant had also filed his ledger account maintained in the books of account of the Stock Brokers and the transactions as claimed by the appellant are duly recorded therein. On page 5 of the assessment order I find that the AO has himself recorded the fact that the persons who donated the shares to the appellant were shares holders in the year 2008 2009. Thus the share holding of the donors were also verified by the AO from the list of share holders obtained by the AO. Further, during the course of assessment proceedings, it is seen that notices issued by the Learned Assessing officer to the Donors of the shares, the Stock Exchange both of them have confirmed the transactions. The AO observed that the shares sold through the broker P Didwania Co by the appellant were purchased by them as a counter party in the Stock Exchange electronic trading screen. I find that the AO without bringing on record the fact that the shares purchased by P Didwania Co were actually funded by the appellant in cash could not draw any adverse inferences. There is no bar in the law for a broker to be both a seller and buyer of the same script. A broker may ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed through recognized stock broker of the Calcutta Stock Exchange and all the payments made to the stock broker and all the payments received from stock broker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA NO.6f30 of 2008 is dismissed. 5.1. I find that all the evidences filed by the appellant have been duly verified and found to be true. The parties including the Donors, Stock Exchange replied and supported the claim of the appellant. The transaction is duly backed by gift deed, all receipts and issue of shares are through demat account, the sale proceeds are received by account payee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of ₹ 1,27,27,984/- as long term capital gain. 4. That the appellant craves leave to submit additional grounds of appeal, if any, at or before the time of hearing and/or alter, modify reframe any grounds of appeal at or before the time of hearing. 7. The ld DR argued that the ld CITA erred in deleting the addition made by the ld AO on the basis of the aforesaid findings and various observations made in the impugned appellate order. The ld DR submitted that the findings made in the assessment order of the ld AO demonstrated that transaction of the gift of shares were highly suspicious and the conduct of the broker involved in the sale of shares were also suspicious and the financial performance of the Company does not justify the high price of the shares and considering the various findings recorded in the assessment order, the addition made by the ld AO deserved to be upheld and hence the order of the CITA deserved to be reversed and the order of the ld AO be upheld. 8. In response to this, the Ld AR of the assessee stated that the ld CITA has considered the evidences on record and the legal submissions and the case laws and after considering the same, the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating a background of suspicion for making the addition on the assessee. The ld AR stated before us that the Company was incorporated in 1990 and in the website of the Calcutta Stock Exchange wrongly mentioned the date of listing to be 1969, this cannot be a reason to hold the sale of shares by the assessee to be bogus. He submitted that the Company was originally incorporated as G. Raj Financial Consultancy Private Limited on 21st May, 1990 under the Companies Act, 1956 as a Private Limited Company in the State of West Bengal. On 28th July, 1992 the Company was converted into a Public Company as G. Raj Financial Consultancy Limited. Subsequently, the Company s name was changed to Shivom Investment Consultancy Limited on 14th December, 1999. The Corporate Identification Number (CIN) of the Company is L74140WB1990PLC049044. The ld AR filed a copy of the Information Memorandum issued by the said Company before the Stock Exchanges dated 16/12/2004 and as per this the Capital structure of the Company has been stated to be as follows: - The ld AR thus stated that the Company went public in 1996, thus it is obvious that the listing of the shares of the Company would have happe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the Donors personal affairs or other issues which did not relate to the transaction being verified and therefore such irrelevant queries of the ld AO was not replied to by the Donors and such action cannot make the gift to be bogus. 8.5 The ld AR also brought to our notice that the Stock Brokers through whom the shares were sold in the Calcutta Stock Exchange and on such sale, Security Transaction Tax (STT) was duly paid had duly responded to the notice of the ld AO and all the relevant information regarding the transaction between the Brokers and the Assessee were duly provided to the ld AO. 8.6 The ld AR also stated that the data relating to the shareholders of the Company from 2007-2012 as reproduced in the order was rather supporting the case of the assessee, as the Donors name were duly reflected as share holders in the list of share holders from 2007 and this proves that the Donors had the shares in their possession and thus the gift of the shares were duly proved. The ld AR also brought to our notice that some other family members of the Donors were also holding the shares of the Company and they being from the same family, it is quite natural that their ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. It is the computer system of the Stock Exchange which will match the transaction and complete the same. Thus the entire transactions are independently fed into the system and the same can be verified by the stock exchange and the transactions are done transparently. Thus as per the ld AR, the allegation of the ld AO that such transactions were illegal hence the sale be treated as bogus is also not tenable. 8.9. The ld AR submitted that there is no allegation by any person whatsoever, that the assessee approached them for such arranging any bogus LTCG. As per the ld AR, in the online system of trading, the assessee did not know the names of the buyers and has no connection and/or relations with any such persons. The transactions of sale of shares were through online trading system through his broker from whom he received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation, it cannot be presumed that there could be any transfer of cash b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely the entire case of Revenue hinges upon the presumption that assessee 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 trite law that suspicion howsoever strong may be but cannot be the basis 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 favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee. 8.11 The ld AR submitted that there is no direct evidence against the assessee brought on record by ld AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. (iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the ld AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the ld AO s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. (v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the ld AO failed to bring on record any evidence to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi Others vs. DCIT IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO ITA No. 201 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT ITA Nos. 1256/PN/2012 (Pune ITAT) (x) CIT vs. Sudeep Goenka [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta Others vs. ACIT ITA Nos. 4512 4513/Ahd/2007 (Ahmedabad ITAT) 8.14 The ld AR further submitted before us that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from M/s P Didwania Co and Toshith Securities P Ltd was not satisfactorily explained by the assessee. There is no evidence on record to disbelieve that the assessee sold shares of SOICL through M/s P Didwania Co and Toshith Securities P Ltd., a registered share and stock broker with CSE. The assessee produced all evidences to explain the source of the amounts received by the assessee from M/s M/s P Didwania Co and Toshith Securities P Ltd and these brokers and the Stock Exchange also verified the transactions entered by the assessee. The ld AO was not justified in assessing the sale proceeds of shares of SOICL as unexplained cash credit under section 68 of the Act. 8.17. The ld AR submitted that on the facts and circumstances of the case and on the basis of incontrovertible evidences produced by the assessee, the ld AO was not justified in concluding that the assessee s transactions relating to LTCG on sale of shares of SOICL were bogus. Thus as per the AR, the ld CITA was justified in deleting the addition made by the ld AO and allowing the appeal after properly appreciating the facts of the case and the evidences produced by the assessee in support of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pushpa Singh who had gifted 15,000 shares was assessed to tax under PAN AGJPS5134L and had filed her return of income for the AY 2010-2011 (which is available in page 32 of paper book) , the said Donor had vide her Gift Deed which was duly affirmed before the Notary Public declared (which are available in pages 29-30 of paper book) that the shares were gifted by her to the Donor and also that the shares were held by her since 30-03-2003 and these shares were held in his demat account no. 10046924 DP ID No. IN 301740. We also find that the said donor replied to the notice issued u/s 133(6) of the IT Act 1961 on 09-03-2013 to the ld AO ( which is available in page 35 of paper book), the Donor confirmed the fact of making the gift and delivering the shares by transfer to the Demat Account of the assessee. The copy of the demat account of the Donor are also available in Pages 38-39 of the Paper Book which shows that the Donor was holding 40,000 shares of SOCIL as on 31-03-2006. Thus the assessee has substantiated and the Donors have duly confirmed the transaction of gift, therefore the ld AO was not justified in doubting the gift of shares made to the assessee. 9.1 We further find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany involved were false or fictitious. It is finding of the assessing officer that the scrips of this company was executed by a broker through cross deals and the broker was suspended for some time. It is assessee s contention on the other that even though there are allegations against the broker, but for that reason alone the assessee cannot be held liable. On this point the Tribunal held As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied the loss of ₹ 25,30,396/- only on the basis of information submitted by the Stock fictitious. AO has also not doubted the genuineness of the documents placed on record by the assessee. AO s observation and conclusion are merely based on the information representative. Therefore on such basis no disallowance can be made and accordingly we find no infirmity in the order of ld. CIT(A), who has rightly allowed the claim of assessee. Thus ground No. 1 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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