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TMI Blog2018 (8) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bonafide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax. - Decided in favour of assessee. - I.T.A No. 2281/Kol/2017 - - - Dated:- 20-7-2018 - Shri J.Sudhakar Reddy, AM And Shri S.S. Viswanethra Ravi, JM For The Appellant : Shri Subash Agarwal, Advocate For The Revenue : Shri Saurabh Kumar, Addl. CIT Sr. DR ORDER Per J. Sudhakar Reddy, AM This is an appeal filed by the assessee, directed against the order of the Commissioner of Income Tax (Appeals)- 10, Kolkata passed u/s. 250 of the Income Tax Act, 1961(the Act ). 2. The assessee had filed return of income on 16. 07. 2014 disclosing total income of ₹ 4, 63, 515/-. This was processed u/s. 143(1) of the Act and subsequently selected for scrutiny. The assessee had claimed exemption on income from long term capital gains of ₹ 2, 18, 13, 073/-. This gain was earned from sale of fifty thousand shares of M/s Cressenda Solution Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period, in which manipulations are done to raise the market price, is extremely thin. iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares. vi The sharp rise in market price of the shares of these entities is not supported byfundamentals of the company or any other genuine factors. vi. An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG companies during the period when the shares were made to rise which implies that they had contributed to such price rise. vii. Names of most of the LTCG companies are changed during the period of the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee pointed out elaborate documentation such as: i) Application of shares. ii) Allotment of shares. iii) Share Certificates iv) Payment by cheques v) Filings before Registrar of Companies. vi) Proof of amalagamation of companies. vii) Copies of bank statement, viii) Bank contract notes. ix) Delivery instruction to the broker etc. d) The elaborate paper book is filed to strengthen the matter relevant to the bogus claim of LTCG, and this is clearly been schemed and pre-planned with malafide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities below. Banking documents are mere self-serving recitals. 5. Thereafter, he referred to a number of judgments relating to human behavior and preponderance of probabilities and upheld the addition made by the Assessing Officer by relying on what he calls rules of Suspicious transactions. Aggrieved the assessee is in appeal before us. 6. The ld. Counsel for the assessee reiterated the contentions raised by the assesseebefore the lower authorities. The sum su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the stock exchange in variance to the prevailing market price at any point of time. Hence, the assessee cannot be, nor is supposed to be aware of and know the identity of the persons, who have sold the shares at the time of purchase of the shares by the assesseeand purchaser of the shares at the time of sale of the said shares by the assesseeat the Stock Exchange. c. It is further submitted that the share price is always determined by the market mechanism at any given point of time because there is a robust system of the stock exchange which is transparent, open and equitable, and the assessee has also sold the shares on such a platform at a price which was a reflection of the market price derived through the interplay of the forces of market demand and supply. d. In the instant case, the assessee is not connected with Cressanda Solutions Ltd. or the amalgamated company or their promoters, directors or any other person who exercises any control over Cresssanda Solutions Ltd or the amalgamated company or any so-called entry operator. As a matter of fact, the assessee has never indulged in any such questionable activity nor has been part of any modus operandi as stated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order relied upon the purported statements of various alleged operators on the basis of which the Ld. A. O. had drawn adverse inference in the instant case. It is worthy to note that nowhere any of them has ever named the assessee in the alleged manipulation. Further, the Ld. A. O. did not provide any opportunity to cross examine the said persons. It is a well-settled principle of law that no credence can be given to the statement/report of any person given behind the back of the assessee unless any opportunity to cross examine him is afforded to the assessee. j. That the assessee conducted all the transactions through a recognized share broker and received and made the payments through account payee cheques. It is submitted that the genuine transactions cannot be and should not be treated as ingenuine merely on an arbitrary view of suspicion. k. The A. O. s contention that the company in question had insignificant business operation, which fact does not support the unprecedented rise in its price is also of no consequence. It is a well-known fact in the stock market that share price movement has very often, no correlation with the fundamentals of the company. The pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Theassessee had made an application for allotment of 50000 equity shares of Smart champs IT and Infra Ltd. and she was allotted the share on 3rd December 2011 (copy of Application form, intimation of allotment and share certificate Paper Book at page 8 to 10). 2. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money and payment made to Smart Champs IT Infra Ltd. for such sharesallotted is placed in the Paper Book at page no. 11). 3. Annual return no. 20B was filed with Registrar of companies by Smart Champs IT Infra Ltd showing the assessee s name as shareholder (copy of annual return no. 20B filed with Registrar of companies by Smart Champs IT Infra Ltd. is placed in the Paper Book at page no. 12 to 18. ) 4. Theassessee lodged the said shares with the Depository M/s. Eureka Stock Share Broking Services Ltd. with a Demat request on 11th February, 2012. The said shares were dematerialized on 31st March, 2012 (copy of demat request slip along with the transaction statement is placed in the paper book at page no. 19 to 21). 5. On 24. 01. 2013, the Hon ble Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesitonwas part of this scam. The chain of events and the live link of the assesee s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation s office by way of statements recorded etc. has to also be brought on recordin each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assesee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aran Shah Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale price are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisations. Courts of law are bound to go by evidence. 16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, we do not find that the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes, ---this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about ₹ 45, 000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India v. T. R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. , AIR 1964 SC708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448;Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of CentralExcise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944, considered a similar issue i. e. permission with respectto the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowedto cross-examine the representatives of the firm sconcern, to establish that the goods in question had been accounted for in their books of accounts, andthat excise duty had been paid. The Court held that such a request could not be turned down, as the denialof the right to crossexamine, would amount to adenial of the right to be heard i. e. audi alterampartem. 28. The meaning of providing a reasonable opportunity to show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to beborne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the Assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the Assessee. It would be pertinent tonote that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the Assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal I sconcerned, we find that rejection of this plea is total lyuntenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Both the parties are confirming the transactions which have beenduly supported with the books of accounts and bank transactions. Theld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allowthe common grounds of assessee s appeal. [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has beenshown to us who would negate the Tribunal s finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set off acts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed. b) The JAIPURITAT in the case of VIVEKAGARWAL[ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely onthe orders of the AO/CIT (A). We note that in the absence of material/evidencethe allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of sharesresulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of thecase and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and theauthorities below was not justified in rejecting the claim of the assessee thatincome from LTCG is exempted u/s 10(38) of the Act. Further in Page 15 Para 8. 5 of the judgment, it held: We note that the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore direct the AO to delete the addition. f) The BENCH A OF KOLKATAITAT in the caseof SHALEEN KHEMANI [ITA No. 1945/Kol/2014]order dated 18. 10. 2017 held as under vide Page 24 Para 9. 3: We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand inthe eyes of law. We find that the ld DR could not controvert the arguments ofthe 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 involved in price rigging of SOICL shares fails. It is also amatter of record that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of VIVEK MEHTA [ITA No. 894 OF2010] order dated 14. 11. 2011 vide Page 2 Para 3 held as under: On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16. 3. 2001 and sale thereof on 21. 3. 2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed. i) The Hon ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I. T. A. No. 22/Kol/2009 dated 29. 04. 2009 at para 2 held as follows: The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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