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TMI Blog2018 (9) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... nces were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation - claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. - Decided in favour of assessee - I.T.A. No. 604/Kol/2018 - - - Dated:- 5-9-2018 - Shri A. T. Varkey, JM And Shri M. Balaganesh, AM For the Appellant Shri Miraj D. Shah, AR For the Respondent Shri Saurabh Kumar, Addl. CIT ORDER Per Shri A.T.Varkey, JM This appeal preferred by the assessee is against the order of the Ld. CIT(A) 10, Kolkata dated 15.02.2018 for AY 2014-15. 2. The main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition made by AO of ₹ 11,49,425/- u/s. 68 of the Act, which the assessee claimed as LTCG from sale of scrips of M/s. Essar India Ltd., without providing copies of materials and without giving op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given statement. Further, during the course of assessment proceedings, reference to statement of one Shri S. Dokania was also made. Further, the AO had reproduced the entire modus operandi of bogus LTCG, which has been stated by SEBI in its various orders. After considering the abovementioned facts and documents, the AO issued a show cause notice on the assessee in respect of LTCG transactions in the scrips of M/s. Essar India Ltd. and in response to the said notice the appellant stated that the said transactions were carried out through BSE and banking channels and could be verified by AO The assessee further stated that STT were deducted on the sale of said scrips. However, the AO was not convinced with the assessee s contention. Instead the AO relied on his fundamental analysis, human conduct and preponderance of probabilities, and concluded the said transactions to be sham and bogus. The A.O after placing reliance on various judicial pronouncements, added back the entire amount of sale proceeds of ₹ 11,49,425/- as unexplained cash credit u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) which was dismissed. Aggrieved, the assessee is be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Further, according to Ld. AR, the AO is also bound to provide an opportunity of cross examination in respect of statements adverse to him, which were recorded behind the back of the assessee and which were relied upon before taking any adverse view against the assessee:- 6. The Ld. AR drew our attention to the case of KALRA GLASS FACTORY VS SALES TAX TRIBUNAL SUPREME COURT 167 ITR 488 OF 1987 wherein it has been held that the elementary principle of natural justice as applied to Income Tax proceedings, is that the assessee should have the knowledge of the material that is going to be based against him so that he may be able to meet it where for instance the statement of a person is recorded behind the back of the assessee, but not tested by cross examination, such a statement cannot be allowed to be used to the prejudice of the assessee. Also Hon'ble Supreme Court in the case of DHAKESWARI COTTON MILLS LTD. vs. C.LT. (25 ITR 775) has emphasized the issue of applicability of 'The Principle of Natural Justice . In that case SLP was filed by the assessee under the provisions of Article-136 of the Constitution, contended that, the assessment order which was passed u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so placed on the judgment of Hon'ble Apex Court in the case of Uma Charan Shaw Bros, Co, vs, CIT (37 ITR 271). It has been further held in the following cases that suspicion howsoever strong cannot take the place of proof: a) 37 ITR 151 (SC) Omar Salay Mohammad Salt vs CIT b) 26 ITR 736 (SC) Dhirajlal Girdharilal vs CIT c) 26 ITR 775 (SC) Dhakeshwari Cotton Mills Ltd. vs CIT d) 37 ITR 288 (SC) Lal Chand Bhagat Ambica Ram vs CIT 10. Further, in the case of Raj Kumar Agarwal (ITA No. 1330/K/07), reliance was placed on Hon ble Calcutta High Court's decision in the case of Cabro Industrial Holdings Ltd. (244 ITR 422) wherein it was held that the claim of the assessee should not be denied on mere suspicion. 11. According to the Ld. AR, during the course of assessment proceedings despite asking for information and documents, the AO failed to provide the copies of information and statements which were supposed to have been collected behind the back of the assessee, thereby violating the principles of natural justice as laid down in following cases:- KALRA GLASS FACTORY VS SALES TAX TRIBUNAL SUPREME COURT 167 ITR 488 OF 1987 DHAKESWARI COT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R supra, with regard to impleading the assessee for drawing adverse inference which remain unproved based on the evidences available on record are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the ld AR are also not reiterated for the sake of brevity. 15. It has also been held in the said order that- Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations levelled by the AO against the assessee which in our considered opinion, has no legs to stand in the eyes of law 16. According to Ld. AR, the instant case is similar to the case of Manish Kumar Baid and Mahendra Kumar Baid, as the AO had not brought on record neither any material nor conclusive evidence in support of his allegations and, therefore, no additions should have been made against the assessee. 17. It was urged before us by the ld. AR that the appellant had discharged his onus of proving the genuinity of the said transactions by submitting all the documents evidencing purchase and sale and all the relevant bank statements. Therefore, according to Ld. AR, the onus was on the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d involved in rigging. Not only that the AO failed to give copies of these two persons statement referred to by AO and that of Shri S. Dhokani whose statement was also referred to by AO to justify the suspicion against the appellant, makes the order bad for violation of natural justice. According to Ld. AR, no statement against assessee can be used by AO to draw adverse inference unless a copy is given to assessee and opportunity to cross examine is allowed. 19. According to Ld. AR, the transactions in the scrips were legally entered into by the appellant through its registered broker and all the payments were made and received through banking channels. The copies of contract notes, de-mat statement and bank statements have been submitted to the AO during the course of assessment proceedings. The Ld. AR drew our attention to the following cases wherein it has been held that when the purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through de-mat accounts, the shares were purchased and sold through recognized broker and the sale consideration were received through banking mode, the transactions cannot be treated as bogus . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of lower authorities. Hence this ground of appeal of the assessee is allowed. 21. Further, our attention was drawn to the case of ITO vs Arvind Kumar Jain HUF (ITA No. 4862/Mum/2014) (Pronounced on 18.09.2017), the Tribunal (Mumbai) had held that if the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains earned on the said transactions cannot be treated as unaccounted income u/s 68, The fact that the broker was tainted and violated SEBI regulations would not make assessee s transactions bogus, 22. Further, our attention was drawn to the case of Kiran Kothari HUF Vs lTO. Wd - 35(3) Kol. (lTA No. 443/Kol/20l7), Pronounced on 15.11.2017, the Tribunal had held as under: 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 shares resulting in long term capital gain, Neither these evidences were found by the A0 nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this tribunal in the case of DCIT ys Sunita Khemka in ITA Nos, 714 to 718/Kol/2011 dated 28.10,2015 and in the case of ITO vs Rajkumar Agarwal in ITA No, 1330 (Kol) of 2007 dated 10.8.2007 wherein it was held that, when purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through demat account maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques. the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money. 23. Also in the case of Surya Prakash Toshniwal HUF vs ITO (ITA No. 1213/Kol/2016) (AY 2005-06) (date of pronouncement 11.01.2017), the Tribunal while allowing the appeal of the assessee has observed as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Calcutta High Court observed as It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried through recognized stock broker and all the payments received from stock broker through 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.620 of 2008 is dismissed. 25. The Ld. AR further relied on the judgement of Hon'ble Bombay High Court in the case of CIT vs Lavanya Land Pvt. Ltd. (2017) 83 taxmann.com 161 (Bom) to contend that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the onus to disprove the same is on revenue. He referred to the judgement of Hon ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. As per the ld AR the AO/ CIT(A) was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares. There is no evidence on record to disbelieve that the assessee sold shares through registered share and stock broker with BSE. The assessee produced all evidences to explain the source of the amounts received by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivery instructions to the broker by way of proof that all these transactions were genuine. However, in my considered view of the matter, it is precisely this elaborate paperwork that strengthens the matter relating to the bogus benefit of the LTCG, which clearly has been schemed, preplanned and executed with malafide intelligence and precision. Therefore all these papers are mere documents and not any evidence. The whole gamut of transactions are unnatural and highly suspicious, and therefore the rules of SUSPICIOUS TRANSACTIONS ought to apply in the instant case. There are grave doubts in the story propounded by the assessee before the authorities below. None of the material produced before the Ld. AO by the assessee-appellant are enough to justify the humongous gains accruing to the assessee by way of Capital Gains. In my considered view the banking documents are mere self serving recitals. 31. We note that the assessee has produced before the Ld. CIT(A) (i) paper relating to the application for shares, (ii) allotment of the shares, (iii) share certificates, (iv) payment by cheque, (v) necessary papers filed before the Registrar of Companies, (vi) the name of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay Stock Exchange. ii) The shares have been purchased against sale of another share and the balance payment has been made through a/c payee cheque. iii) The relevant copy of Bank Statement showing the balance payment was produced before us and CIT(A)/AO. iv) The shares were not allotted through a Public Offer but were purchased in secondary market through a recognized Stock Exchange. v) The Contract Notes for purchase of aforesaid shares is enclosed (Page 2 of paper book) vi) The complete details of the broker is as follows: Name: R L Agarwala Capital Markets Ltd. PAN: AABCR8213Q Address: Martin Bum House, 2nd floor, suite no. 207, 1, R. N. Mukherjee Rd, Kolkata - 1 Contact no. (033) 2248-2458 vii) The shares were purchased in de mat form. viii) The De mat a/c was opened in 2006. The name of DP is East India Securities Ltd. DPID being IN300327. Its address is as follows: DA-14, Sector-1, Salt Lake City, Kolkata-700 064 ix) The De mat Statement for the year 01/04/2011 to 30/06/2016 was produced before us and CIT(A)/AO (Page 13 14 of paper book) x) The shares were credited to appellent de mat a/c on 28.03.2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has failed to bring on record any material contained in the purported reports which are having so called adverse impact on the assessee. We further note that the company under scanner as recorded by the AO at page 4 of his order was having shareholder fund as on 31.03.2014 of ₹ 21.82 crores and was having assets worth ₹ 41.50 crores and a turn-over of ₹ 15.72 crores and profit of ₹ 10 lacs. Thus the allegation that these companies did not have financial credentials at the time of purchase of shares or sale of shares is not correct and so is perverse and therefore we do not subscribe to the said finding. 34. At the cost of repetition, we find that the transactions of sale of shares by the assessee was duly backed up by material/evidence including contract notes, demat statement, bank account reflecting transactions, the shares having been sold on the online platform of the stock exchange and each trade of sale of shares were having unique trade number and trade time. It is not the case of the AO that the shares which were sold on the date mentioned in the contract note were not the traded price on that particular date. The AO doubted the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infirmity in the order of the ld. CiT(A), who has rightly allowed the claim of the assessee. This ground no.1 of the revenue is dismissed. We agree with the reasoning of the tribunal on this point also. We do not find any reason to interfere with the impugned order. The suggested question, in our opinion do not raise any substantial question of law. 35. In the light of the documents stated in para 30 at Page14(supra) we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, 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 which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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