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TMI Blog2018 (9) TMI 1683X X X X Extracts X X X X X X X X Extracts X X X X ..... l/2018, ITA No.2024/Del/2018, ITA No.2025/Del/2018, ITA No.2026/Del/2018, ITA No.2027/Del/2018 And ITA No.2028/Del/2018 - - - Dated:- 25-9-2018 - SHRI R. K. PANDA, ACCOUNTANT MEMBER For The Assessee : Shri Kapil Goel, Adv. For The Department : Shri Atiq Ahmed, Sr.DR ORDER PER R. K. PANDA, AM : The above batch of eight appeals filed by the respective assessees are directed against the separate orders of the ld. CIT(A), Faridabad relating to assessment year 2014-15. Since identical grounds have been taken by the respective assessees in their appeals, therefore, these were heard together and are being disposed of by this common order for the sake of convenience. 2. First I take up ITA No.2021/Del/2018 in the case of Shoubit Goel (HUF) as the lead case. Facts of the case, in brief, are that the assessee (HUF) is deriving income from trading in the name and style of M/s Shobhit Goeel HUF and interest income from bank and unsecured loans given to different parties. It filed its return of income on 31.12.2014 declaring total income of ₹ 4,43,870/-. The assessee, in the said return, has claimed exemption of ₹ 19,14,520/- u/s 10(38) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rig the price of the stock and gradually raise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary, who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 4. The Assessing Officer further observed that the price of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the operator of the scrip. An Operator is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LTCG/STCG in their books and arranges the same through the scripts of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of survey at the business premises of M/s Intellect Stock Broking Pvt. Ltd. at 95, Sarat Bose Road, 3rd Floor, Kolkata 700026 he has confirmed on oath that he has provided and accommodated bogus long term capital gain entries. The Assessing Officer referred to the various questions put to him and accordingly issued a show cause notice to the assessee dated 05.12.2016 asking him to explain why the exemption claimed u/s 10(38) should not be disallowed. In the said notice, he further referred to the statements recorded in the case of seven other persons who had stated that M/s Unno Industries Ltd. was engaged in providing bogus long term capital gains and short term capital gains through penny stock. 7. The assessee in his reply dated 13.12.2016 submitted that the comments given by Shri Amit Dalmia and others in the statements are wrong, fabricated and denied. They might have given the statement to avoid their own liabilities. The assessee requested for providing an opportunity to cross examine the persons stated in the letter issued by the Assessing Officer. It was argued that the documents regarding purchase, sales, STT paid and period of holding are already given. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mohini Goel 2024/Del/2018 20,88,749/- 4. Naina Agarwal 2025/Del/2018 22,64,521/- 5. Shyam Sunder Bansal 2026/Del/2018 22,97,500/- 6. Nand Kishore 2027/Del/2018 22,19,420/- 7. Mayank Goel 2028/Del/2018 20,59,711/- 10. In appeal, the ld. CIT(A) upheld the action of the Assessing Officer. While doing so, he observed that the assessee had purchased 80 shares of M/s Pinnacle Vintrade Ltd. offline (not through recognized stock exchange) for ₹ 1,00,000/- on 20.10.2011 through broker, Uniglory Developers Pvt. Ltd. After getting bonus shares in the ratio of 90:1 on 20.07.2012 and conversion of one shares of M/s Pinnacle Vintrade Ltd. into 10 shares of M/s Unno Industries Ltd. under the scheme of amalgamation by the order of Hon ble High Court of Bombay, the assessee received 72,800 shares of M/s Unno Industries Ltd. The assessee sold these shares of M/s Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made basis of addition, thus resulting in invalidating the entire proceedings. 4. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the action of ld AO in making addition of ₹ 19,14,520 without appreciating that burden to prove that transaction is bogus/sham has remained un-discharged from side of revenue. 5. That on the facts and in the circumstances of the case and in law, both ld CITA and ld AO erred in making subject additions without appreciating that the modus operandi relied extensively in impugned orders is never co-related even remotely to the facts of the present case as there is no iota of evidence brought on record which can display that assessee herein has inducted certain cash at the time of sale to certain indentified broker/middleman/syndicate member who has in turn introduced certain identified artificial paper company for alleged parking of said cash to buy the shares sold by the assessee which theoretical trail has remained inchoate completely nullifying the entire basis of the addition. 6. That on the facts and in the circumstances of the case and in law, ld AO erred in making subject additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd only from finance act 2017 with prospective effective from AY 2018-2019, amendment is made in section 10(38), prior to which such gains would remain exempt. 12. That on the facts and in the circumstances of the case and in law, ld CIT-A erred in sustaining the action of ld AO in applying section 115BBE which is out rightly bad in law. 13. That the appellant craves leave to add add/alter any/all grounds of appeal before or at the time of hearing of the appeal. 12. The ld. counsel for the assessee strongly opposed the order of the ld. CIT(A). He submitted that the assessee had requested for the cross examine of the persons whose statements have been used by the Assessing Officer for making the addition. However, such request was indirectly turned down by the Assessing Officer by asking the assessee to go to office of the DDIT (Inv.), Kolkata and cross-examine the concerned persons before the DDIT, Investigation Wing. He submitted that the Assessing Officer has invoked the provisions of section 68 which are not applicable to the facts of the present case because the said provisions are applicable where any sum is found credited in the books of the assessee maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of exemption u/s 10(38) and invoking of the provisions of section 68 is not justified in the instant case especially when the shares were purchased on 28.10.2011 through brokers. The shares were sold through HDFC Securities Ltd. and STT was paid on such sales and all these facts are not controverted by the Revenue. Their action is only on the basis of presumption and surmises which is not permissible in income-tax proceedings. Referring to various decisions enclosed in the Paper Book, he submitted that under identical circumstances the various Benches of the Tribunal have deleted such addition. Therefore, the order of the ld. CIT(A) be set-aside and the grounds raised by the assessee be allowed. 16. The ld. DR on the other hand heavily relied on the order of the ld. CIT(A). He submitted that it is impossible and improbable that the shares of the company, whose business is not known to the general public, will appreciate 22 times over a period of less than 2 years. He submitted that during the course of investigation at the business premises of M/s Intellect Stock Broking and Others, the statement of Shri Amit Dalmia was recorded who had clearly and categorically stated that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer. It is the submission of the ld. counsel for the assessee that the request of cross-examination was not effectively provided by the Assessing Officer since the Assessing Officer asked the assessee go to Kolkata and avail the opportunity of cross-examination in the Office of the DDIT, Investigation Wing. Further, the statements so recorded from different persons do not give any case specific or transaction specific evidence relating to the assessee. Nothing adverse has been given by those persons and no such adverse material was confronted to the assessee. There is no evidence whatsoever on record to suggest that the assessee s own money has come back to the assessee. It is also his submission that the entire addition is based on presumptions and surmises. Since the transactions were through banking channels and through regular brokers of the stock exchange and when the transactions are fully supported by documentary evidences, therefore, the same cannot be brushed aside merely on suspicion and surmises. 18. I find merit in the above argument of the ld. counsel for the assessee. It is an admitted fact that the shares were sold through national stock exchange and HDFC Securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out as to how the figure of ₹ 12.59 lacs has been worked out ignoring the fact that the assessee himself in his reply to the AO had tried to explain the source of the receipts of ₹ 12,59,000/- instead of challenging the working out of the said figure by the AO? 3. The first three questions of law raised in this appeal are covered against the appellant by an order and judgement of a Division Bench of this Court dated 16.02.2017 in ITA-18-2017 titled as The Pr. Commissioner of Income Tax (Central), Ludhiana Vs Sh. Hitesh Gandhi, Bhatti Colony, Chandigarh Road, Nawanshahar. 4. The issue in short is this: The assessee purchased shares of a company during the assessment year 2006-2007 at ₹ 11/- and sold the same in the assessment year 2008-2009 at ₹ 400/- per share. In the above case, namely, ITA-18-2017 also the assessee had purchased and sold the shares in the same assessment years. The Assessing Officer in both the cases added the appreciation to the assessees income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees income from undisclosed sources. In ITA-18-2017 also the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Sh. Sanjay Vohra and Sh. Bidyoot Sarkar as referred in the assessment order and the report of the Investigation Wing were not confronted to the assessee and above statements were also not subject to cross-examination on behalf of the assessee. Therefore, such evidences cannot be read in evidence against the assessee. The order of the SEBI was also not confronted to the assessee. AO did not mention any such fact in assessment order. More so in those reports and statements, the name of the assessee has not been referred to. Ld. Counsel for the assessee, therefore, rightly contended that the twin conditions of section 10(38) of the Act have been satisfied in the Page | 24 ITA No.3035/Del/2018 case of the assessee. The assessee has been able to prove that she has entered into the genuine transaction of purchase and sale of shares and the sale consideration is received from broker through banking channel. The brokers have not denied the transaction with the assessee. The assessee rooted the transaction of sale of shares through recognized stock exchange after making payment of STT. In similar circumstances, ITAT SMC Bench, Delhi in the case of Meenu Goel vs ITO (supra) following the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with any of the evidence collected in the investigation done by the DIT(Inv.), Kolkata. Evidence collected from third parties cannot be used against the assessee without giving a copy of the same to the assessee and thereafter giving him an opportunity to rebut the same. 9. The AO further relies on the shop increase of 31000% of the value of shares over the period of 2 years. Though this is highly suspicious, it cannot take the place of evidence. The Hon'ble Supreme Court has stated that suspicion however strong cannot be the basis for making an addition. The evidence produced by the assessee listed above proves his case and the AO could not controvert the same by bringing on record any evidence. The evidence said to have been collected by the DIT (INV.), Kolkata and the report is not produced before this Bench. 10. I now discuss the case law on the subject. The Hon'ble Calcutta High Court in the case of CIT, Kolkata-III vs. Smt. Shreyashi Ganguli reported in [2012] (9) TMI 1113 held as follows: 1. Whether on the facts and circumstances of the case, the order of the Ld.. Tribunal is perverse in law as well as on facts in deleting the addition made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver 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 on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. ( iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) - In this case the Hon'ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI's action. However the transactions were as per norms and suffered 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 AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the 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 that income from LTCG is exempted u/s 10(38) of the Act. For coming to such a conclusion we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e brokers and or the Company. In absence of any evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is also to be seen that in this case, the shares were held by the Donors from 2003 and sold in 2010 thus there was a holding period of 7 years as per Section 49 of the Act and it cannot be said that the assessee and the Donors were making such plans for the last 7 years to rig the stock price to generate bogus capital gains that too without any evidences whatsoever. 9.2 It is also pertinent to note that the assessee and / or the stock broker M/s P Didwania Co and Toshith Securities P Ltd., both registered share and stock brokers with Calcutta Stock Exchange had confirmed the transaction and have issued legally valid contract notes under the Law and such contract notes are available in pages 41-52 of the Paper Book. We find that the Hon'ble Calcutta High Court in the case of Pr CIT Vs Rungta Properties Private Limited ITAT No 105 of 2016 dated 8th May 2017 in a similar issue dismissed the appeal of the Department by making the following observations: ( 11) On the last point, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We also find that the ld CITA rightly relied on the decision of the Hon'ble High Court at Calcutta in the case of ALPINE INVESTMENTS in ITA No. 620 of 2008 dated 26th August 2008 wherein the Hon'ble Court held as follows: It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of the Calcutta Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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