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TMI Blog2018 (11) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ies below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act - Decided in favour of assessee. 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 note that though the department was aware that the assessee had purchased the 25000 shares of M/s. NFGL in AY 2013-14, for 32,21,269/- has not reduced the same from the total sale consideration of 2.16 cr. It is elementary that income can be computed only after defraying the cost. So the action of AO to add the entire sale consideration of 2.16 cr. itself is arbitrary exercise of power and cannot be sustained. Therefore, the action of the Ld. CIT(A) in confirming the addition of entire sale consideration of M/s. NFGL is perverse and is directed to be deleted. Consequently, the addition of 5% as commission to the tune of 10,82,460/- cannot be also sustained and ordered to be deleted. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 30 nos. of different shares of companies including Reliance, Infosys, L & T etc. and it was thus contended that this transaction with M/s. NFGL was not the single investment which assessee carried out through this broker. Thus, according to Ld. AR, the AO erred in finding that the assessee had purchased shares of M/s. NFGL in off market and not through established stock exchange. The Ld. AR drew our attention to page no. 6 of the paper book wherein we note that the assessee had purchased on 13.06.2012, 25000 shares at cost price of ₹ 128.25 of M/s. NFGL wherein the assessee had remitted STT of ₹ 4007.81 and that the transaction has happened through M/s. M. Prasad & Co. Ltd. which is a registered member of the Bombay Stock Exchange. The Ld. AR drew our attention to page 18 of the paper book which shows that the amount in question i.e. ₹ 32,21,216/- has been transferred on 14.06.2012 from assessee's account to the registered broker's account i.e. of M/s. M. Prasad & Co.. The Ld. AR drew our attention to page 26 of the paper book which is the de mat transaction statement wherein we note that on 15th June, 2012 this 25000 shares have been deposited of M/s. NFGL by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FGL in FY 2012-13 was duly recorded in the balance sheet and the return was processed by the department u/s. 143(1) of the Act thereby the department has accepted the purchase of shares of M/s. NFGL, however, when sales of the same scrips happened it was not accepted by the AO which action of the AO, according to Ld. AR, was unjustified and need to be set right. The Ld. AR further pointed out that the AO in his eagerness to somehow hold that transaction of M/s. NFGL bogus has erroneously made a factual finding that purchases of these shares happened off market when the fact was that the purchase of M/s. NFGL shares were made through Bombay Stock Exchange. The Ld. AR pointed out that the evidence and documents furnished by the assessee before the authorities below were neither found to be false nor fabricated. The Ld. AR submitted that the AO doubted the genuineness of the sale transaction on the basis of some purported orders of the SEBI and/or the Investigation wing. However, the AO has merely mentioned the date of letter issued by the Director of Investigation. Save and except the date of the letter, according to Ld. AR, there is nothing brought on record by the AO as to how the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to 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 including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. In the said case, the Hon'ble High Court at Para 21 held that in absence of any material to show that huge cash was transferred from one side to another, addition cannot be sustained. Similar view, according to Ld. AR, was taken in the following cases:- (i) Baijnath Agarwalla vs. ACIT [2010] 40 SOT 475 (Agra Third Member) (ii) Ganeshmull Biijay Singh Baid HUF vs. DCIT - ITA No. 544/Kol/13 dated 4.12.2015 (Kolkata Tribunal) (iii) Malti Ghanshyambhai Patodia vs. ITO - ITA No. 3400/Ahd/2015 (Ahmedabad Tribunal) (iv) Pratik Suryakant Shah vs. ITO -[ 2017] 77 taxmann.com 260 (Ahmedabad Tribunal) (v) Padduchari Jeevan Prashant vs. ITO - ITA No. 452/Hyd/2015 (Hyderabad Tribunal) (vi) Anil Nand Kishore Goyal vs.ACIT - ITA Nos. 1256/PN/2012 (Pune Tribunal) (vii) CIT vs. Jamna Devi Agrawal - [2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various investigations were carried out by different agencies, there is no evidence against the assessee and/or the brokers and/or the Companies in which the assessee dealt with to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR submitted that, in view of the aforesaid judgement of Special Bench of Mumbai Tribunal, various case laws relied on by the AO against the assessee are irrelevant in as much as the said orders are based on conclusions drawn on the basis of circumstantial evidences only without any material evidence on record and cannot be applied in the case in hand because assessee has discharged the burden of proof by producing relevant legally admissible evidence, which the AO could not find fault with. 8. The ld AR vehemently submitted that the assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The transactions were all through account payee cheques and reflected in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the 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 AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] - In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed all evidences in support of the genuineness of the transactions, 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. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF - ITYA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. ITO - ITA No.3400/Ahd/2015 (Ahmedabad ITAT) (viii) Pratik Suryakant Shah vs. ITO - [2017] 77 taxmann.com 260 (Ahmedabad ITAT) (ix) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (x) Atul Kumar Khandelwal vs. DCIT - ITA No. 874/Del/2016 (Delhi ITAT) (xi) Farah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) 13. The ld AR also submitted that the AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares are unexplained cash credits in the hands of the assessee. According to him, there is no evidence on record to disbelieve that the assessee sold shares through registered share and stock broker with Bombay Stock Exchange. The assessee produced all evidences to explain the source of the amounts received by the assessee from the broker, therefore according to ld AR, the AO was not justified in assessing the sale proceeds of shares as unexplained cash credit under section 68 of the Act. 14. The ld AR submitted that there is no direct evidence against the assessee brought on record by AO to hold that the assessee introduced his own unaccounted money by way of bogus LTCG. The ld AR submitted that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd at a total cost price of ₹ 32,16,000/- (see contract note placed at page 6 of paper book). Thus we find that the AO erred in finding that the assessee had made the purchase not through Stock Exchange but it was an off market transaction. We find that the assessee had purchased through registered broker M/s. M. Prasad & Co. who was registered stock broker of the Bombay Stock Exchange and on 13.06.2012 assessee purchased 25000 shares at ₹ 28.25 per share on which STT was paid and the total transaction of ₹ 32,21,213.10 was paid through account payee cheque to the registered broker and the shares were deposited in the demat account (D. P. Stock HLDG Corp of India Ltd.) 16. The sale of M/s. NFGL shares took place through the same registered stock broker of Bombay Stock Exchange from 05.08.2013 to 30.12.2013 for sale price ranging from ₹ 820/- to ₹ 921/- per scrip (see contract note placed from pages 7 - 17 of paper book). We note from perusal of pages 18-19 of paper book, which reveals that the payment for purchase of shares were made through Axis Bank of assessee and payment has been made on 14.06.2012 vide cheque no. 138919 for an amount of ₹ 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in justifying the LTCG claim. It was brought to our notice that no attempt has been made by the AO to issue summons u/s. 131 or 133(6) of the Act to any of the parties involved in all these transactions to record any adverse inference against the assessee, and without doing so, the AO has simply concluded on the basis of the presumption and assumption and circumstantial evidence and on preponderance of probabilities has debunked the entire evidence submitted before the AO to saddle the entire sale consideration and to allege commission given @ 5% which comes to ₹ 10,82,460/- against the assessee Thus we note that the assessee had furnished all primary evidences in the form of bills, contract notes, de Mat statements and bank accounts to prove the genuineness of the transaction relating to purchase and sale of shares resulting in LTCG. By adducing these evidences, the assessee had discharged the onus on her to prove the genuineness of the transaction which yielded her LTCG. Once the assessee had discharged her onus, then the onus shifted to the shoulders of AO then the AO has to examine the veracity of the documents produced by the assessee and if it is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial against her and it has to be given to the assessee if AO proposes to use it against the assessee and these are the basic natural justice principles the AO has to keep in mind while framing an assessment. Though AO/Ld. CIT(A) have been swayed by the report of SEBI/Investigation Wing of the department, both the authorities could not point out what was the role of the assessee in any wrong doing which is prohibited by law. We note that neither the purported adverse reports relied on by the AO has been brought on record nor is there any reference to any finding of such report which directly accuses the assessee in any wrongful actions. The AO has merely carved out certain features/modus-operandi of companies indulging in practices not sanctioned by law and as mentioned in such report. We note that neither any investigation were carried out against the assessee, nor against the brokers to whom the assessee dealt with or the companies in which the assessee dealt with the purchase and sale of shares in question were done by the AO. The transaction in question and the fact that the shares in question were quoted and transaction happened on the floor of the stock exchange in public vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and the Hon''ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that "on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee's contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held that - "As a matter of fact the AO doubted the integrity of the broker and the broker firm and also AO observed that the assessee had not furnished any explanation in respect of any discussion of trading of shares. The AO relied the loss of ₹ 25,30,396/- only on the basis of information submitted by stock as fictitious. The AO has also not doubted the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed." 20. We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us 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 note that though ..... X X X X Extracts X X X X X X X X Extracts X X X X
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