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TMI Blog2019 (1) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... y the 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 AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. - Decided in favour of the assessee. Unexplained expenditure towards commission charges of sale of such shares by the operator - Held that:- As have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition is hereby directed to be deleted. - Decided in favour of the assessee. - I.T.A. No. 1197/Kol/2018, I.T.A. No. 1198/Kol/2018, I.T.A. No. 1198/Kol/2018 - - - Dated:- 2-1-2019 - Shri J. Sudhakar Reddy, AM Shri A. T. Varkey, JM For the Appellant : Shri M. D. Shah, AR For the Respondent : Shri Sankar Halder, Addl. CIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM The three appeals i.e. ITA Nos.1197, 1054 1198/Kol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the company, M/s. CPAL, was incorporated on 18.09.2010 with authorized and paid up share capital of ₹ 1 lakh. The company increased its authorized share capital to ₹ 34.50 lakhs and thereafter issued 330155 shares of the face value of ₹ 10 each at the premium of ₹ 590 to different entities. The AO also observed that during the FY 2011-12, M/s. CPAL increased its authorised share capital to ₹ 29 crores and then the shares of ₹ 10 each were split into 1:10 i.e. each shares of ₹ 10 into shares of Re.1 each. The said company CPAL thereafter issued bonus shares to the existing equity shareholders in the ratio of 1:55. The AO suspected the issue of bonus shares in the unrealistic ratio of 1:55. He was of the opinion that the probable reasons were with a view to provide large amount of LTCG in the hands of beneficiaries after amalgamating the said company with KAFL. The AO concluded that CPAL was incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non genuine transactions of its shares which resulted in fetching exorbitant and unrealistic considerations in the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties related/connected to KAFL rigged the prices by 230% during the period of January, 2013 to June, 2013 (Patch-1), created artificial demand and thereafter provided exit to the beneficiaries during the period of July 2013 to November, 2014 (Patch-2). The said orders passed by SEBI contained list of related/connected parties of KAFL and also the list of beneficiaries. Some of these were restrained from accessing the securities market and buying, selling or dealing in securities. The AO concluded that the in depth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL. The AO further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. 7. The AO also made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his share broker viz. M/s. Ashika Stock Broking Limited. The AO found that the buyers of the shares had weak financials and therefore he do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee need to be allowed: i) Manish Kumar Baid Vs. ACIT, ITA Nos. 1236 1237/Kol/2017 dated 18.08.2017 ii) Rukmini Devi Manpria Vs. DCIT, ITA No.1724/Kol/2017 dated 24.10.2018 iii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018 dated 05.09.2018. 12. The Ld. DR for the Revenue vehemently opposed the contentions of the assessee and took us through the AO s order and Ld. CIT(A) order and submitted that scrips of M/s. KAFL was artificially rigged to provide LTCG to the assessee which cannot be allowed and supported the impugned order and relied on the order of Hon ble Bombay High Court in the case of Binod Chand Jain in Tax Appeal No.18 of 2017 and so he does not want us to interfere with the impugned order . 13. We note that similar issue arose in Manish Kumar Baid, (supra) wherein, the Tribunal allowed the claim of assessee in respect of LTCG from sale of scrips of M/s. KAFL has held as under: 6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd s name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI s order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below. We note that shares of M/s. Kailash Auto Finance were listed at BSE. Copy of De mat statement clearly reflecting debit of such shares from the account is found attached. The above shares were debited to the assessee s de mat account as under: Date of Debit Number of shares 25.07.2013 23600 25.07.2013 26400 07.08.2013 25000 13.08.2013 25000 1,00,000 Copy of Bank Statement of Andhra Bank account highlighting the credit receipts received from the sale consideration is seen placed in the paper book. Fund flow statement for the period 01.07.2013 to 31.08.2013 is seen reflecting the receipt of fund and utilization of same. It was pointed out that funds were mainly used for repayment of loan taken by the assessee earlier and for purchase of shares of M/s. A.S. Chemotex Pvt. Ltd. We note that the assessee had not claimed any of exempted long term capital gains u/s. 10(38) of the Act in AY 2012-13 and AY 2013-14. 15. We note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the thousands of brokers registered with the stock exchange is at liberty to purchase it. As far as our understanding, the selling broker does not even know who the purchasing broker is. This is how the SEBI keeps a strict control over the transactions taking place in recognized stock exchanges. Unless there is a evidence to show that there is a breach in the aforesaid process which fact has been unearthed by meticulous investigation, we are of the opinion that the unscrupulous actions of few players exploiting the loopholes of the Stock Exchange cannot be the basis to paint the entire sale/purchase of a scrip like that of M/s. KAFL as bogus without bringing out adverse material specifically against the assessee. 17. The fact of holding the shares of M/s. KAFL in the D-mat account cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the Dmat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection of premium was so designed that assessee company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPC L, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce Ind. Ltd., assessee's account with P.K. Agarwal co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account. 20. We note that the sale of shares of M/s. KAFL which was dematerlized in Demat account has taken place through recognised stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.- C. Vasantlal Co. vs. CIT (1962) 45 ITR 206 (SC), M.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. 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 the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. 19. Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- Short Term or Long Term as the case may be. The other grievance of the assessee becomes infructuous. 27. 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 off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016 and the decision by Hon ble Calcutta High court in PCIT Vs. BLB Cables Conductors Pvt. Ltd. in ITAT No. 78 of 2017 dated 19.06.2018 wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. iii)CIT V. Lakshmangarh Estate Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) In this case the Hon ble Calcutta High Court held that on the basis of a suspicion howsoever 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. iv) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) In this case the Hon ble Calcutta High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal Others ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi 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 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT [2006] 6 SOT 247 (Mum) 31. We note that the ld. D.R. had heavily relied upon the decision of the Hon ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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