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TMI Blog2019 (1) TMI 855X X X X Extracts X X X X X X X X Extracts X X X X ..... on no. INB 011146033 and also is a member of Bombay Stock Exchange having membership no. 3027; Neither during the time of execution of the contract in FY 2013-14 nor even today, this stock-broking company was suspended by SEBI or BSE on any charge of irregularities like price rigging etc as alleged by the AO. We note that AO failed to bring on record any material to connect the assessee to any of the alleged entry operators/ brokers who are a part of this so called price rigging group or LTCG Generator Group. We note that in an identical/similar case, wherein the AO made addition of the LTCG claim made on sale of M/s. KAFL scrips on similar reasoning based on the SEBI interim report, investigation report of the Wing of the Department and certain statements recorded by the Department in the case of Sanjiv Shroff Vs. ACIT [2019 (1) TMI 213 - ITAT KOLKATA] it is also a matter of record that the assessee furnished all evidences in the from of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the AO to be false or fabricated. The facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agree with the assessee's claim of LTCG and exemption thereof claimed by the assessee. The AO taking note of the study conducted by the Investigation Wing of the department about 84 BSE listed penny stock discusses from para 4 of assessment order, the general observations/study/modus operandi from pages 2 to 10 of the assessment order goes on to state about the scrips assessee purchased and sold. According to AO, it is unbelievable that the assessee can make a fantastic gain in a span of 22 months. According to AO, the price movement of the scrip in the span of 22 months raised doubts in his mind and that profit earned by the assessee were beyond human probabilities. The AO noticed that 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. ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one. 6. The AO relying on the various decisions Sumati Dayal v. CIT 214 ITR 801 (SC), Durga Prasad More v. CIT, Mcdowell & Co. V. CTO, CIT v. P. Mohankala] observed that tax liabilities can be assessed by revenue authorities on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/evidence available on record. The AO ultimately concluded that in such clandestine operations and transactions, it is impossible to have direct evidence or demonstrative proof of every move and also referred to the report of SIT on black money. 7. The AO concluded that the assessee's transactions resulting in LTCG on sale of shares of KAFL were bogus and that the assessee ploughed back his unaccounted money in the books of accounts which is assessable under section 68 of the Act. 8. On first appeal, the CIT(A) dismissed the grounds raised by the assessee against his claim of exemption u/s 10(38) of the Act and he also confirmed the additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following cases have decided that the scrips of KAFL are not bogus and the LTCG claim of the assessee needs 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. 10. 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)'s 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. 11. 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 reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting at the most opportune moment by making good profits in roder to have a good 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Confirmation letter from M/s Wondrous Marketing Pvt. Ltd. (formerly known as M/s Jatadhari Marketing Pvt. Ltd.) confirming the said transaction proving the purchase of equity shares of M/s Careful Projects Advisory Ltd. payment made and delivery of shares of directly in the D-Mat Account (paper book page 43). v) D-Mat statement evidencing the receipt of delivery of shares from Client ID 10415082 belongs to M/s Wondrous Marketing Pvt. Ltd. (formerly known as M/s Jatadhari Marketing Pvt. Ltd.) (paper book page 44). vi) D-Mat statement of M/s Wondrous Marketing Pvt. Ltd. (formerly known as M/s Jatadhari Marketing Pvt. Ltd.) showing the delivery of shares to assessee's account no. (paper book page 45). vii) Balance Sheet showing investment in shares and securities proving regular investor. (paper book page 46). - viii) High Court Merger order evidencing purchased shares were merged with M/s Kailash Auto Finance Ltd. (paper book pages 47 to 55). ix) Merger letter received from M/s Kailash Auto Finance Ltd. showing the statement of shares of M/s Kailash Auto Finance Ltd. in lieu of shares of M/s Careful Projects Advisory Ltd. upon merger. (paper book page 56. x) D-Mat sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .I. Investigation report nor the assessee claims that those alleged shares were sold through so called entry operators. 16. We further note that the AO/Ld. CIT(A) completely ignored the following relevant material facts: a) that 2,00,000 shares were purchased on 03.11.2011 from M/s. Jatadhari Marketing Pvt. Ltd. which is a ROC registered company having PAN, and the payment was made through account payee cheque No. 737263 and delivery of purchased shares were received in d-mat account directly. b) That the dealing was with respect to the shares of a listed company. c) That the company, (having BSE Code 511357) had satisfied all the stringent norms of the SEBI & Bombay Stock Exchange with respect to listing. d) That the appellant had acquired the shares in its own name. e) That the shares were transacted through HDFC Bank D-Mat account (DP ID: IN300476, Client ID: 40434996) substantiating the aspect of ownership and genuineness of movement of shares under the custodianship of National Securities Depository Limited (NSDL). f) That the appellant sold the shares through M/s. Guiness Securities Ltd a SEBIregistered (Regd. No: INB 011146033) broking company. g) That the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt ruled that the allegations made by the authorities have to be supported by actual cash passing hands or actually has changed hands. 20. In the case of DOLARRAI HEMANI vs. ITO, this Tribunal held that the fact that the stock is thinly traded & there is unusually high gain, is not sufficient to treat the LTCG as bogus when all the paperwork is in order. The revenue has to bring material on record to support it's findings that there has been collusion/connivance between the Broker & the Appellant for the introduction of unaccounted money. 21. In the case of DCIT Vs. Sunita Khemka, ITAT Kolkata ruled that the AO cannot treat a transaction as bogus only the basis of suspicion or surmises. He has to bring material on record to support his findings that there has been a collusion/connivance between the Broker and the Appellant for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and d-mat statements and account payee cheques cannot be treated as bogus. 22. In the case of KAMALA DEVI S DOSHI VS. ITO ITAT MUMBAI, vide it's order dated 22.5.2017 held that statement u/s 131 of the Act implicating Appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI or BSE on any charge of irregularities like price rigging etc as alleged by the AO. We note that AO failed to bring on record any material to connect the assessee to any of the alleged entry operators/ brokers who are a part of this so called price rigging group or LTCG Generator Group. 27. We note that in an identical/similar case, wherein the AO made addition of the LTCG claim made on sale of M/s. KAFL scrips on similar reasoning based on the SEBI interim report, investigation report of the Wing of the Department and certain statements recorded by the Department in the case of Sanjiv Shroff Vs. ACIT in ITA No. 1197/Kol/2018 Dated 02,01.2019 wherein the same Bench observed as under and gave relief to the assessee: "We note that shares of M/s. KAFL were sold by assessee through recognized broker in a recognized Bombay Stock Exchange. The details of such sale and contract note have been submitted before AO/Ld. CIT(A). We take note that when the transactions happened in the Stock exchange, the seller who sells his shares on the stock exchange does not know who purchases shares. According to our knowledge, the shares are sold and bought in an electronic mode on the computers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without giving an opportunity to assessee to cross examine the maker of the adverse statements relied on by the AO, is not sustainable in law. We find that the statement cannot be used by the AO without giving an opportunity to cross examination of Shri Sunil Dokani, Shri Bidyoot Saral, Shri Narendra Basin and Shri Amit Dokani. Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:- "46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee." 19. Since, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon'ble Rajasthan High Court dated 11-09-2017in case of CIT vs. Smt. Pooja Agrawal [ ITA no 385/2011 ] has upheld the finding of the Tribunal on this issue in para 12 as under:- "12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the AO to draw adverse inference against the assessee in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the AO. 23. Let us look at certain judicial decisions on similar facts:- 24. The case of the assessee's is similar to the decision of Hon'ble Bombay High Court, Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal & Ors. dated 23rd September, 2010 reported in (2010) 328 ITR 656 wherein it was held that: "The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, 'the prese/itdppeal does not raise any question of law, much less any substantial question of law." 25. The Hon'ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 0179 has held as under:- "The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders." 15. The Hon'ble Apex Court held as under:- "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 be borne 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 to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn. 18. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted the IT return, ledger copy, letter to AO land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence." ii) M/s Classic Growers Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustries 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. vii) 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 by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 28. We note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nami 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 No. 32/Agr/2007 (Agra ITAT) 30. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the eff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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