9911796707
TMI Blog2019 (2) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... ions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. - Decided in favour of assessee. - I.T.A. No. 1206/Kol/2018 - - - Dated:- 21-2-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For The Appellant : Shri Subash Agarwal, Advocate For The Respondent Shri Sanjit Kumar Das, Addl. CIT, Sr. DR ORDER Per Shri A.T.Varkey, JM This appeal of the assessee arises out of order of the Learned Commissioner of Income Tax (Appeals) - 15, Kolkata for AY 2014-15 dated 05.03.2018. 2. At the outset itself, the assessee brought to our notice that the assessee is not pressing ground no. 8 which is against the action of Ld. CIT(A) in confirming an addition of ₹ 1,54,302/- on account of travelling expenses. So, this ground of appeal of assessee is dismissed. 3. Ground no. 9 is general in nature and also does not require any adjudication, so the same also stands dismissed. 4. In respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une of ₹ 1,03,72,989/- as bogus and, therefore, was treated as assessee s income from undisclosed sources. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us. 6. The Ld. AR assailing the decision of the Ld. CIT(A) drew our attention to the paper book filed by the assessee wherein the assessee had filed the documents to prove that the assessee had purchased the shares of M/s. Smart Champs IT and Infra Ltd. for which contract notes have been filed and later on M/s. Smart Champs IT and Infra Ltd. got amalgamated with M/s. Cressenda Solutions Ltd. as per the Hon ble High Court s order and later on M/s. Cressenda Solutions Ltd. s shares were allotted to the assessee which was sold in the Stock Exchange which was evidenced by the contract note as well as the sale consideration have been received by account payee cheques and the shares were held in the de mat account. All these documents according to Ld AR,were filed before the authorities below and drew our attention to page nos. 102 to 120 to prove the LTCG claim made by the assessee. The Ld. AR wondered as to how the Ld. CIT(A) ignored the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard rival submissions and gone through the facts and circumstances of the case. We note that the appellant had purchased 2,00,000 shares of M/s. Smart Champs IT and Infra Ltd. from M/s. Bolero Commotrade Pvt. Ltd. on 24.09.2012 (page 102 of paper book). Thereafter on 24.01.2013 the Hon ble Bombay High Court approved the scheme of amalgamation of M/s. Smart Champs IT and Infra Ltd. with M/s. Cressanda Solutions Ltd. As per the scheme of amalgamation M/s. Cressanda Solutions Ltd. was to allow equal number of shares to the shareholders of M/s. Smart Champs IT and Infra Ltd. Pursuant to the said scheme, the assessee received 20000 shares of M/s. Cressanda Solutions Ltd. Thereafter on 15.01.2014, M/s. Cressanda Solutions Ltd. announced a stock split and subdivision of the ₹ 10 share into shares of ₹ 1 each. As on that date the assessee had 13,500 shares of face value of ₹ 10/- were converted into 1,35,000 shares. The details of the summary chart showing the details of the share sale are as under: Sl. No. Date No. of shares Face Value (Rs.) Sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. It was also brought to the notice of the AO that the assessee an individual was not related in any manner to the promoters or the directors of the company in question or to any person to whom the shares have been sold. The assessee contested the AO s view that M/s. Cressenda Solutions Ltd. was a penny stock company and its stocks were artificially rigged to benefit the assessee. Though the assessee filed all the documents to support its claim for LTCG the AO Ld. CIT(A) without finding any fault with the documents filed have negated the claim based only on human probability and the Investigation Report which was not furnished to assessee. According to us, the non-furnishing of any material which is used by the AO to draw adverse view against the assessee itself is in violation of Natural Principle. We note that the same issue arose in the case of an assessee named Navneet Agarwal (supra) who also claimed LTCG for sale of shares of M/s. Cressenda Solutions Ltd. which was not accepted by the AO and the Ld. CIT(A), which action was assailed before this Tribunal and this Tribunal in ITA No. 2281/Kol/2017 was pleased to allow the LTCG claim of the assessee by holding as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained cash credit as these are sale of bogus shares. 3. The Modus Operandi listed out by the AO is summarized as follows: i. The initial allotment of shares to beneficiaries is generally done through preferential allotment. ii. The market price of shares of these companies rise to very high level within a span of one year. iii. The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin. iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares. vi The sharp rise in market price of the shares of these entities is not supported byfundamentals of the company or any other genuine factors. vi. An analysis in respect of persons involved in transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding and there is no further requirement for elaboration. b) There is direct evidence to clearly indicate that the entire transaction undertaken by the assesseewas merely an accommodation taken for the purpose of bogus longterm capital gains to claim exempt income. The authorities such as SEBI have after investigating such abnormal price increase of certain stocks, suspended certain scrips. c) The submissions of the assessee pointed out elaborate documentation such as: i) Application of shares. ii) Allotment of shares. iii) Share Certificates iv) Payment by cheques v) Filings before Registrar of Companies. vi) Proof of amalgamation of companies. vii) Copies of bank statement, viii) Bank contract notes. ix) Delivery instruction to the broker etc. d) The elaborate paper book is filed to strengthen the matter relevant to the bogus claim of LTCG, and this is clearly been schemed and pre-planned with malafide intention. Therefore, all these documents are not evidence. e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the assessee. Hence, no adverse inference could be drawn against the assessee in this regard. b. That the sale transactions in question had taken place in the stock exchange electronically, through a registered broker SKP Stock Broking Pvt. Ltd. (now Rely bulls Stock Broking Pvt. Ltd.). All such activity of purchase and sale on the platform of the stock exchange are logged in, on real time basis. It is not possible to sell / purchase the shares of any company on the stock exchange in variance to the prevailing market price at any point of time. Hence, the assessee cannot be, nor is supposed to be aware of and know the identity of the persons, who have sold the shares at the time of purchase of the shares by the assessee and purchaser of the shares at the time of sale of the said shares by the assessee at the Stock Exchange. c. It is further submitted that the share price is always determined by the market mechanism at any given point of time because there is a robust system of the stock exchange which is transparent, open and equitable, and the assessee has also sold the shares on such a platform at a price which was a reflection of the market price derived through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional advice, reasonable price per share, a foreseeable turnaround, past pricing and volume patterns and just market rumour about phenomenal movement in share price of a particular scrip. Moreover, the mere fact that the shares were sold at a high price cannot be termed as conclusive proof or a ground for an allegation that the assessee has converted some unaccounted money through accommodation entries as alleged by the A.O. in the assessment order. i. The Ld. A.O. in the assessment order relied upon the purported statements of various alleged operators on the basis of which the Ld. A.O. had drawn adverse inference in the instant case. It is worthy to note that nowhere any of them has ever named the assessee in the alleged manipulation. Further, the Ld. A.O. did not provide any opportunity to cross examine the said persons. It is a well-settled principle of law that no credence can be given to the statement/report of any person given behind the back of the assessee unless any opportunity to cross examine him is afforded to the assessee. j. That the assessee conducted all the transactions through a recognized share broker and received and made the payments through ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence produced as there are cases where manipulation has taken place. He reiterated each and every observation and finding of the ld. AO as well as the Ld. CIT(A) and prayed that the same be upheld. 10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows. 11. The assessee in this case has stated the following facts and produced the following documents as evidences: 1. The assessee had made an application for allotment of 50000 equity shares of Smart champs IT and Infra Ltd. and she was allotted the share on 3rd December 2011 (copy of Application form, intimation of allotment and share certificate Paper Book at page 8 to 10). 2. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money and payment made to Smart Champs IT Infra Ltd. for such shares allotted is placed in the Paper Book at page no. 11). 3. Annual return no. 20B was filed with Registrar of companies by Smart Champs IT Infra Ltd showing the assessee s name as shareholder (copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations,should guide the authorities in arriving at a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesitonwas part of this scam. The chain of events and the live link of the assesee s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale price are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisations. Courts of law are bound to go by evidence. 16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denominatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in State of M.P .v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas TeaEstate v. Workmen, AIR 1963 SC 1719; M/s. KesoramCotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448;Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v.Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944,considered a similar issue i.e. permission with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: 4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K.Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 of2017] dated19.06.2018. The High Court held vide Para 4.1: 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. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee s appeal. [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal s finding that off market transactions are not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. d) The BENCH D OF KOLKATAITAT in the case of GAUTAM PINCHA[ITA No.569/Kol/2017]order dated 15.11.2017 held as under vide Page 12 Para 8.1: In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered 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 supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also 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 the genuineness of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. It further held as follows: 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 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 therefore direct the AO to delete the addition. f) The BENCH A OF KOLKATA ITAT in the case of SHALEEN KHEMANI[ITA No.1945/Kol/2014]order dated 18.10.2017 held as under vide Page 24 Para 9.3: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A). h) The Hon ble Punjab and Haryana High Court inthe case ofVIVEK MEHTA[ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , has tried to explain the modus operandi of so called bogus pre-arranged LTCG, in which he goes on to mention The operator asks the beneficiary to deliver the unaccounted cash. Once the unaccounted cash has been delivered by the beneficiary the same is then routed by the operator to the books of various paper/bogus companies which ultimately buy the shares belonging to the companies at high prices . However, we note that AO failed to expose the wrong doing if any on the part of the assessee by bringing out or unraveling any nexus of assessee/broker with the purchase of shares. Further, we note that AO has not brought any evidence/material to suggest that the appellant knows any of the so-called entry operators/broker/paper companies or they have named the appellant in particular, that they have dealt with the appellant. So, it is upon mere surmise and assumption that AO says that assessee s own unaccounted cash have been given to purchasers in order to claim bogus LTCG. 11. We note that in order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surmises, predetermined, solely relying upon the investigation report which is general in nature and no concrete material has been brought on record proving otherwise. 17. 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 the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (Allahabad HC) ( xi) CIT vs. Udit Narain Agarwal [2013] 29 taxmann.com 76 (Allahabad HC) ( xii) CIT vs. Jamnadevi Agarwal [2012] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 2 1. 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 the address of the broker was incidentally the address of the company. The profit earned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
