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TMI Blog2019 (7) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... vidences on record relating to the sale/purchase transactions in shares supported by broker s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account. Accordingly, directed 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 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 cannot be held that the transactions were bogus - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ore him and was pleased to add the entire sale consideration of ₹ 14,34,300/- u/s 68 of the Act. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who confirmed the action of AO. Aggrieved the assessee is before us. 6. After hearing both the parties and after carefully going through the records, we note that the assessee has purchased the shares through online (note through offline) of M/s. TTMLwhich is seen placed from the page 15 of the Paper Book. We note that the assessee has purchased this scrip through the broker M/s GCM Securities Ltd. which was registered with SEBI and member of the Bombay Stock Exchange. The contract note dated 29.03.2011 is found placed at page 15 of paper book wherein the assessee has purchased 800 shares @ ₹ 500 per share for ₹ 2,01,704/-. The payments have been made through banking channel of Indian Overseas Bank which is found placed at page 6 of the Paper Book. Demat statement A/c No. 10005610 of M/s Lohia Securities Ltd. for delivery of shares purchased seen placed at page 17 of the Paper Book. Copy of the letter dated 15.04.2011 of M/s Purv Share Registry (India) Pvt. Ltd. for sub-sivision of 800 shares of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case. First, we make it clear that as per the admitted facts enumerated in para 4 supra, both the assessment years before us are unabated assessments, since these assessment years were not pending before the AO on the date of search on 12.08.2015, so no addition can be made by the AO, without the aid of incriminating materials. With that background in mind, let us see whether there are any incriminating materials unearthed against the assessee during search, which can justify the addition made by the AO. In the said look-out, we note that the AO's assertion that incriminating material i.e. CJ-2 and CJ-13 were recovered during search which show that the assessee dealt with M/s. TTML which resulted in bogus LTCG, our opinion after examining carefully each documents which are placed from pages 32 to 69 are that they are nothing but bank statement, ledgers, accounts maintained by assessee of GCM securities[broker], ledger account of Bank of India, Burra Bazar Branch, contract notes of sale, summary of LTCG, Balance Sheet, Income Tax Return which documents according to us, can by no stretch of imagination be termed as incriminating material, rather we note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire blame on Shri Manish Baid, whose statement AO has not placed on record and so Shri Narendra Prabhudayal Sureka's statement in no way advances the case against the assessee, because Shri Narendra Prabhudayal Sureka is ignorant about any preferential share holders. So without any incriminating material against the assessee found during search in respect to shares of M/s. TTML, no addition can be made without incriminating material found during search. So, since both the AY's before us were not pending before AO on date of search, so without incriminating materials unearthed during search, no addition can be made as held by Hon'ble Delhi High Court in Kabul Chawla (supra) wherein their Lordships held as under: ""Summary of legal position 37. On a conspectus of Section 153A(1) of the Act, read with provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i. Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the other, but such disallowances made by the AO were upheld by the LD.CIT(A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is, therefore, dismissed". 12. In a similar case M/s. Kurele Paper Mills Pvt. Ltd. addition was made by the AO (in sec. 153A proceedings) without incriminating material unearthed during search, the share capital received by the assessee u/s. 68 of the Act was deleted by the Tribunal, which order has been upheld by Hon'ble Delhi High Court in Pr. CIT Vs. Kurele Paper Mills Pvt. Ltd. (2016) 380 ITR 571 (Del) which decision has not been disturbed by the Hon'ble Supreme Court (2016) 380 ITR (St.) 69-ed and was pleased to dismiss the SLP. 13. Before we part for completeness, we would like to analyze the statement of Shri Narendra Prabhudayal Sureka who according to revenue has given incriminating ocular evidence against the assessee in-respect of scrips of M/s TTML. From the statement of Shri Narendra Prabhudayal Sureka it reveals that he is the Managing Director of M/s. TTM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought these shareholders from whom ₹ 7.50 cr. was collected and it was infused as capital into his company M/s. TTML. It is also noted that though Shri Narendra Prabhudayal Sureka has stated that he does not know any of the preferential allottees, we note that the AO has not made any attempt to get the statement of Shri Manish Baid on board, which would have thrown light as to whether the assessee had any contact with Mr. Manish Baid who is supposed to have been main player, and would have cleared the air of suspicion. We note that the assessee has been allotted preferential shares vide letter dated 27.01.2010 of ₹ 2 lacs vide company's share certificate dated 25.01.2010 which though casts doubt, but it cannot be the sole basis for terming the entire claim of assessee as bogus or that assessee's money was laundered in the modus operandi as suggested by the department, because as per his statement shri sureka when he was facing financial crisis went to shri Manish Baid and sought his help to raise the funds and by that process ₹ 7.50 crores was collected by allotment of shares and that fund was infused as capital into his company M/s TTML and then M/s TTML was agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P&L account is seen placed at pages 74-75 of the paper book. The shares were de-matted with NSDL and kept in the de-mat account opened with depository participatory M/s Eureka Stock & Share Broking Services Limited (DPID: IN302105). Copy of De-mat request form is seen placed at page 76 of the paper book. The shares were released after completion of the lock-in period i.e. after 25/01/2011 and thereafter the assessee sold some of his holding through the Bombay Stock Exchange at various dates from 02/02/2011 through SEBI registered broker (No. INB 010793439), M/s GCM Securities Limited (BSE Code 6250). In this process 1,09,000 shares were sold till 30/03/2011 against contract notes, for total consideration of ₹ 2,46,83,694, which was inclusive of Security Transaction Tax (SIT) of ₹ 35,523. Copy of contract notes evidencing sale of shares are found placed at pages 77-85 of paper book. We note that the assessee received the money into his bank account maintained with Bank of India within the time period as prescribed under Stock Exchange Regulations and the copy of Bank Statement reflecting receipt is available at pages 86-91 of paper book. We note that the shares were debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the price rise, high volume, low fundamentals etc. held that the share transaction as bogus. It was brought to our notice that the AO did not provide during the assessment proceedings, any copies of the material, investigation reports, statements purportedly recorded behind the back of the assessee to create a smoke screen of suspicion and doubt against the assessee. And AO based on third party evidence which were not supplied to the assessee brushed aside the aforesaid documents which substantiated the LTCG and held the transaction to be bogus, which according to Ld. AR, is not fair just and reasonable and so wants the claim of assessee allowed as done in similar case. 15. We note that for claiming exemption u/ s 10(38) of Act three requirement needs to be fulfilled. Firstly, the share purchased should be held for more than 1 year. Secondly the shares should be listed & sold on recognized stock exchange. Thirdly on the said sale, necessary security transaction tax (STT) has been paid. In the present case, the shares of M/s. TTML was acquired by assessee on 25/01/2010 from the Company on preferential basis. After the lock-in period of one year, the shares were placed in the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment & corresponding booking of capital gains in the P&L a/c for corresponding sale of shares in different years. It is trite that once the assessee has discharged its onus/primary liability, it will be AO's burden to bring on record any cogent material in support of the contrary contention that the transaction encompassing the sale was sham. However, in the background of the facts discussed above, the AO failed to bring on record any material to substantiate the fact that the share transaction in question was bogus. The statement of Shri Narendra Prabhudayal Sureka to the department/investigation wing reproduced in the assessment order might show their complicity in indulging in the nefarious activity of providing accommodation entry for beneficiaries to claim LTCG on sale of shares of M/s. TTML, but these are general statements explaining the modus operandi and few names but the department has not brought out any direct statement of this person to implicate the assessee as an accomplice in their purported stage managed illegal activity. Without which we are afraid we cannot justify the action of AO/Ld. CIT(A). In this respect, we take note of the observation made by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n after sale of scrips of M/s. TTML Since M/s. GCM Securities Limited is a SEBI registered broker having membership both in NSE & BSE, there cannot be any question about the worthiness of the same as the same is covered under the KYC norms of the exchanges. It is noted that the broker had all along complied with the requirement to maintain the margin money as per Exchange norms and SEBI had never put any restriction on M/s. GCM Securities Limited for capital market operations. 22. To substantiate the genuineness of the transaction, the assessee had placed complete documents before the AO. In respect of acquisition of shares in M/s. TTML, the assessee submitted allotment letter of the company & bank statement showing payment of ₹ 20,00,000/- as consideration. Such purchase was also reflected in the De-mat statement of the assessee as a genuine holder of shares. For sale, the assessee placed contract note issued by broker, bank statement showing receipt of consideration & de-mat statement reflecting the movement of shares. In the balance sheet of the assessee, investments made in the shares of M/s. TTML were reflected and in the Profit & Loss account, the LTCG as earned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TML in the case of Kiran Kothari. HUF vs. ITO, ITA No. 443/Kol/2017, where the shares were sold at a high price. Allowing the assessee's appeal, the Tribunal held: "9. We have heard the rival submissions and perused the records. We note that in the present case, the appellant had purchased 13500 shares of M/s. Tuni Textile Mills Private Limited on 06.04.2011 from a stock broker in off-market transactions from M/s Badri Prasad & Sons, who was a member of Calcutta Stock Exchange. These shares were held in the demat account of the assessee maintained with M/s. C. D Equisearch Pvt. Ltd, a member of Mumbai Stock Exchange and ultimately these shares were sold through M/s. C.D Equisearch and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. We take note that the purchase of shares by off-market transactions for purchase of shares is not illegal as was held by the Coordinate Bench of this Tribunal in· the case of Dolarrai Hemani vs ITO in ITA NO. 19/Kol/2014 dated 02.12.2016. The transactions were all through a registered broker (pages 18 and 19 of the paper book), backed by a contract note (page 22 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were 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 exempted u/s. 10(38) the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion howsoever strong, cannot partake the character of legal evidence." 27. Let us look at certain judicial decisions on similar facts:- 28. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d." 12. The Hon'ble High Court of Rajasthan in CIT vs. Smt. Pushpa Malpani - reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing 'Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies 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." 29. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- "6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not 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 pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 16. On the strength of the aforementioned decision of the Hon'ble Supreme Court, the assessment order has to be quashed. 17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 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. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 31. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances 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) 33. 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 effect that the assessee, the Companies dealt 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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