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TMI Blog2019 (7) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 2661/Kol/2018 - - - Dated:- 17-7-2019 - Shri A. T. Varkey, JM And Dr. A. L. Saini, AM For the Applicant : Shri Miraj D. Shah, AR For the Respondent : Shri Sankar Halder, JCIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM This appeal preferred by the assessee is against the order of the Ld. CIT(A)-13, Kolkata dated 04.09.2018 for AY 2014-15. 2. The sole issue involved in this appeal of assessee is as to whether on the facts and circumstances of the case, the Ld. CIT(A) was justified in upholding the addition made by the AO u/s 68 of the Act in respect of sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee s claim of Long Term Capital Gains (LTCG) on sale of those shares u/s. 10(38) of the Income-tax Act, 1961 (hereinafter referred to as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which promises bright future for the shareholders. According to AO, in this case no such factors are present. According to AO, the price movement of the scrip in the span of 18 months raised doubts in his mind and that profit earned by the assessee were beyond human probabilities. The AO noticed 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 M/s. Panchshul Marketing Ltd. (M/s. PML) 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 by the scheme of amalgamation. The AO referred to the statement of Shri Sunil Dokania recorded u/s 131 of the Act by the Investigation wing on 12.06.2015, wherein, Shri Dokania has explained the modus operandi of providing of LTCG in the scrip of KAFL. He stated that by way of amalgamation of M/s. PML with KAFL, the beneficiaries of LTCG got higher number of shares of KAFL as against shares of M/s. PML. Mr. Dokania, in the aforesaid statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. The AO was of the opinion that the SEBI reports and statements, strengthens the suspicions over the genuineness of the buyers of shares and further suspected that the unaccounted cash of the assessee was layered into the bank account of the exit providers. 7. The AO relying on the various decisions viz. Hersh Win Chaddha v. DCIT [ITA Nos.3088 to 3098 3104/Del/2005], 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 ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perator of Kailash Auto and Careful projects , Sri Sunil Dukania, a CA, in his statement given before the DDIT (Inv.) of income tax u/s 131(1) of the Act on 12.06.2015 admitted that these are paper companies having no real business and both are controlled by entry operators. Directors are only dummy persons there. In view of such fact it is very clear that the submission of the assesses regarding the reason for purchase of share of that was not an investment decision but a move to get an entry for LTCG income. The Ld. DR also submitted that there is report of SEBI confirming that Kailash Auto stock was grossly manipulated on the Stock exchange platform to generate bogus capital gain income for beneficiaries to evade payment of tax. Thus, according to Ld. DR, it is evident that assessee's purchase of that sock was not an investment decision but only an entry point to come to the listed company Kailas Auto in order to generate bogus LTCG income , and thus, assessee was a part of such scheme of things as its beneficiary. He also stated that on the issue of demanding cross-examination of the director the company and other person who admitted the issue of providing entry, it is to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terated for the sake of brevity. The principles laid down in various case laws relied upon by the ld AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross examination. Moroever, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and genuine and therefore the ld AO was not justified in rejecting the assessee s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon ble Jurisdictional High Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld 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. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee. 14. Coming back to the facts of the instant case before us, we note that the assessee had purchased 2,00,000 Equity shares of M/s. PML on 12.07.2011 from M/s. Brijdhara Mercantile P. Ltd. which was reflected through bank statement available at paper book pages 3 to 5. The assessee had made payment for purchase of above shares through savings bank A/c. No. 172010100115186 vide cheque dated 07.07.2011 drawn on Axis Bank, account (page 3 PB). The shares were purchased from M/s. Brijdhara Mercantile Private Limited, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of M/s. PML on 12.07.2011 which is evident from paper book page 2. We also find that payment of the purchase of shares was through cheque which is evident from bank statement available at paper book page 3 to 5. Thereafter the said M/s. PML merged with M/s. KAFL by virtue of the order of Hon ble Allahabad High Court and the assessee was allotted 2,00,000 equity shares of M/s. Kailash Auto Finance Limited in lieu of 2,00,000 equity shares of M/s. PML. After holding the shares of M/s. PML for more than 18 months the assessee had sold the 200000 shares of M/s. KAFL on various dates in the year 2013 on BSE through broker M/s. Kotak Securities Ltd. which is evident from paper book pages 46 to 53. We also find that the assessee had purchased the shares through banking channel and sale consideration was received by A/c payee cheque, which facts are duly reflected in Bank statement which is placed at paper book page 1 2. Our attention was also drawn to the Contract notes of SEBI regd. Broker M/s. Kotak Securities Ltd. for sale of equity shares of M/s. KAFL which is found placed at paper book pages 46-53. Thus, we find that the assessee got the shares of M/s. KAFL dematerialized the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of Shri Sunil Dokani, and few others recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. 19. The assessee has requested the cross examination of Shri Sunil Dokani, which was not provided to the assessee by the AO. Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. AndamanTimber Industries 127 DTR 241(SC) the assessment based on statement 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, and others. Therefore, the statement of third party ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might 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. 20. Since, when the Assessing Officer has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to countenance the action of AO/Ld. CIT(A) in the aforesaid facts and circumstances explained above. 22. Even assuming that the brokers may have done some manipulation then also the assessee cannot be held liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges that the assessee was in hand in gloves with the broker for committing the unscrupulous activity to launder his own money in the guise of LTCG is brought on record by the AO. 23. There is also nothing on record which could suggest that the assessee gave his own cash and got cheque from the alleged brokers/buyers. The assessment is based upon some third parties statements recorded behind the back of the assessee and the assessee has not been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.-Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished. 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, appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, 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. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P H) 624 distinguished 27. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of the statement of a broker. The relevant part reads as under:- 14. The entire assessment is based 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 the crossexamination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could 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 . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 cannot be held that the transactions were bogus. The following judgments of Hon ble Jurisdictional High Court:- (i) The Hon'ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:- 4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. v) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) In this case the Hon ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 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] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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) 32. 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 assessee was shown as capital gains which was not accepted by the A.O. and the gains were tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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