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TMI Blog2019 (11) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and source of the transaction and huge profit in all shares traded by the assessee against the human probability, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute, which does not require any interference on our part - Decided against assessee - ITA No.1704/Del/2019 And ITA No.1705/Del/2019 - - - Dated:- 6-9-2019 - SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER For The Assessee : Shri R.K. Gaur, CA For The Department : Shri N.K. Bansal, Sr. DR ORDER PER O.P. KANT, A.M.: These appeals by the respective assessees are directed against two separate orders, i.e., order dated 29/01/2019 in the case of Sh. Satish Kishore and order dated 28/01/2019 in the case of Sh. Naval Kishore, passed by the Ld. Commissioner of Income Tax (Appeals)-16, New Delhi [in short the Ld. CIT(A) ] for assessment year 2015-16. The issue in dispute involved in both the appeals being identical in similar set of circumstances, both the parties agreed to argue the case of Sh. Satish Kishore as lead case and result of the same to be followed in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant carves to add, alter, modify, or delete any ground of appeal during the pendency of the appeal. 3. Briefly stated facts of the case are that the assessee, an individual, filed return of income on 24/01/2015, declaring total income of ₹ 14,83,715/-, which constituted income declared under the head salary , income from house property , profit in case of the business of profession , capital gain and income from other sources . The long-term capital gain on sale of the shares amounting to ₹ 63,67,551/- was shown by the assessee as exempted under section 10(38) of the Income-tax Act, 1961 (in short the Act ). The case of the assessee was selected for scrutiny and during the course of scrutiny proceeding, the Assessing Officer noticed sale of following shares claimed under exempted long-term capital gain: Sl. No. Name of Shares No. of shares Date of purchase Cost of acquisition Sale consideration Capital Gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation Wing explained entire modus operandi as how the companies in collusion with a set of brokers, accommodation entry operators, first sold the share in offline market (not on the stock exchange) either in cash or cheque by private placement, or preference shares etc. In some cases after private sales, bonus shares had also been issued. Thereafter, companies were listed on stock exchange with small number of shares available for trading. The share price were then artificially jacked up by trading (sale and purchase) in small number of shares through set of accommodation entry providers. Once the shares prices got increased substantially, the persons who were provided shares for making them available exempted LTCG, were asked to sale their share holding on stock exchange, which were to be by bought by pre-decided set of accommodation entry operators. Since the sale being on stock exchange with STT paid, the seller becomes eligible for exempted LTCG. In this manner, all the persons, who invested for getting exempted LTCG by accommodation entry, would exit from shares at high profit. But the company being being not having actual worth, the share prices would fall after so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... babilities. Accordingly, the amount of ₹ 63,67,552/- received by the assessee, was held by the Assessing Officer as unexplained cash credit under section 68 of the Act and also made addition at the rate of 5% of the amount of the sale consideration treating the same as commission expenses for obtaining the accommodation entry. 3.5 Before the Ld. CIT(A), the assessee submitted that the transactions have been routed through the channels controlled by the statutory authorities like, Banks, SEBI, and Stock Exchange leaving no access to or interference by either purchaser or seller of the shares. According to him, the transaction of purchase and sale of the shares were supported by contract notes, payment proofs, demat statement, and STT payment, which is necessary ingredient for exemption under section 10(38) of the Act and the addition were made merely on presumption, suspicions, conjecture and surmises. He submitted that the Assessing Officer failed to bring any material on record to prove nexus between the listed company and the assessee. He also submitted that the Assessing Officer had failed to provide any material relied upon against the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities, in which he claimed to have invested. In view of the observations, the Ld. CIT(A) upheld the addition made by the Assessing Officer relying on various decisions cited in the impugned order. 4. Before us, the Ld. counsel of the assessee filed a paper-book containing pages 1-44 and supported the grounds raised. He assailed mainly the preponderance of human probability for sustaining addition in the case of the assessee. The Ld. counsel submitted that the theory of preponderance of human probability, the apparent not being real, have to be applied in a nuanced, subtle and calibrated manner and not on a blanket basis. According to him, it has to be applied with utmost care and diligence and keeping in view the material in hand. He submitted that in the instant case, the Ld. Assessing Officer has ignored all the documents which had been gathered by the assessee from authorised institutions such as stock exchange and contract notes issued by the brokers on their behalf. He further submitted that all the transaction has suffered security transaction tax and the sale proceeds have travelled from the stock exchange to the assessee s bank account and therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof of STT payment and transaction through banking channel, which has not been discarded by the Assessing Officer. 4.5 He further submitted that it is settled law that suspicion, however, strong cannot take place of the proof and no addition can be made on the basis of mere suspicion. In support, he relied on following decisions: Lalchand Bhagat Ambica Ram v CIT [(1959) 37ITR 288 (SC)]; CIT v. Paras Cotton Co[(2007) 288 ITR 211 (Raj.)]; Faqir Chand Chaman Lai v. ACIT [(2004) 1 SOT 914 (Asr.)] [Appeal dismissed by P H High Court in 262 ITR 295 and SLP dismissed by SC in 268 ITR 215 (St)]; Assam Tea Co. v. ITO [(2005) 92ITD 85 (Asr.) (SB)]; Jhantala Investments Limited v ACIT [(2000) 73 ITD 123 (Mum.)] 4.6 The Ld. counsel also submitted that the information from DIT, Kolkata has not been provided to the assessee, which is against the tenets of the natural Justice and thus, assessment might be quashed. In support of the contention, he relied on the decision of the Hon ble Supreme Court in the case of M/s Andman Timber Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted of having engaged in providing accommodation entry in the form of LTCG through his concern including PKC Commodities Ltd., a sub-broker of SMC Global Securities Ltd. 6. We have heard the rival submissions and perused the relevant material on record, including the judicial decisions relied upon by both the parties. We find that in the instant case the issue in dispute is whether the long-term capital gain on sale of shares by the assessee is an arranged affair to convert its own unaccounted money or it is a genuine transaction of purchase of shares and sale. The assessee has submitted documents to support purchase as well as sale of the shares and contended that sale transactions have been done on the platform of stock exchange, where the seller is having no control to choose the buyers, and thus according to the assessee, he has simply sold the shares on the stock exchange and received the profit, which according to him, is exempt under section 10(38) of the Act. According to the assessee, he is an innocent investor and windfall gain has been received due to demand and supply gap in capital market. The assessee has claimed that documentary evidences sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book. On perusal of page 4 of the paper book we find that Shivam Trading Company has issued a debit note to the assessee for sale of 18,000 shares of Pawansut Holding Ltd., but in this debit note the serial numbers of the shares transferred to the assessee is not mentioned. Similarly, on page 5 of the paper book a copy of the debit note issued by Fair Finwiz is available, according to which assessee was sold 450 shares of Tarang Projects and Consultant Limited. Similar, debit notes have been filed by the assessee in the paper book to substantiate the purchase as genuine transaction. But the assessee has not filed any receipt of cash paid either to the brokers or to the companies. 6.4 When the documentary evidence containing contract notes of purchase, demat account, contract note of the sale and receipt of sale proceeds in bank account are seen vis- -vis the observations of the AO on transactions, in our opinion, the documents are not sufficient to discharge the burden of proof that the purchase and sale transactions of the assessee were genuine. The onus was on the assessee to explain astronomical rise in prices of all the scrips purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding the contention of the Ld. counsel that assessee was not having any control over the buyer of the shares and it was a transaction in uncontrolled manner on the stock exchange, we note that the investigation carried out by the Department has brought the facts on record that the shares prices have been manipulated artificially, which purchased by a set of accommodation entry provider companies controlled by cartel of brokers, entry operator etc., thus, in such circumstances, to say that sale transactions on the stock exchange were made in uncontrolled manner, will be on only an idealistic view and away from the reality of the market. The Ld. Counsel has himself accepted this fact that such types of dubious practices were rampant during relevant period. The contention of the Ld. counsel that sale transaction of assessee is uncontrolled, cannot be accepted in the circumstances of the case where all share purchases have been made in physical form from off market and all such shares have been sold at astronomical prices without commensurate financials of the companies in the background of the fact the purchases of these shares have been made at high prices by accommodation entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Bombay High Court confirmed the addition. 6.10 In the case of MK Rajeshwari Vs. ITO (Supra), the coordinate bench of the Tribunal has held that while dealing the issue of long-term capital gain accrued to the assessee, one has to examine the financials of the company whose shares were inflated within a short period and after the sharp rise in the price of shares, it again comes down. 6.11 The coordinate bench of the Tribunal in the case of Shamim M. Bharwani (supra) held that, where the assessee claimed income earned from sale of shares is exempt under section 10(38), in view of the fact that purchase transaction of said shares was not recorded in the stock exchange and moreover, selling rates were artificially high later on with no real buyers, Assessing Officer rightly rejected assesses claim and added amount in question to his taxable income under section 68 of the Act. 6.12 As far as contention of the learned counsel that no opportunity of cross-examination of the statement of share brokers relied upon by the Assessing Officer is concerned, we find that the authorities have not merely relied on the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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