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TMI Blog2020 (4) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... ments filed by the assessee to prove the transaction which has taken place through on-line (both purchase and sale) after giving STT need to be allowed and therefore allow the claim and direct deletion of addition - Decided in favour of assessee. - I.T.A. No. 2180/Kol/2018 (Assessment Year: 2014-15) - - - Dated:- 7-8-2019 - Shri A. T. Varkey, JM For the Appellant: Shri Sunil Surana, FCA For the Respondent: Shri Sankar Halder, JCIT, Sr. DR ORDER This is an appeal preferred by the assessee against the order of Ld. CIT(A) 6, Kolkata dated 17.08.2018 for Assessment Year 2014-15. 2. The main ground raised by the assessee is against the action of the Ld. CIT(A) in confirming the addition made by the AO by treating the Long Term Capital Gain of ₹ 7,10,447/- in the shares of M/s. Nikki Global Finance Ltd. (herein after M/s. NGFL) as bogus and added u/s 68 of the Income Tax Act, 1961 (herein after the Act ). 3. Brief facts of the case as noted by the AO is that the assessee declared total income of ₹ 2,83,740/- which was processed u/s 143(1) on 13.04.2015 and after a revised return was filed on 28.03.2016 disclosing total income of ₹ 3,94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase No. of Share Rate Amount (Rs.) Date of Sale No. of Share Rate Amount (Rs.) Long Term Profit (Rs.) NIKKIE GLOBAL FINANCE LTD. 19/07/12 1000 1311 131658 13/09/13 1000 845 842133 710447 Then the A.O states that the Department has information that the assessee had made transactions in the aforesaid penny stock. 5. Thereafter, the AO took note of the report of the Investigating Wing of the department which throws light about the modus-operandi/pre-planned actions taken by 84 penny stock companies in active connivance of 32 share broking entities which were involved in a scam to provide bogus LTCG/STCL to beneficiary like assessee. The AO explains the modus operandi by which the penny stock shares are bought/allotted/transferred to the beneficiary at a very nominal price mostly off-line so that they can save STT and thereafter sell the same through the stock exchange after one year to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity test and so was rightly not allowed by the authorities below and therefore we should not interfere with the order of the Ld. CIT(A) and cited a number of case laws which we will discuss infra. 8. I have heard both the parties and perused the records. We note that the assessee has claimed ₹ 7,10,447/- as exempt u/s 10(38) of the Act which was the LTCG which assessee received on sale of shares of M/s. NGFL. The facts have been narrated by the AO at page 2 and page 3 of the assessment order. He had accepted the fact that the assessee had filed the respective contract notes and the Demat account to support the shares transactions in the name of M/s. NGFL. I note that the AO has accepted that the assessee has filed documents to substantiate that the transactions were made through SEBI registered stock brokers, transactions happened through banking channels, the deliveries of shares after purchase and thereafter sales are evident from demat statement which has been filed before the AO. The AO however has discarded these documents without pointing out any defects. I repeat that in this case, the assessee has filed the documents to substantiate purchase and sale of shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the erroneous finding of the purchase value of the shares. We note that in this case the assessee was investing in different shares of the companies (30 different shares of companies) as evident from perusal of page 5 of paper book and the purchase and sale of shares in M/s. NFGL is one among the 30 odd shares the assessee dealt with as an investment through a registered stock broker of Bombay Stock Exchange M. Prasad Co. Ltd. The assessee had purchased 25000 shares of M/s. NFGL on 13.06.2012 at a cost price of ₹ 128.25 per share and remitted Security Transaction Tax (STT) of ₹ 4007.81 and at a total cost price of ₹ 32,16,000/- (see contract note placed at page 6 of paper book). Thus we find that the AO erred in finding that the assessee had made the purchase not through Stock Exchange but it was an off market transaction. We find that the assessee had purchased through registered broker M/s. M. Prasad Co. who was registered stock broker of the Bombay Stock Exchange and on 13.06.2012 assessee purchased 25000 shares at ₹ 28.25 per share on which STT was paid and the total transaction of ₹ 32,21,213.10 was paid through account payee cheque to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque. It was pointed out by the Ld. AR that when a show cause notice was given by the AO on 09.12.2016 wherein the assessee was asked to explain why the sale consideration of ₹ 2,16,49,202/- shall not be added back u/s. 68 of the Act as well as ₹ 10,82,460/- being 5% of the said sum be added u/s. 69C of the Act, the assessee promptly replied to it. The AO acknowledges that the assessee had replied vide letter dated 22.12.2016 which the AO has stated to have been placed on record. However, it was brought to our notice that the AO has not made any adverse finding in respect to the submissions made by the assessee in justifying the LTCG claim. It was brought to our notice that no attempt has been made by the AO to issue summons u/s. 131 or 133(6) of the Act to any of the parties involved in all these transactions to record any adverse inference against the assessee, and without doing so, the AO has simply concluded on the basis of the presumption and assumption and circumstantial evidence and on preponderance of probabilities has debunked the entire evidence submitted before the AO to saddle the entire sale consideration and to allege commission given @ 5% which comes to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r against M/s. NFGL, then the AO in all fairness had to confront the assessee with the adverse material and given an opportunity to the assessee to meet it and the assessee should have been given an opportunity to explain it; and in case the assessee desires, she should have been allowed to cross examine the accommodation provider or else the adverse material cannot be acted upon to draw adverse inference against the assessee as held by the Hon ble Apex Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3. It should be kept in mind that assessee cannot be kept in dark as to the material against her and it has to be given to the assessee if AO proposes to use it against the assessee and these are the basic natural justice principles the AO has to keep in mind while framing an assessment. Though AO/Ld. CIT(A) have been swayed by the report of SEBI/Investigation Wing of the department, both the authorities could not point out what was the role of the assessee in any wrong doing which is prohibited by law. We note that neither the purported adverse reports relied on by the AO has been brought on record nor is there any reference to any finding of such r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k price. It should be noted that the stock exchange of SEBI are the statutory authority appointed by the Government of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the companies in question. In absence of any relevant evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is pertinent to note that the assessee has purchased the stocks through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and the Hon ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act. For coming to such a conclusion we rely on the decision of the Hon ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 26th August, 2008 wherein the High Court held as follows : It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal bein ..... 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