9911796707
TMI Blog2020 (11) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares of certain companies listed on Stock Exchange by a group of persons working as a syndicate for the purpose of providing entry of tax exempt bogus long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observations of the AO in the assessment order cannot constitute any tangible material or evidence to show that the transaction of the assessee is bogus being an accommodation entry. No such information/documents/statementswas made available to the assessee thereby violating the basic principle of confronting the assessee with the documents which the Revenue wishes to rely against the assessee. In the assessment order so passed, the AO has made reference to a statement of Shri Vipul Vidur Bhatt recorded u/s 132 during certain search operations by the Investigation Wing, Mumbai and has relied on the same for holding the transaction as bogus by availing the accommodation entry of long term capital gain and beneficiary of the bogus LTCG scam. As the assessee was again not confronted with such statement during the show-cause notice and he came to know of the same from perusal of the assessment order, he raised the objection before the ld CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndly, the AO has held that assessee has not received any interest income from the partnership firm which we found factually not correct as the assessee has received interest from partnership firm - disallowance of interest is hereby deleted and the ground of appeal so taken by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... maTradelinks Ltd). The assessee also produced the records showing the sale of the shares of M/s. Sunrise Asian Ltd. from the Demat account through Stock Exchange during the period starting 19th September 2013 to 25th March 2014 and the sale consideration of ₹ 7,82,75,591/- received in the bank account of the assessee. Thus the assessee contended that the transaction of purchase and sale of shares of M/s. Sunrise Asia Ltd is genuine and since the shares were sold after holding for more than one year and STT has been paid, therefore, the capital gain arising from the said transactions is exempt under section 10(38) of the IT Act. The assessee also challenged the observations of the AO that the M/s Sunrise Asian Ltd is engaged in giving accommodation entries as the information so gathered by the AO were not made available or confronted to the assessee and in any case, the said information is in nature of generalized information without pointing out the assessee's involvement or that matter, the specific transaction pertaining to the assessee. The assessee also relied upon various decisions in support of his claim. The AO did not accept the reply of the assessee and held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aTradlinks Ltd and subsequent exchange and allotment of shares of M/s Sunrise Asia Ltd which were credited to the Demat account of the assessee. Thereafter, the assessee sold these shares during the year under consideration in various lots during the period starting 19th September 2013 to 25th March 2014. He has referred to the contract notes and Demat account maintained with the Axis Bank where these sale transactions are duly reflected in the Demat account of the assessee. The ld A/R has further referred to bank statement showing receipts of sales consideration of ₹ 7,82,75,591/-. The ld. A/R has accordingly contended that when the holding of the shares are not in dispute, then the transaction of purchase and sale of shares cannot be held as bogus. The ld. A/R has further contended that the AO has made reference of SEBI order dated 7.11.2016 suspending the trading in the shares of M/s. Sunrise Asian Pvt ltd. It was submitted that the assessee was not provided with a copy of the said order and in any case, from the reading of the assessment order itself, it is clear that said suspension is on account of failure to meet certain disclosure requirements and has thus no bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt suggest any evidence of handing over the cash nor any persons has been named who was operator in assessee's transaction alleged to be bogus. Therefore, it is incorrect to link assessee's transaction with the report of investigation wing. III. The ld. AO has alleged the Share broker of the assessee M/s Mehta Equities provides the exit entry. However, in the investigation report nowhere it is mentioned that M/s Mehta Equities provides the exit entry and no enquiry has been conducted by the Income Tax Department on M/s Mehta Equities. Further, in all the notices issued to the relatives in the similar case nowhere name of M/s Mehta Equities was mentioned as exit provider in list provide by the Ld. AO. IV. The report mentions that beneficiaries shares are purchased by bogus/paper companies. AO has referred certain BSE data but no such data has been given anywhere. Further, the assessee has placed order for sale to his broker and, in the mechanism of transaction through stock exchange, a seller can't get any information of buyer. He got payment of sale through his broker only. Therefore, the modes operandi explained in the report does not have any connect with the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be relied upon by the ld. AO, he has to confront the assessee with the material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under pretentious garb of preponderance of human probabilities and theory of human behaviour by the department. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submissions of the assessee that he is just an investor and as he received some tips and he chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that he is not party to the scam etc., has to be controverted by the Revenue with evidence when a person claims that he has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. 8. It was further submitted that a wrong perception has been drawn b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10(38) of the Act. Hence, rejecting the claim u/s 10(38) of the Act without giving reasons is wrong and contrary to the provision of law. In support of his contentions, he has relied upon the following decisions:- • Andaman Timber Industries vs Commissioner of Central Excise [2015] 62 taxmann.com 3(SC) • CIT vs A.L Lalpuria Construction (P) Ltd 32 taxmann.com 384 (Raj) • CIT vs. Smt. Pooja Agarwal (DBIT Appeal No. 209/2018 dated 11.09.2017) (Raj HC) • PCIT vs. Shri Pramod Jain & Others (DBIT Appeal No. 385/2011 dated 24.07.2018) (Raj HC) • AnrajHiralal Shah (HUF) vs ITO (4514/Mum/2018 dated 16.07.2019) • Megraj Singh Shekhawat vs DCIT (ITA No. 443 & 444/JP/2017 dated 07.03.2018) • ITO vs Gaurav Bagaria (ITA No. 550/JP/2019 dated 10.07.2019) • DCIT vs Saurabh Mittal (ITA No. 16/JP/2018 dated 29.08.2018) • ITO vs Lalit Kumar Biyani (ITA No. 1153/JP/2019 dated 03.02.2020) • Annop Jain vs ACIT [2020] 114 Taxmann.com 550 • Ravindra Kajaria vs ITO (ITA No. 2412/Kol/2018 dated 23.08.2019) 10. Per contra, the ld. D/R has submitted that the AO has discussed all the relevant facts in the assessment order as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the transaction through banking channel and sale of shares on the stock exchange is not sacrosanct to hold that the transaction is genuine when all other surrounding circumstances indicate that the assessee has obtained accommodation entries of bogus Capital Gain in respect of penny stock and the circumstantial evidence and surrounding circumstances cannot thus be ignored. Thus the AO has clearly brought out the case of accommodation entries of bogus Long Term Capital Gain and which has been rightly confirmed by the ld CIT(A). In support, reliance was placed upon the judgment of Hon'ble Supreme Court in case of Nawabganj Sugar Mills Co. Ltd vs CIT [1972] 86 ITR 44. The ld. D/R has also relied upon the decision of Hon'ble Delhi High Court in case of Suman Poddar vs. ITO, 112 taxmann.com 329 (Delhi). The ld. D/R has submitted that the Hon'ble High Court has confirmed the decision of the Tribunal whereby the Long Term Capital Gains claimed by the assessee in respect of purchase and sale of penny stock were treated as bogus transactions being accommodation entries. It was submitted that the SLP filed by the assessee against the judgment of the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the Investigation Wing, Kolkata wherein certain persons were found indulged in providing accommodation entries, inter-alia bogus Long Term Capital Gains which is claimed as exempt under section 10(38) of the Act by the beneficiaries in order to facilitate the beneficiaries to convert their black money into white without paying Income-tax. The AO has narrated the modus operandi of various entry providers which is a general statement so far as the indulgence of certain persons in providing the accommodation entry of bogus long term capital gains as well as other transactions. However, in the said narration of modus operandi, there is nothing against the particular transaction of purchase and sale of shares by the assessee. The AO has specifically mentioned that during the course of enquiry in certain cases it has come to light that large scale manipulation has been done in the market price of shares of certain companies listed on Stock Exchange by a group of persons working as a syndicate for the purpose of providing entry of tax exempt bogus long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observations of the AO in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into consideration the cost of purchases of those scripts on 5.11.2011. Securities transaction tax has been duly paid on such transaction and the information is available as per the records already submitted. All the transactions are through banking channels and via means and process which is justified following all relevant laws, rules and procedures. The related documents have already been submitted and no discrepancy therein has been pointed out by your goodself in the same. 3. Your goodself has referred to certain information receive vide letter no. dated 27-04-2015 wherein it was stated that Sunrise Asian Ltd is engaged in giving accommodation entries. We may submit that the same is not sufficient to make addition in this case for following reasons: i) The information gathered has neither been made available nor confronted with the assessee. ii) Nothing in your letter states that why and how it is found that Sunrise Asian Ltd is engaged in giving entries of bogus LTCG. iii) Nothing has been stated to show the information where assessee's name is appearing as beneficiary of accommodation entry. iv) Nothing has been shown that the information refers to any mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even the right of cross examination was denied by the ld CIT(A) who exercises the co-terminus powers as that of the AO. Thus, in view of the decision of Hon'ble jurisdictional High Court in case of CIT vs A.L Lalpuria Construction (P) Ltd (supra) and the decision of the Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra), the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The Hon'ble Supreme Court in case of Andaman Timber (Supra) while dealing with the issue has held in para 5 to 8 as under:- "5. We have heard Mr.KavinGulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senior counsel who appeared for the revenue. 6.According to us, not allowing the assessee to cross-examine the witness 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 as based u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.Even on perusal of such statement of Shri Shri Vipul Vidur Bhatt, we find that it 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. The AO has either discussed the modus operandi of entry providers and their statements but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing the accommodation entry of bogus long term capital gain. There is no dispute that once the assessee has claimed the long term capital gain from purchase and sale of shares which is exempt under section 10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that in the case in hand this is not an isolated transaction of purchase and sale of shares by the assessee of M/s. Sunrise Asian Ltd but the assessee has been regularly purchasing and selling the shares as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account statement of the assessee, then in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. 16. The ld. D/R has relied upon the decision of Hon'ble Delhi High Court in case of Suman Poddar vs. ITO (supra) wherein the Hon'ble High Court has confirmed the finding of the Tribunal and finally observed in para 8 as under :- " 8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the year of purchase, was filed after the date of sale and that purchase of shares was not done through the bank account of the assessee, the actual event of purchase of the shares of assessee could not be verified and, therefore, it was apparently an afterthought and a modus operandi adopted to convert the undisclosed income into 'capital gain'. The director of the company was also summoned, but no such person was found available at the address of the company obtained from Guwahati Stock Exchange and no company by name of Birdhichand Pannalal Agency was in existence at the said given address. The share broker was also examined under section 131 and in course of examination, he stated that all records of purchase and sale of shares were lost and thus, the actual purchase and sale of shares could not be verified. The AO, therefore, treated the 'capital gain' as bogus and disallowed the long-term 'capital gain', sought to be exempted under s. 54 of the Act, to the tune of ₹ 15,33,160 and added back the same as income from undisclosed sources'. In the context of said facts, it was held by the Hon'ble High Court that where no documents cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble and no dividend could be declared, because of the inadequacy of profits, coupled with the facts that the purchase of shares was made in cash, the share broker failed to produce the records relevant to the purchase and sale of shares on the ground that the same were lost, the share quotation price of the purchase was not produced before any authority, the return of income, relevant to the purchase and sale of shares was filed after the transaction of sale, as claimed, was over, are clearly relevant circumstances pointing out towards the fact that the transaction was not genuine and the same was an afterthought and a sort of modus operandi to convert the undisclosed income into a 'capital gain'. 43. From the facts and circumstances narrated above, it cannot be said that the explanation offered by the assessee, as regards long-term 'capital gain' was rejected unreasonably and that the finding that the said amount was not on account of longterm 'capital gain' is based on no evidence. 44. Having considered the facts and the circumstances and the materials available on record, an inference can be reasonably drawn that in reality, the transaction was bogus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 5 lacs share of ₹ 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- "3. Since, the shares were allotted by the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: "5. 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. 6. 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 the assessee. It would be pertinent to note that in the impugned order passed by the Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the AO on the basis of suspicion and surmises and observed in para 46 as under:- "46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assesseecompany need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:- "12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as nongenuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." 20. Thus, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by trading from stock exchange and the documentation is proper, the gains cannot be assessed as unexplained credit or as unexplained money. It was further observed that nowhere it has been found that assessee was in any manner found to be beneficiary of any accommodation entry under any inquiry or investigation and there is no material that any action has been taken by the SEBI against the company and the company has been black-listed or suspended from trading on account of price manipulation. Once all these transactions are duly proved by trading on stock exchange, then to hold the sale of shares as unexplained and bogus cannot be upheld. Similarly, in the instant case, we find that the AO has not brought on record any material or documentary evidence to show that the assessee has availed accommodation entry of bogus long term capital gains under any enquiry or investigation rather the assessee has produced all relevant documentary evidence in support of his purchase and sale transaction through the stock exchange and there is nothing on record that the trading in the scrip has been suspended by SEBI on account of any price manipulation. We therefore find that the assessee sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t gain or loss is treated as long term gain/ loss which is exempt from tax u/s 10(38) of the Act. 9. He referred that to the order of the AO and that of the CIT(A) and stated that both the authorities did not accept the above referred evidences filed by the assessee in support of his claim and by relying on the general study report of the investigating wing rejected the claim and held that the entire transactions undertaken by the assessee were merely an accommodation entries taken for the purpose of securing bogus long term capital gains and to claim exempt income and consequently assessed the sale proceed as an unexplained cash credit under section 68 of the Act. The AO has referred to the findings in the general study report of the Investigation Wing of Kolkata and Mumbai, wherein it laid down the purported modus operandi of converting unaccounted money into exempt LTCG. It is stated that a person acquires shares of penny stocks trading at low price either through private placement or on merger of private limited company of which such person is a shareholder with a penny stock company. Thereafter unaccounted money flows to operator's / exit providers who artificially raise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased by paper/ bogus entities (e)it providers). Para 11.3: ......to prove genuineness, proof of physical transfer of shares, reasons to trade off-market when options to online market trading through demat account were available, trading pattern of market transactions for the last three years, have not been submitted to this office Submissions on above: 11. The learned Counsel argued that the findings of the Investigation Department are general in nature and it is basically a study report and not known which cases are investigated. As understood from the assessment order the assessee's name or his transactions are not referred in such reports and the AO has not established any link between that report and assessee's transactions. This is also fatal as reliance on such investigation report, without confronting the assessee with the same, renders the assessment bad in law. The Investigation in assessee's case by way of search did not reveal any connection with the findings or evidences as referred to in such reports. 12. He stated that the statements of Anil Khemka & Sanjay Dey and Mandar Naik relied upon the AO does not establish that the assessee has paid an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transactions. On investigation, the role of Geojit was not found to be suspicious or questionable. Therefore, reliance on the findings of the Investigation Wing in some other cases which bears no connection with the case of the assessee irrelevant. 14. It was contended further that there is no evidence that implicate the assessee to have entered into any arrangement with any operators /exit providers or involvement of unaccounted money. The assessee took strong objections to AO linking him or his transactions with so called alleged exit providers and accommodation entry providers without any evidence or involvement mentioned in such investigation reports and statements of such persons. The seamless process of transactions at BSE as explained hereafter does not identify and provide us the identity of persons who have purchased those shares sold by assessee. The assessee has ordered his broker to sell the shares of PAL who in turn sold the shares on BSE platform. The assessee/his broker were not aware about the buyers or their brokers who purchased the shares of PAL sold by the assessee. The allegation of AO in para 7.2 and 7.3 of the Assessment order that that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is received from brokers or paid to brokers online to or by the exchange clearing system. > When any customer orders the broker to sell any script, the stock broker sells the shares on trading system through the exchange terminal and generate contract note. On sale, the shares are delivered from the customer's demat a/c to the stock broker's demat a/c who in turn transfers the shares to stock exchange pool a/c, who on settlement day delivers to the buyer's demat a/c. On the other side, the buyer pays the price as per contract note to his broker who pays to the SE who then transfers the amount to the seller's broker on settlement day. Thus, the seller and the buyer or their brokers does not have direct relation nor dealing with each other. Nor they know the buying or selling parties or the brokers. The customers deal with their respective brokers and brokers deal with SE or the clearing system. > In nutshell, the buyer's broker makes payment to SE and seller's brokers deliver shares to the SE. Thereafter, settlement is done by clearing system and transfer of amounts online to seller's brokers bank account and shares to buyer's brokers demat account who in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his demat account. Copy of demat statement is already filed in assessee paper book before us. The broker in turn transfers the shares to BSE Clearing account. The sale proceeds of sale of shares is settled by exchange settlement system and directly credited to broker's bank accounts by the BSE and the assessee received payment from Geojit i.e. directly into his designated hank account. Copy of bank statement is filed in assessee's paper book (APB). 19. Further, the assessee has no connection or nexus with the buyers as also the activities of the buyers. Even if the buyers are doubtful or of suspicious character that does not affect the transactions of sale of shares by the assessee through proper channel i.e. on the recognized stock exchange through the registered broker and payments were received. He argued that during search itself and in the course of investigation the department had made exhaustive survey and enquiry for these transactions from Geojit and other brokers and nothing incriminating was found against the assessee. The details, documents and third party evidences supporting the sale transactions and payments received have been filed by the assessee. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs dt.02.06.2026, 05.07.2016, 22.08.2016 and 02.06.2017 qua aforesaid the 114 entities with immediate effect." 21. Thus, the SEBI's final order dated 19.09.2017 clearly came to the conclusion that SEBI's investigation did not find any adverse evidence against the 114 entities including the assessee and given finding that the assessee has no connection/nexus with PAL or its promoters/directors or promoters related entities nor any role in price manipulation, volume manipulation in the script of PAL. No violation of provisions of SEBI Act, SCRA, PFUTP regulation's, etc. were observed in respect of 114 entities (including the assessee). The list of 114 entities referred in the SEBI Order also includes following alleged exit providers discussed in show cause notice and referred to in the assessment order as under: - Sr. No. Name of Exit Provider 121 Dhriti Traders PL 127 Dreamvalley Trading FL 162 Signet Vinimay PL 165 Spice Merchants FL 172 WinallVinimay PL 22. These alleged exit providers were also exonerated by the SEBI Order and the remaining alleged exit providers viz. 1) Dwarkapuri Constructions P Ltd., 2) Olympia Sales Agencies P Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PAL due to which the assessee purchased the shares. Further, the turnover, in the FY 2013-14 increased by 10 times as compared to the preceding previous FY and increase in the net profit after tax was almost around 4 times than that of the net profit recorded in the year of purchase. Moreover, the prices of the company were almost constant for a year. When the assessee thought that the prices had reached its peak, he slowly sold all the shares in a time span of 3 months. To prove the genuineness of the transactions, the assessee provided all the supporting evidences like, share application form, bank statement highlighting the transactions, contract notes, broker's ledger, demat statement Form 10DB, SEBI's final order, SAT Order, etc. 26. However, the AO made addition under section 68 of the Act and CIT(A) confirmed the addition by ignoring all the facts and evidences and without providing any proof of assessee's involvement in the manipulation of price or volume of the shares of the company or pointing out any defect or deficiency in the process of transactions or its eligibility to deduction u/s 10(38) of the Act. We noted that the AO in his Assessment Order in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the transactions of sale of shares of PAL, the assessee has submitted following documents/ evidences: - a) To prove the identity of creditor and nature of transaction the assessee submitted copy of Contract note on sale by Geojit on BSE platform. The contract notes shows the quantity, rate, time stamp, value, taxes and charges viz. STT, brokerage, SEBI and exchange turnover charges, service tax and stamp duty incurred on all the transactions done on BSE platform, a stock exchange recognized by the market regulator SEBI. The documents have been accepted by the AO. b) Bank statement showing sale proceeds credited by the broker Geojit. Demat account of the assessee showing sold shares debited / transferred to broker. c) The sale consideration is received by assessee from Geojit, a registered broker of SEBI/BSE, with who has been dealing with Geojit for more than 10 years as per contract note directly in the bank account after shares are delivered from demat account and received by the assessee. Copy of demat account and bank statements where sale proceeds are received are submitted as discussed above. Geojit has also been examined and interrogated by the Investigation Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its genuineness. Sec. 68 of the Act places the burden of proof on the tax payer, to explain the nature of source of any credit but not the source of the source. Hence when an assessee gives evidences of identity of the payer, source of the credit, evidences of the transactions to prove the genuineness, the assessee is said to have discharged his initial burden. In view of the above, we are of the view that the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising contract notes, brokers, banking details in support of the genuineness of the transactions. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. The AO did not produce any evidence whatsoever to prove the allegation that unaccounted money changed hands between the assessee and the broker or any other person including the alleged exit provider nor proved that the assessee has taken any type of accommodation from any person or so called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o companies. Based on these crucial facts, the Hon'ble Bombay High Court rendered the decision in favour of the revenue. None of these factors were present in the facts of the assessee before us. Hence it could be safely concluded that the decision of Hon'ble Bombay High Court supra is factually distinguishable. 31. Now we will discuss the modus operandi, preponderance of probability and human behavior. We noted that the AO as well as CIT(A) have rejected all evidences filed by the assessee by referring to 'Modus Operandi" of persons for earning long term capital gains which is exempt from Income tax under section 10(38) of the Act. All these observations are general in nature and are applied across the board to all including the assessee. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected by the AO from third parties is confronted to assessee. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, it provided to the assessee. The addition is made based on a general report from the investigation wing. 32. The issue for consideration before us is whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson claims that he has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many beneficiaries of LTCG. Each case has to be assessed based on principles of legal import laid down by the Courts of law. 34. In our view, just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon'ble Supreme Court held that, the onus to prove that the apparent is not 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 bogusne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO was duty bound to make inquiry from all concerned parties relating to the transactions and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the AO has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 36. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: "Adverting to the various probabilities which weighed with the ITO might be observed that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by 'S' and the notoriety achieved by 'D' 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the above, the findings / allegations of the AO and CIT(A) are baseless, without any evidence, contrary to the facts and circumstances of the case and provisions of the Act. Hence, we delete the addition made by the AO by setting aside the order of ld. CIT(A) based upon such findings. This common issue as regards to addition under section 68 of surplus arising out of sale of shares of listed companies and consequent addition under section 69C on the presumption that commission at the rate of 3% was paid is hereby deleted. Accordingly, this common and interconnected issue of the four assessee's appeals is allowed." 23. In the aforesaid decision, it has been held that it is SEBI who monitors and regulates the stock exchanges & stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper & legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the ld. AO has referred to SEBI enquiry against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. 24. We also find that while analyzing sale of shares of similar scrip of M/s Sunrise Asian Ltd and claim of exemption of long term capital gains u/s 10(38), the Mumbai Benches of the Tribunal in case of Anraj Hiralal Shah (HUF) vs ITO (supra) has upheld the claim of the assessee's claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- "8. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and it has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the Dmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O on the issue of treatment of long term capital gain as bogus then, the consequent addition made by the AO on notional commission is not sustainable. Accordingly, the same is deleted and ground no. 2 so taken by the assessee in their respective appeals is hereby allowed. 29. In ITA No. 123/JP/2020, Ground No. 3 is regarding the addition made by the AO on account of disallowance of interest of ₹ 13,77,391/-. 30. In this regard, the ld AR submitted that the appellant had interest bearing funds of ₹ 1,61,19,649/- and interest free funds of ₹ 3,89,75,382 against which the appellant had invested into income yielding avenues of ₹ 4,22,36,830/- and had invested into non income yielding assets of ₹ 1,28,58,201/-. This shows that the appellant has more income yielding assets as compared to interest bearing funds and hence no allegation can be raised against the appellant that he has diverted his interest bearing funds into non income yielding avenues. It was submitted that during the course of assessment proceedings, the appellant claimed that the interest bearing loans have been utilised as under: 1. For the purpose of earning interest income (shown under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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