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TMI Blog2020 (11) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... preciating the fact during the course of search proceeding u/s 132(1) of the Act that the script of M/s Misika Finance and Trading Company and assessee has been banned from accessing in security market and buying, selling in securities vide order dated 17.05.2015 which lead to suspect on bogus claim of LTCG hence tantamount to incriminating evidence. 2. Whether on the facts and the circumstances of the case, ld. CIT(A), was right in deleting the addition of Rs. 3,60,05,017/- made u/s 68 on account of bogus LTCG. 3. Whether on the facts and in the circumstances of the case, the CIT(A) was right in deleting the addition of Rs. 7,20,100/- u/s 69C of the IT Act, 1961 made by the AO on account of unexplained commission expenditure for taking bogus accommodation entry in the form of LTCG without appreciating the facts of the case. 4. Whether on the facts and in the circumstances of the case, the CIT(A) was right in adjudicating that AO has predominately relied on the statement of entry provider and information received from Investigation Wing only without appreciating the facts that the financial fundamentals of the company has also been analyzed in the assessment order with catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement were sole basis of allegation whereas in this case various other factors were brought on record including financial fundamental of the script in detail with finding that company with no turnover, income and sets does not have credent to support astronomical rise in the price." 3. The first ground of appeal taken by the Revenue relates to challenging the findings of the ld CIT(A) that the additions were made by the Assessing officer without reference to incriminating evidence/material while passing the order under section 143(3) r/w 153A of the Act and thus allowing the legal ground taken by the assessee challenging the order so passed by the Assessing officer. 4. In this regard, briefly stated, the facts of the case are that the assessee filed his return of income u/s 139(1) of the Act on 30.08.2015 declaring total income of Rs. 23,78,450/-. Thereafter, a search and seizure action u/s 132 was carried out in case of Prakash Deep Finance Group on 04.03.2017 to which the assessee belongs. Pursuant to the search and seizure action, the Assessing Officer issued notice u/s 153A of the Act on 13.09.2017 and in response to the said notice, the assessee e-filed his return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons disclosing the fact that the long term capital gains shown by the assessee is nothing but accommodation entry provided by syndicates and entry providers through trading of shares in penny stock companies when it was open to the AO to initiate the proceeding U/s 147/148 of the Act at that point of time but due to the mandatory nature of the provisions of Section 153A of the Act, the AO has proceeded in accordance with the provisions of law. It was further submitted that the script of M/s Misika Finance and Trading Company and assessee were banned from accessing the security market and buying, selling in securities vide SEBI order dated 17.05.2015 which lead to suspicion on bogus claim of LTCG hence the same tantamount to incriminating evidence and where the AO has relied on the same while framing the assessment, the same needs to be upheld. It was further submitted by the ld. CIT/DR that in case of Meeta Gutgutia, though SLP of the Department has been dismissed by the Hon'ble Supreme Court, however, merely dismissal of the SLP cannot be read as affirmation of the view taken by the Hon'ble Delhi High Court. It was further submitted that there are two subsequent SLPs which have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial found during the search carried on the assessee relating to the disallowance of claim u/s 10(38) of the Act, the legal ground of the assessee was held tenable and was decided in favour of the assessee. 8. It was submitted by the ld AR that as the assessee filed his original return on 30.08.2015, the time limit for service of notice u/s 143(2) was upto 30.09.2016. No notice was however issued to the assessee before this date. Thus, the assessment proceedings for the year under consideration were not pending on the date of search. In search, no incriminating material relating to the year under consideration was found to allege that the assessee had undisclosed income from any source which is routed through alleged accommodation entry. Section 153A empowers the AO to issue notice to a person who is searched u/s 132 to file return in respect of six assessment years preceding the assessment year in which search is conducted and to assess or reassess the total income of these years notwithstanding anything contained in section 139, 147 and other related sections. Thus, the assessment u/s 153A are not de novo assessments since the purpose of making the reassessment under section 153 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53A of the Act, once a search and seizure action is carried out, the AO has to assess or reassess the total income of the assessee in respect of six years immediately preceding the assessment year relevant to the previous year in which a search is conducted or requisition is made. In case the assessment is pending on the date of search, the same shall be abated as per proviso to section 153A(1) of the Act and the AO is free to assess the income of the assessee as regular assessment. However, in case of completed assessment and not abated due to initiation of search u/s 132 or making of requisition u/s 132A, the AO has to reassess the total income of the assessee and therefore, the assessment already completed can be tinkered with or disturbed where any incriminating material is found and seized during the course of search or requisition as case may be, indicating undisclosed income of the assessee. Therefore, the scope and jurisdiction of the AO to reassess the total income of the assessee u/s 153A is limited only to the extent of the income disclosed by the incriminating material found and seized during the search and seizure action in case of the assessee. Therefore, what is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The requirement for making the addition under section 153A in the assessment years where the assessment was not pending on the date of search and the proceedings are in the nature of reassessment is essentially the incriminating material disclosing undisclosed income which was not disclosed by the assessee. In the case in hand, the AO himself has not claimed any incriminating material found during the search and seizure in the case of the assessee. Accordingly, in the facts and circumstances of the case and in view of the binding precedents on this issue in which the SLP filed by the revenue was also dismissed by the Hon'ble Supreme Court, the additions made by the AO while passing the assessment orders under section 153A for the assessment years 2010-11 to 13-14 are not sustainable and accordingly the same are liable to be deleted." 11. The ld CIT/DR has further referred to SEBI order dated 17.05.2015 wherein the script of M/s Misika Finance and Trading Company and various persons including the assessee were banned from accessing the security market and in buying and selling of securities. We find that the aforesaid SEBI order dated 17.05.2015 was again available with the AO pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer is bound to issue notice to the assessee to furnish returns for each assessment year falling within the six assessment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the "total income" of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in which the search took place there is only one determination of the total income, it has been provided in the second proviso of sub-Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is made, there is no questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond provisions of Sections 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. 26. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. 27. The Allahabad High Court in Smt. Shaila A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction or claim expenditure which has not been claimed in the original assessment, which assessment already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made." 15. In light of above discussions and in the entirety of facts and circumstances of the case where the reassessment is completed u/s 153A without any reference to the incriminating material found during the course of search, following the binding precedents as cited above including that of the Jurisdictional High Court, the addition made by the AO by disallowing the claim of exemption u/s 10(38) is not sustainable in the eyes of law. We accordingly affirm the findings of the ld CIT(A) who has rightly appreciated the facts of the present case and has followed the legal proposition so laid down by the various Courts and as followed consistently by various Benches including the Jaipur Benches of the Tribunal. In the result, the ground of appeal so taken by the Revenue is hereby dismissed. 16. Now, coming to other grounds of appeal no. 2 - 8 raised by the Revenue. All these grounds of appeal effectively relates to addition of Rs. 3,60,05,017/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the stakeholders viz. operators/ syndicate members/ brokers who were providing accommodation entries in statements recorded u/s 133A/132 of the IT Act. It has been manifestly accepted by them that such penny stock companies are the conduit for converting untaxed money brought on record by paying no taxes in the garb of exempted income. It is further detected that M/s Mishka Finance & Trading Ltd. (scrip code-512191) is a penny stock listed company. The assessee bought these shares at a meagre price. The price of the shares kept rising throughout the period when the shares were held by the assessee. The share price movement & the profit earned by the beneficiaries were beyond human probabilities. The AO, thereafter, at pages 4 to 15 discussed the financial results and held that the rise in the price could not be related to the fundamentals. On pages 16 to 41, he gave the trend of the share price. On pages 42 to 62, he referred to the statement of Sh. Sanjay Vora & Sh. Deepak Patwari recorded during survey operation carried out in case of M/s Anand Rathi Shares & Stock Brokers Ltd. Kolkata wherein they accepted the actual fact of these transactions. Thereafter, on pages 67 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be treated as incriminating material for the purpose of making addition for assessment completed u/s 143(3). The statement of witness cannot be sole basis of the assessment without giving an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. Thereafter, based on aforesaid reasoning and findings and after relying on the various case laws referred at Pg 55-63 of his order, ld. CIT(A) held that the action of AO in denying the claim of exemption u/s 10(38) of the Act is not tenable and hence, the same was directed to be deleted. Further, since the commission is based on estimated addition of alleged bogus LTCG now treated as genuine, amount of commission was also directed to be deleted. Against the said findings, the Revenue is now in appeal before us. 20. During the course of hearing, the ld. DR submitted that the AO has discussed all the relevant facts in the assessment order as well as the modus operandi of various entry providers as detected by the Department during the investigation carried out by the Directorate of Investigation, Kolkata, Delhi etc. Thus it comes to the light that large scale manipulation has been done i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm Capital Gain. He has relied upon the judgment of Hon'ble Supreme Court in case of Sumati Dayal vs. CIT as well as in case of Durga Prasad More. The ld. CIT 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. CIT 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 also pointed out that the SLP filed by the assessee against the judgment of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court reported in 112 taxmann.com 330 (SC). 21. Per contra, the ld. AR submitted that the addition has been made by the AO on the basis of statement of certain persons recorded in the survey conducted by the Investigation Wing Kolkata on M/s Anand Rathi Shares and Stock Brokers Limited, order of SEBI whereby it restrained 129 entities including M/s Mishka Finance and Trading Ltd. and its promoters from accessing the securities market and prohibiting them from buying, selling or de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Ltd. on BSE Limited during the period from February 14, 2013 to December 31, 2014 as there was huge rise in the price of the scrip. After preliminary examination, SEBI passed an interim ex-parte order dated April 17, 2015 and restrained 129 entities including Mishka and its promoters and directors from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever till further directions. Subsequently SEBI vide order dated dt. 05.10.2017 after detailed enquiries found that there is no adverse material against 104 entities mentioned at S. No. 1-104 in Table No. 2 of order with respect to their role in the price manipulation / prima facie violations for which interim order dated April 17, 2015 was passed and thus revoked the restrained order with reference to these entities. At Table No. 2, Page No. 6 of the order, the name of assessee is appearing. This proves beyond doubt that the assessee is a genuine investor in the script of M/s Mishka Finance and Trading Ltd. 24. It was further submitted that the AO has referred to the financials of M/s Pyramid Trading and Finance Ltd. at P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aurabh Mittal (2018) 172 DTR 291 (Jaipur) (Trib.) * Mahavir Jhanwar Vs. ITO (2019) 55 CCH 150 (Kol.) (Trib.) * Arun Kumar & Ors. Vs. ACIT (ITA No.457/Del/2018, 2825/Del/2018 and 2826/Del/2018 order dt. 05.11.2018) * DCIT Vs. Rakesh Saraogi & Sons (HUF) (2018) 32 NYPTTJ 1116 (Raipur) (Trib.) 26. The ld. AR further submitted that the decision relied upon by the ld. CIT/DR in case of Suman Poddar vs. ITO (supra) is not applicable in the facts of the assessee's case as in the said case it was a finding of fact by the Tribunal holding that the assessee has failed to produce any evidence of actual sale except the Contract Notes issued by the share broker whereas in the case of the assessee, the assessee produced all the documentary evidences right from allotment of shares, holding in Demat account, payment of purchase consideration, contract notes as well as receipt of the sale consideration through banking channel, thus the said decision cannot be applied in the present case. On the other hand, the decisions of the Hon'ble Jurisdictional High Court in case of CIT vs. Smt. Pooja Agarwal in DBIT Appeal No. 209/2018 dated 24.07.2018 as well as PCIT vs. Shri Pramod Jain & Others in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of M/s Pyramid Trading and Finance Ltd. of face value of Rs. 10/- per share at a premium of Rs. 75/- per share. The payment was made by account payee cheque bearing no. 397519 dated 18.09.2012 drawn on SBBJ, M.I, Road, Jaipur. The shares were thereafter allotted by the company on 24.09.2012 and necessary regulatory filings in terms of Form 2 along with Board's resolution have been placed on record. Thereafter, the name of company was changed to M/s Mishka Finance and Trading Ltd. and on 20.11.2012, these shares were credited in the demat account of the assessee in the name of M/s Mishka Finance and Trading Ltd. Thus it is clear that 12,500 shares were acquired by the assessee on 18.09.2012 and were credited in the demat account of the assessee. The AO has not disputed that subsequently in Feb.2013, the company announced bonus of 7 shares for every 1 shares and accordingly, 87,500 bonus shares were credited in the demat account of the assessee on 15.02.2013. Subsequently, on 18.01.2014, the face value of Rs. 10 per share was split into Rs. 1 per share and accordingly, 10,00,000 shares were credited in the demat account of assessee. Once the shares are dematerialized and credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the consistent finding of fact returned against the Appellant are based on evidence on record." Thus it is clear that in the said case, the Tribunal's finding is based on the fact that no evidence of actual sale except the contract notes issued by the share broker was produced by the assessee. In those facts, the Hon'ble High Court has held that no question of law arises in the said case. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise independently verifiable being the documents in the shape of bank statements, Demat account, contract notes reflecting the transaction executed on the stock exchange for which the assessee has no control or say, therefore, the said evidence cannot be manipulated by the assessee. Once the evidence produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der and submissions I am not in agreement with the conclusion drawn by the Ld. AO for the following reasons: 7.3 The Ld. A/R has filed all the possible documentary evidence relating to purchase and sale of the stock on which the LTCG was earned. All the details are filed in APB and the same were filed before the Ld. AO. The details filed are Description APB Pages Copy of allotment of shares 8 Evidence relating to purchase of share 9 Copy of bank statement evidencing payment for purchase 10-11 Copy of demat account 12-16 Copy of bank statement wherein sale proceeds were received 25-29 Copy of contract notes for sale of shares 21-24 Copy of final order of SEBI* 36-46 Similar details were filed for the A. Yrs 2015-16 too 7.4 In short, after the Ld. AO confronted the appellant with statements of entry operator and other circumstantial evidences the Ld. A/R filed all possible documentary evidences in his possession. It is clear that AO has based denial of exemption u/s 10(38) of the Act on the basis of statement of the entry operator and information received from the investigation wing. However in the statement of entry operator no question was ever put to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... script and associated persons were exonerated. The final order of the SEBI is placed on the record by the learned A/R. 7.6 The relevant para of SEBI Report are para 9 & 10. In these para the SEBI has especially exonerated Smt. Kalawati Sharma (appellant) & Shri Prakash Chand Sharma. The relevant para is reproduced herein as under: "9. In view of the foregoing, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dated October 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016 qua aforesald 113 entities (paragraph 7 above) with immediate effect. 10. The revocation of the directions issued vlde this order is only in respect of the entities mentioned at paragraph 7 of this order in the matter of Mishka pertaining to the period from February 14, 2013 to December 31, 2014 in respect of the prima facie violations for which the Confirmatory Order dated 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016 were passed by SEBI. As regards remaining 13 entities in the scrip of Mish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the record and find that the CIT (A) has rightly observed as stated hereinabove, which was confirmed by the Tribunal. It would not be out of place to mention that this order of Hon'ble Rajasthan High Court has been confirmed by Hon'ble Supreme Court also. Further, Hon'ble Delhi High court in case of Harjeev Agarwal (70 Taxmann.com 95) held thus: Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) "...A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senor 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 upon the statements given by the aforesald two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority dld not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he as specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesald plea is not even dealt with by the Adjudicating. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 expense and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company 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 evldence found from several searches either conducted by DRI of by the department that Assessee-company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out 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." 8.5 On further appeal by the department to the High Court, the court by referring to the decision of Pooja Agarwal held that no substantial question of law arise in this case. (ii) CIT vs. Smt. Pooja Agrawal DBIT Appeal No. 385/2011 dated 11.09.2017 (Raj)(HC) In this decision, the Hon'ble High Court approved the following finding of the ITAT reproduced at Para 12 of the order: "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, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the Investing Wing after consldering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Consldering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain 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." CIT Vs. Smt. Sumitra Devi (2014) 102 DTR 0342 (Raj.) In this case, assessee had shown LTCG from the sale of shares and same was claimed as exempt u/s 10(38). AO observed that companies, whose shares were allegedly dealt with, were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal. Shri Meghraj Singh Shekhawat vs. DCIT (2017) 443 & 444/JP/2017 (JP) order dated 7-03-2018 Brief facts are that the assessee is an indivldual and engaged in the business of retail sale of IMFL/Beer. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of Rs. 1,32,56,113/-which is claimed as exempt u/s 10(38) of the Act on sale of shares of M/s Rutron International Ltd. The AO received information from Investigation Wing, Kolkata that during the search conducted u/s 132 of the Act on 12.04.2015 at the business premises of one Shri Anil Agarwal Group it was found that Shri Anil Agarwal is one of the promoters of M/s Rutron International Ltd. The shares were sold by the assessee from his D-mat account through the broker M/s AnandRathi Share and Stock Brokers Ltd. and therefore, the assessee denied any involvement of availing the bogus of long term capital gain. Consequently the AO made an addition of Rs. 1,32,56,113/- to the total income of the assessee u/s 68 of the Act. The Ld. AR has submitted that the assessee was allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company as per the scheme of merger approved by the High Court, then the transaction and sale of shares in question cannot be held as bogus. The AO has passed the impugned order on the basis of the statement of Shri Deepak Patwari which is ldentical as in the case of Shri Pramod Jain & others vs. DCIT. Accordingly, following the order of the Coordinate Bench of this Tribunal, we hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evldence filed by the assessee insupportthe claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account. Shri Purushotam Soni vs. ITO(2017) 288/JP/2017 (ITAT Jaipur) Order dt.6/4/18 The facts of this case are that assessee claimed long term capital gain on sale of shares of Luminare Technology Limited. The AO on the basis of the information received from investigation wing treated the same as bogus & made the addition. The CIT(A) confirmed the same. On further appeal, the Hon'ble ITAT by following the decision of Pramod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the transactions relating to purchase and sale of shares resulting in LTCG. These evldences were neither found by the ld AO to be false or fabricated. The facts of the case and the evldences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonaflde and therefore the ld AO was not justified in rejecting the assessee's claim of exemption u/s 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. 8.6 In this decision, Hon'ble ITAT has referred to various decisions at pages 1719 of the order. Similar view has been taken by ITAT Mumbai Bench in case of ACIT vs. M/s Krishna Sheet Processors Pvt. Ltd. in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per, the gains cannot be assessed as unexplained credit or as unexplained money. Further, in the instant case, we note that the assessee satisfies the necessary ingredients and conditions as so specified in section 10(38) of the Act, in terms of transfer of long term capital asset by way of sale of equity shares on which STT has been paid, he shall therefore be eligible for exemption on whole of the income so realized as the provisions talks about any income arising from transfer of such long term capital asset which shall be exempt from tax. We accordingly donot see any infirmity or illegality in the said findings of the ld CIT(A). 31. Further, the Mumbai Benches of the Tribunal in case of Vijayrattan Balkrishan Mittal vs. DCIT (supra) has again discussed this issue in threadbare in para 7 to 37 as under :- "7. We have heard the rival contentions and gone through the facts and circumstances of the case. 8. Before us, the learned Counsel for the assessee Shri Madhur Aggarwal stated the fact that assessee purchased the shares of listed company and held them for more than one year. He sold his shares on Bombay stock exchange platform through his broker Geojit and STT was paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person is a shareholder with a penny stock company. Thereafter unaccounted money flows to operator's / exit providers who artificially raise the prices of penny stocks on stock exchange. Thereafter, the penny stocks are sold to earn huge exempt LTCG. 10. In regards to the present case the learned Counsel referred to the observations of AO regarding PAL script in his show cause notice: "In the case of M/s Pine Animation Ltd, the Investigation Wing Mumbai has conducted a survey action on M/s Saraf Equity Services Pvt. Ltd. on 03.12.2015, an exit provider in script Pine Animation Ltd. During the course of survey proceedings, statement on oath of Shri. Mandar Dilip Naik, Director of M/s. Saraf Equity Services Pvt. Ltd. was recorded wherein he has stated that M/s. Saraf Equity Services Pvt. Ltd. has indulged in providing exit to the beneficiaries in collusion with operator for making bogus LTCG transactions for a commission of 1%. Further, on verification of the script M/s Pine Animation Ltd. it is seen that the other exit providers i.e. Dhriti Traders Pvt. Ltd, Dream valley Trading Pvt. Ltd., Dwarka purl Constructions P Led, Olympia Sales Agencies P Ltd, Particle Industries P Led ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the statements of Anil Khemka & Sanjay Dey and Mandar Naik relied upon the AO does not establish that the assessee has paid any unaccounted money to these parties. None of the replies to the question posed indicate that they received any unaccounted money from the assessee or that they received or utilized the unaccounted money received from the assessee with reference to shares of PAL. It is also not established that they had any arrangement or dealings or relation with the assessee leave apart the alleged accommodation or exit provided who has not stated any dealing with them against the principles of natural justice. Further, as regards the parties listed by AO in the assessment order (abstract reproduced above) as exit providers and entry operators i.e. Dhriti Traders Pvt. Ltd., Dream valley Trading Pvt. Ltd, Dwarkapuri constructions P Ltd, Olympia Sales Agencies P Ltd, Particle Industries P Ltd, Signet Vinimay P Ltd, Winall Vinimay P Ltd, Spice Merchants P Ltd and Saraf Equity Services Pvt. Ltd., the assessee categorically denied the same and confirmed that, he did not know or had any relation with any of the above said parties and he never dealt with or had any business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mainly traded in one script (PAL) which is suspicious is completely incorrect and not supported by facts. During FY 2014-15 (AY 2015-16) the assessee also traded in following scripts:- STCG: a) ICICI Bank, b) Guj NRE, c) Gitanjali Gems, d) HFCL. E) Wondrella, f) Hind Motors, g) Tata Chem, h) Cr. Griev., i) Coal India, j) Unitech, k) Infosys, L) Tech Mahindra, m) HCL Techno LTCG: a) Pine animation, b) Sundaram Inv. C) Care rating, d) Kolte Patil, e) IDEA, f) Balmer Lawr, g) S. Clayton, h) GFL Finance, i) Sun Pharma 15. Further, the learned Counsel also narrated the fact that the assessee also incurred losses in few scripts out of the above. With regard to the observations of AO in Para 9 relating to suspicion for trading in PAL shares by SEBI vide ad-interim ex-parte order dated 08.05.2015, it was argued that the assessee and his wife along with more than 100 others entities were exonerated of all allegations as detailed in ad-interim exparte order for manipulation of price and volume of the script and also any arrangement by the assessee with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring system and transfer of amounts online to seller's brokers bank account and shares to buyer's brokers demat account who in turn pays to the sellers and transfers shares to the demat account of the buyer. Hence sellers and buyers does not deal directly or come in contact nor their broker come in direct contact and neither of them know the contra party. > The whole system of buying and selling of shares done on the stock exchange platform is faceless and SE platform deal with brokers only and parties deal with their brokers. For example, shares sold by X through its broker bought by ABCD broker for XYZ or vice a versa are not known to each other. Even the broker does not know, the shares sold by him are delivered to which brokers or which buyer. The broker can act only for the parties who are registered with him after necessary KYC and due diligence. Nobody can directly deal in shares on stock exchange." 18. Further, the learned Counsel stated that the assessee has sold these shares through his broker Geojit who is registered broker of Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and other exchanges. The broker Geojit is an old and reputed share broker and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and third party evidences supporting the sale transactions and payments received have been filed by the assessee. The transactions were done at prices prevailing on the date of transaction and STT was paid on such transactions cleared through exchange clearance system. 20. The learned Counsel further referred to SEBI Investigation in case of PAL. It was argued that in case of PAL, the whole time member of SEBI the market regulator, on a preliminary report of its surveillance department has passed ad interim exparte order no. WTM/RKA/ISD/36/2015 dated 08.05.2015 against PAL and 177 entities including assessee. However, despite no charge against the assessee, the whole time member of the SEBI confirmed the ex-parte order vide passing Confirmatory order no. WTM/RKA/ISD/61/2016 dated 02.06.2016. The assessee went in appeal before the Securities Appellate Tribunal against the confirmatory order of the SEBI. While the assessee's appeal with SAT was at hearing stage, the investigation department of the SEBI completed investigation in PAL and passed final order vide order no. SEBI/WTM/MPB/EFDI-DRA-III/28/09/2017 dated 19.09.2017. Relevant para no.9, 10, and 11 of SEBI order are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged exit providers viz. 1) Dwarkapuri Constructions P Ltd., 2) Olympia Sales Agencies P Ltd. and 3) Particle Industries P Ltd. were neither referred in the SEBI ex-parte order dated 08.05.201 5 nor in the final order dated 19.09.2017 which goes to prove that neither the assessee nor the exit providers alleged by the AO were involved in any arrangement or accommodation and hence , allegations of AO are wrong and without any evidence. Copies of SEBI ad-interim ex-parte order dated 08.05.2015, confirmatory order dated 02.06.2016 and final order dated 19.09.2017 are enclosed at pages 217-277 of APB. Subsequently, the SAT disposed-off the appeal of the assessee as infructuous and passed order accordingly vide order no. nil dated 26.09.2017. Copy enclosed at pages 278-283 of APB. 23. In view of the above the assessee has been exonerated by SEBI in the case of PAL stating that he had no nexus/ connection or collusion with the company, its directors, or promoters and was not involved in price manipulation & volume manipulation, etc. Further, the alleged exit providers for the script have not played any role in assessee's transactions in the script as he has neither taken any acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gibility to deduction u/s 10(38) of the Act. We noted that the AO in his Assessment Order in para 7 and 8 has exhaustively mentioned in detail the financials of PAL, preferential allotment of shares, price of PAL, Exit providers, etc. Following paras have been ditto /copied from SEBI ad-interim ex-parte order dated 08.05.2015. Although after Investigation, SEBI in its final order exonerated the assessee and the alleged exit providers but the AO failed to consider the SEBI final order in the assessment order. It means that the AO and CIT(A) also relied on the order of SEBI dated 08.05.2015 mainly for drawing inferences and deciding the issue on the basis of conjunctures and surmises and not on evidences. 27. In view of the above, we noted 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as discussed above. Geojit has also been examined and interrogated by the Investigation Department during search proceedings. Geojit's source is BSE settlement system. This explains identity of the creditor and source of money paid by assessee for genuine transaction of sale of shares. d) Sale is done at prevailing price quoted on the BSE. (BSE published quotations daily and rate list of the relevant dates can be produced if required) e) The shares are sold by assessee's broker on BSE platform and not off market to any buyer hence source is BSE's clearing system and broker. The transactions on the BSE platform and settlement system who are responsible for the transactions of the demat account and prevailing price on public domain prove the genuineness of the transactions. f) SEBI's final order dt. 19.09.2017 relating to PAL is enclosed. SEBI after detailed investigation into the transactions in the shares of these companies held that the parties to the investigation including assessee and alleged exit providers are having no nexus or connection with the company, their directors, promoters etc. and there is no price or volume manipulation in these scripts. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has taken any type of accommodation from any person or so called exit providers to introduce unaccounted money into books by way of LTCG. With the purchase and sale transactions of shares of PAL are proved genuine by third parry evidences - bank, broker; DP-demat account, and in the absence of any material to prove cash changing hands in the transaction, the addition made by the AO under section 68 of the Act, by treating the sale consideration as unexplained, sham, non-genuine is baseless. The addition under section 68 of the Act made merely of the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine or sham or demonstrating appellant's involvement in any kind of manipulation is illegal and cannot sustain. The findings of investigation & modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee's involvement or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc. For making the addition, it is necessary to bring on record evidence to establish ingenuity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation wing. 32. The issue for consideration before us is whether in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the parry alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee's action giving his involvement in the scam should be established. The allegation implies that cash was paid by the assessee and in return the assessee received LTCG, which is exempt from income tax, by way of cheque through banking channels. This allegation that cash had changed hands has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on recording each case, when such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shaw & Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale prices are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisation. Courts of law are bound to go by evidence. 35. But in the present case, we noted that the assessing officer has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. The assessing officer has not brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a pan of any arrangement for the purpose of generating bogus long term capital gains. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... muggling operations, without an iota of evidence in that behalf. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the ITO and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,-this also was a pure conjecture or surmise on the part of the ITO. As regards the disclosed volume of business in the year under consideration in the head office and in branches the ITO indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The ITO indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been held that where SEBI who monitors and regulates the stock exchanges & stock market in its 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 AO made a reference to the SEBI interim order dated 17.04.2015 wherein the company, its promoters/directors and shareholders including the assessee were restricted from accessing the securities market, however, we find that in the subsequent order dated 5.10.2017, the SEBI has noted that there are no adverse findings against 104 entities including the assessee with respect to their role in the price manipulation/prima facie violation for which interim order was passed and therefore, directions issued against them were revoked. Therefore, the SEBI order shall have no bearing in judging the genuineness of the transaction undertaken by the assessee or for that matter, the price and realization on sale of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) of the Act. Accordingly, in the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the ld. CIT(Appeals) who has rightly allowed the said claim of the assessee and the same is hereby affirmed. In the result, the grounds of appeal so taken by the Revenue are dismissed. 34. In the result, the appeal of the Revenue is dismissed. ITA No. 781/JP/19 35. Both the parties fairly submitted that the facts and circumstances of the case are exactly identical as in ITA No. 780/JP/19 and similar contentions raised therein may be considered. Therefore, considering the admitted position that there are no changes in the facts and circumstances, our findings and directions contained in ITA No. 780/JP/19 shall apply mutatis mutandis to this appeal matter and the appeal of the Revenue is dismissed. In the result, both the appeals filed by the Revenue are dismissed. Order pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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