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TMI Blog2020 (12) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. 2. The grounds raised by the assessee are reproduced as under: 1. On the facts and circumstances of the Appellant's case and in law, Id. CIT (A) erred in confirming the action of Assessing Officer in treating the long term capital gains earned by the appellant as non-genuine and bogus transaction, as per the grounds stated in the order or otherwise. 2. On the facts and circumstances of the Appellant's case and in law, Id. CIT (A) erred in confirming the action of Assessing Officer in making an addition of ₹ 4,55,75,099/- (subsequently revised to ₹ 4,55,14,762/-) by invoking provisions of Sec. 68 of the Income Tax Act 1961, being the amount of sale value of shares as per the grounds stated in the order or otherwise. 3. On the facts and circumstances of the Appellant's case and in law, Id. CIT(A) erred in confirming the action of Assessing Officer in making an addition of ₹ 13,67,252/- as alleged commission @ 3% paid on bogus share transaction, as per the grounds stated in the order or otherwise. The appellant prays this Hon'ble Tribunal to delete the addition/disallowance made by the Learned Assessing Officer, which is confirmed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to assessee s husband which were duly appeared in the D-Mat account with HDFC Bank. The assessee from 1st October 2013 to 8th October 2013 sold 5 lakh shares and received payment in cheque and the sale proceeds were credited in the bank account and form 10 DB (cover notes) were also filed, copies of which are filed at page No.37 and 56 to 68 respectively. The AO rejected all these evidences and treated the capital gain as unexplained cash credit under section 68 of the Act and added the entire sale consideration of ₹ 4,55,75,099/- to the income of the assessee. The AO also added notional commission @ 3% on the total sale proceeds and added the same as unexplained expenditure under section 69 of the Act to the income of the assessee by framing assessment under section 143(3) of the Act vide order dated 28.12.2016. 4. The assessee went in appeal before the Ld. CIT(A) who also dismissed the appeal of the assessee by treating the sale proceeds of shares as the transactions entered in the penny stocks in the form of accommodation entries and thus justified the addition of entire sale proceedings of the sale of shares of Global Infra Tech and Finance Ltd. beside making ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividuals individual involved in the scam. The Ld. DR. relying heavily on the order of Ld. CIT(A) submitted that a correct view has been taken by the authorities below as the assessee s investment is tainted as brought out by the investigations into the scam. In this case, the assessee has made investment in penny stocks though the payment was made by cheque and the share allotted were duly appeared in the D- Mat account but in such a short span the share went from a meager investment of ₹ 7,50,000 to ₹ 4,55,75,099/- which is beyond imagination and is nothing but a sham and bogus transactions in the form of accommodation entries. Therefore, the Ld. D.R. prayed that the appeal of the assessee may kindly be dismissed and that of the Ld. CIT(A) may be affirmed. In defence of his argument, the Ld. D.R. relied on a series of decisions namely; 1. Satish Kishore vs. ITO (2019) 110 taxmann.com 307 (Delhi Tri.) 2. Sandeep Bhargava vs. ACIT (2019) 109 taxmann.com 174 (Delhi Tri.) 3. Smt MK Rajeswari vs. ITO Warda 3 Raichur (2018) 99 taxmann.com 339 (Bangalore -Tri.) 4. Sanjay Bimalchand Jain vs. PCIT (2018) 89 taxmann.com 196 (Bom.) The Ld. DR. submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) was distinguished in para 6.10 by the tribunal in Mukesh B Sharam Vs ITO(Supra). The operative part of the decision in the case of Shri Mukesh B Sharma Vs ITO (supra) is reproduced as under: 6. We have heard the rival submissions. The primary facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. The assessee submitted the following details with regard to purchase of shares :- a) Copy of relevant extract of bank statement reflecting the payment of ₹ 30 lacs made by the assessee by account payee cheque to the company directly and source thereof along with allotment letter issued by the said company (i.e GIFL) and copy of share certificate issued by GIFL to the assessee on 12.6.2012. These documents are enclosed in pages 71 to 73 of Paper Book. b) Demat account held with NKGSB Co-operative Bank Limited reflecting credit of shares purchased (enclosed in page 154 of Paper Book). c) Copy of approval letter from GIFL. d) Copy of allotment letter from GIFL for shares allotted to the assessee. e) Copy of share certificate issued by GIFL. f) Various events reported by GIFL to BSE. 6.1. The assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata were related to assessee or the brokers in any manner whatsoever. We find that the various purchase and sale details together with the supporting evidences were not controverted by the revenue before us. Even the cross examination of the parties mentioned in the show cause notice issued to the assessee by the ld AO were sought by the assessee and the same were refused by the ld AO . We find that the ld AO had also placed reliance on the order passed by SEBI while concluding that the transactions carried out by the assessee in the form of sale of shares as sham and bogus. From the perusal of the SEBI order dated 25.8.2016 in the case of First Financial Services Ltd, we find that from the extracts thereon, that it was stated that M/s GIFL was involved in providing exit to the sellers of equity shares of First Financial Services Ltd and no where stated that this company was involved in providing accommodation entries in the form of capital gains by transacting its own shares through the alleged bogus operators. We also find that the SEBI had passed on order dated 8.1.2018 in the case of GIFL, wherein it was found that the name of the assessee herein or the brokers through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concluded that the SEBI had not found any adverse findings with regard to the assessee or his registered share brokers vis a vis GIFL. Hence there is absolutely no iota of evidence linking the assessee or the registered brokers to even remotely allege that they were involved in artificial rigging of price of scrips which were dealt by the assessee herein. 6.4. We find that the ld AO had stated that GIFL is a company of no value. The revenue stream and the profitability chart reproduced hereinabove does not support the case of the ld AO. Moreover, the status reported by the ld AO about GIFL was in Asst Year 2008-09 which is neither the year of purchase of shares by the assessee nor the year of sale of shares in open market. Hence those findings are totally irrelevant for adjudication of the issue before us. 6.5. We find that the revenue had merely disbelieved the entire documentary evidences on record and alleged the share sale transactions made in the open market as bogus based on the statements recorded during survey, which does not have any evidentiary value. Reliance in this regard is placed on the decision of Hon ble Madras High Court in the case of S.Khader Khan (2008) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng market prices after suffering STT should not be doubted . None of the documents filed by the assessee with regard to purchase and sale of shares have been found to be deficient in any manner whatsoever by the revenue. From the turnover chart stated hereinabove, it could be seen that the revenue of GIFL had increased from ₹ 191 lacs as on 31.3.2012 to ₹ 2487 lacs as on 31.3.2014. This goes to prove that the projections given by the said company in its invitation letter to the assessee requesting for making preferential application of shares had proved to be correct and cannot be doubted. 6.7. We find that the ld AO had furnished certain list of parties who were alleged purchasers of shares from the assessee when it was sold in the open market by the assessee. The assessee had pleaded that since the shares were sold in the open market in online platform, he is not aware of the name of the parties as to who had bought the same in the open market. The ld AO sought to issue summons to those alleged purchasers of shares u/s 131 of the Act, which remain uncomplied by those parties. Based on this, the ld AO had drawn an adverse inference against the assessee disregarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be said that all his investment decisions would be prudent and would be done only after analyzing the entire fundamentals and financials of the investee company. It is in everybody s knowledge, that an investor would try to take calculated risks by investing his money on an unknown scrip based on certain information from friends, relatives, or in some stock market related websites and take a chance. Since the scrip purchased by the assessee was showing considerable growth from the time of purchase, the assessee being a gullible investor, continued to hold it for a period of 26 months and later sold it in open market in online platform at prevailing market prices. 6.9. We find that the co-ordinate bench of Kolkata Tribunal in ITA No.354/Kol/2018 in Sanjeev Goel (HUF) vs. ITO dated 24.08.2018 on similar set of facts and circumstances had held as follows:- 4. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 5. In identical cases, the submission of the assessee, findings of the Assessing Officer, findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all very sharply after the shares of LTCG beneficiaries have been off loaded through the pre-arranged transactions on the Stock Exchange floor/portal to the Short Term Loss seekers or dummy paper entities. xiii. The shares of these companies are not available for buy/sell to any person outside the syndicate. This is generally ensured by way of synchronized trading by the operators amongst themselves and/or by utilizing the mechanism of upper/lower circuit of the Exchange. 7. Aggrieved the assessee carried the matter in appeal. 8. The First Appellate Authority upheld the order of the Assessing Officer by giving his findings as follows:- a) The AO had placed on record the entire gamut of finding and there is no further requirement for elaboration. b) There is direct evidence to clearly indicate that the entire transaction undertaken by the assessee was merely an accommodation taken for the purpose of bogus long term capital gains to claim exempt income. The authorities such as SEBI have after investigating such abnormal price increase of certain stocks, suspended certain scrips. c) The submissions of the assessee pointed out towards elaborate documentation such as : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agarwal,-vs- ITO, Ward-35(3), Kolkata; I.T.A. No. 2281/Kol/2017; Assessment Year: 2014-15, while dealing with identical issue of sale of shares of M/s. Cressenda Solutions Pvt. Ltd., decided the issue in favour of the assessee by relying upon a plethora of judgments of various Courts. It held as follows:- 12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to Modus Operandi of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law. 15. In our view 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 Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the 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 bogusness or establish circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er third party documents are collusive transactions. 17. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. 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 Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian 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. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P. v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: 4. 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. 5. 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 adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement of the aforesaid two witnesses was the only basis of issuing the show cause notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES CONDUCTORS [ITA No. 78 of 2017] dated 19.06.2018. The High Court held vide Para 4.1: we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no corelation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. d) The BENCH D OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1: In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A). h) The Hon ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on account of sale of shares in the case of both the assessees. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed. 6.10. It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs Pr.CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) dated 10.4.2017 on the impugned issue. From the facts of Sanjay Bimalchand Jain supra, we find that (i) in that case, the broker company through which the shares were sold did not respond to AO s letter regarding the names and address and bank account of the person who purchased the shares sold by the assessee ; (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash ; (iii) The address of both the companies were interestingly the same ; (iv) The authorized signatory of both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of ₹ 1,41,08,484/- represented unexplained investment under section 69 of the Income Tax Act, 1961 cannot be faulted. 8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs. 6.12. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA was not justified in upholding the action of the ld AO in bringing the sale proceeds of shares of GIFL in the sum of ₹ 7,88,77,854/- as unexplained income of the assessee treating the same as just an accommodation entry. Consequentially, the addition made towards commission on such accommodation entry at the rate of 5% in the sum of ₹ 39,43,898/- is also hereby directed to be deleted. Accordingly, the grounds raised by the assessee are allowed. 7. In the result, the appeal of the assessee is allowed. 8. Since the facts involved in the present case are similar to the facts of the case as discussed hereinabove, therefore, we respectfully following the decision of the co-ordinate Bench, set aside the order of Ld. CIT(A) and direct the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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