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TMI Blog2021 (1) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... he D-mat account which is also an independent material and evidence cannot be manipulated. The holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. The order of the AO treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... n his report. AO asked the assessee to submit the transactions in demat account and based on the details, notices u/s 133(6) were issued to the purchasers of these shares. The identity or credit worthiness of these purchasers were not submitted and the assessee took a plea that these transactions were executed through stock exchange. 6. The statement of the assessee were recorded u/s 131 of the Act by the AO in order to appreciate the facts and AO analyzed the statement and observed in his order that the notice issues to Bushit Trading Pvt Ltd returned unserved and the details of this company given by the assessee are not proper and as per the statement given by shri Jagdish Purohit under oath that Shri Eknath Mandavkar director of Bushit Trading is an entry operator. Therefore, AO came to the conclusion that assessee is having acquaintance with the entry provider. He observed tat another company involved in the transaction is Compass Distributor and assessee purchased the shares off the market by paying to the unknown company. Not only the assessee invested in the above share, his other family members also purchased the same. 7. When the detailed show cause notice was issued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai on BSE screen based platform on various dates. Following the sale of shares, the Broker issued contract notes cum Bills for sale of shares (copy submitted). The shares were transferred from Demat Account No. 1205220000007893 to the Broker's account, who then transferred to BSE. e) After transfer of shares from my Demat A/c to Broker's A/c, M/s. BHH Securities Pvt. Ltd., who received the payment from BSE, issued the cheques in my favour which were then deposited and realized in Saving A/c 27408. Copy of Bank pass book for 2014-15 is enclosed. f) From the series of above events, your goodself will appreciate that the transactions of purchase and sales of shares were genuine and the LTCG claimed is not bogus or accommodation entry, 4) Under Para No. 05.1 of SCN, the financial results of 'PS IT Infrastructure' for year ended 31-03-2012 & 31-03-2013 are mentioned but without comparing them with results for year end 31-03-2014 & 31-03-2015. The Annual reports of PS IT Infra far subsequents years are enclosed for your perusal : 31-03-2012 (from Notice) 31-03-2013 (from Notice) 31-03-2014 (Annual Report Attached) 31-03-2015 (Annual Report Attached) Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange. It was noticed that most of these parties were Kolkata based and traded through Kolkata Stock Exchange, Further no reply was received about their financials, nature of business to prove the genuineness and creditworthiness of these companies. So, in your case, these parties who have purchased your shares through Stock Exchange are in the nature of exit providers only as they have failed to prove their creditworthiness," There is no privy of contract between the assessee {Seller} and the Buyers because the shares were sold on BSE screen based trading plat form, through SEBI registered stock broker M/s. BHH Securities Pvt. Ltd., who have charged STT, Service tax and Brokerage. Under the system, assessee has no knowledge about the buyers. Therefore, he is not responsible if the so called buyers or exit providers have not replied to your Notices about their financials and nature of business to prove their genuineness and credit worthiness. Just because, the parties have not replied to your Notice, the LTCC cannot be treated as bogus or accommodation entry. 7) Para 6.2 of SCN : The shares of PS IT Infra were purchased off-market from M/s. Compass Distributors Put. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncel the proposed addition of ₹ 99,55,347 as unexplained cash credit u/s. 68 of the Act & oblige. 8. After considering the submissions of the assessee, AO gave his findings in his order as below: a. Mode of acquisition of the shares: The assessee has mainly traded in single scrip. Assessee had purchased 12,500 shares of M/s Parag Shilpa Investment Ltd. This purchase was an Off-market purchase. Assessee paid cheque of Rs,5,00,000/- to an entity which he was not aware off. Assessee has not purchased shares of this company through any known persons. He contacted Shri Eknath of an unknown company (Bhushit Trading Pvt Ltd) and purchased shares through Kolkata Based shareholder (Compass Distributors Pvt Ltd) without verifying its genuineness. b. Sale of shares and unusual rise in the price: Further the assessee has sold all the shares for sale consideration of ₹ 1,04,55,347/- which is 21 times the increase of the cost price, and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Investment Profile of the assessee; Assessee has mainly invested in shares of his own companies or companies of his relatives. Assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penny stock companies: The net worth of the penny stock company is negligible. Even though the net worth of the company and the business activity of the company is negligible the share prices have been artificially rigged to unusual high. i. Arranged transactions; The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. 9. AO by relying on various case law, disallowed the LTCG claimed by the assessee and made the addition u/s 68 of the Act. 10. Aggrieved with the above order, assessee preferred the appeal before Ld. CIT(A) and Ld. CIT(A) after considering the submission of the assessee dismissed the appeal of the assessee with the following observations:- 6.10. The contention of the Ld. AR has been considered and noticed that the same is very routine, without any merits and credible documents, hence not tenable. The above AOs have given detailed findings, done due analysis of shares purchased and sales, financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mentioned grounds at/or before the time of hearing of appeal. 12. Before us Ld. AR appearing on behalf of the assessee briefly explained the facts that assessee purchased the shares @ 40 per share by making payment through bank and followed all the procedures and rules for claiming deduction u/s 10(38) of the Act. She submitted that the facts in this case are exactly similar to the facts of the case of Ramprasad Agarwal vrs. ITO reported in 100 taxmann.com 172(Mum - Trib) and Kamla Devi S. Doshi vrs. ITO reported in 88 taxman.com 773 (Mum-Trib). 13. On the other hand, Ld. DR brought to our notice findings of AO and submitted that AO has made detail enquiries and brought on record that it is a classic case of misusing the provisions of section 10(38) of the Act. She brought to our notice para 15 of the assessment order and in particular, she brought to our notice sub-para (iv) of para 15 and submitted that AO concluded on the basis of above analysis, documentary evidences, circumstantial evidences and preponderance of probabilities is that what is apparent in this case is not real and the financial transactions were sham and colourable device used to evade tax. She further broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te bench of the Tribunal in ITA Nos.443 & 444/JP/2017 A.Y. 2013-14 and 2014-15 in the case of Meghraj Singh Shekhawat vs. DCIT. We find that the facts of the assessee's case are identical to the case as cited above. The relevant paras are reproduced as under: 2. Ground Nos. 1 to 5 are regarding the long term capital gain from sale of shares declared by the assessee and claimed as exempt income u/s 10(38) of the Act was treated by the AO as bogus and added the said amount to the total income of the assessee u/s 68 of the Act. The assessee is an individual and engaged in the business of retail sale of IMFL/Beer. A search u/s 132 of the Income Tax Act was conducted on 17.07.2013 in case of MRS Group of which the assessee belongs. In the Return of income filed in response to notice u/s 153A of the Act, the assessee declared total income ₹ 16,08,31,700/- including the income surrendered and declared by the assessee during the search and seizure action of ₹ 12,12,04,711/- as undisclosed income earned from business and profession. During the assessment proceeding the AO noted that the assessee has shown long term capital gain of ₹ 1,32,56,113/- which is claimed as exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has converted its unaccounted income in the long term capital gain. He has further contended that even in the said statement recorded u/s 132(4) Shri Anil Agarwal has not mentioned any fact about providing bogus long term capital gain entry to the assessee or even he was a promoter of M.s Rutron International Ltd. The ld. AR has further submitted that the assessee specifically demanded the cross examine of Shri Anil Agarwal on whose statement the AO has based his assessment order and made addition on account of bogus long term capital gain. Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman timber Industries 127 DTR 241. The addition made by the AO is not sustainable. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of ₹ 10/- each without charging any premium under preferential issue. He has referred to the bank statement of the assessee and submitted that the assessee paid the purchase consideration/ share application money vide cheque on 29.02.2012 the payment made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Coordinate Bench of this Tribunal dated 31.01.2018 in case of Pramod Jain & others vs. DCIT in ITA No. 368/JP/2017 and submitted that in all these decisions when the assessee produced the supporting evidence to prove the genuineness of the transactions and the AO has failed to produce any counter evidence to disprove the evidence produce by the assessee it was held that the transactions cannot be treated as bogus merely on the basis of statement without any corroborating evidence brought by the Assessing Officer. 4. On the other hand, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to avoid tax through long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding M/s Rutron International Ltd. The nature of service was also explained by Shri Anil Agrawal as the consultancy services. For ready reference we quote question No. 4 and 5 and answer, thereto in the statement of Shri Anil Agarwal as reproduced as under:- Q 4. Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the following companies or have ever had any business transactions with the companies as mentioned below: 1. First Financial Services Ltd. (FFSL) 2. Splash Media and Infra Ltd. ( SPMIL) 3. D B (International) stock Brokers Ltd. ( DBSBL) 4. Unisys Softwares & Holdings Industries Ltd. (USHL) 5. Fact Enterprises Ltd. ( FEL) 6. Parikh Herbal Ltd. ( now Safal Herbs Ltd) 7. Premier Capital Service 8. Rutron Internationa Ltd. 9. Radford Global Ltd 10. JMD Telefilms Industries Ltd 11. Dhanleela Investments & Trading Co. Ltd. 12. SRK Industries Ltd. 13. Dhenu Buildcon Infra ltd. Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 assessee in the mean time got the physical share ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 event of merger/ amalgamation. However, the same ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company through private placement after com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Adjudicating Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of suspicion and surmises and observed in par 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 of any such acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (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 ..... 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 non-genuine. 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account." 10. It is clear from the above that the facts of the case of the assessee are identical with the facts in the above case wherein the co-ordinate bench of the Tribunal has deleted the addition. We, therefore, respectfully following the same set aside the order of Ld. CIT(A) and direct the AO to not to treat the long term capital as bogus and delete the consequential addition. 11. In the result, appeal of the assessee is allowed. 16. Therefore, respectfully following the decision of Coordinate Benches of ITAT which is applicable mutatis mutandis in the present case, we are inclined to accept the submission of Ld. AR. Accordingly, the grounds 1, 2 & 3 raised by the assessee are allowed. 17. Since the other appeal filed by the different assessees for Assessment Years 2014-15 are similar to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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