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TMI Blog2021 (3) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Appeals)- 14, New Delhi {CIT (A)} for Assessment Year 2014-15. 2.0 The brief facts of the case are that return declaring taxable income of ₹ 85,85,510/- was filed on 30.7.2014 through e-filing and was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called the Act ). The case was selected for scrutiny through CASS. During the year under consideration, the assessee has declared income from house property, short term capital gain and other sources. Besides this, the assessee has declared income from long term capital gains to the tune of ₹ 5,83,61,303/- which has been claimed exempt u/s 10(38) of the Act. 2.1 During the year under consideration, the assessee had sold 7,50,000 shares of M/s Radford Global Ltd. for a total consideration of ₹ 5,99,40,819/- against the purchase of 1,50,000/- shares at ₹ 22,50,000/- resulting into long term capital gains of ₹ 5,76,90,819/-. The assessee was allotted 1,50,000/- preferential shares on 20.1.2012 at a price of ₹ 15/- per share which included premium of ₹ 5/- per share. Subsequently, these shares were split and the assessee was allotted 7,50,000 shares of M/s Radford Global L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrip increased substantially only after Radford Group Suspected Entities and allottees started trading in the scrip. The average volume increased by 5,05,066% (5050 times) during the patch I, i.e., from 98 shares per day to 4,95,063 shares per day and the price increased by 74.8% during the same period, i.e. from ₹ 49.2 to ₹ 86. Radford Group Suspected Entities were trading in the scrip above the LTP and their trades created artificial volumes and manipulated the price of the scrip during the examination period. It is further noted that on the days when Radford Group Suspected Entities were not trading, the trading volumes in the scrip were very low and the substantial increase in traded volumes as observed in this case was mainly due to their trading. I further note that Radford Group Suspected Entities and allottees traded amongst themselves as substantiated by their matching contribution to net buy and net sell in patch I. there was no change in the beneficial ownership of the substantial number of traded shares as the buyers and sellers both were part of the common group and were acting in league/concert to provide LTCG benefits to the allottees. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of trade of Sh. Mukesh Mittal obtained from Extracts of order log and trade log drawn from the date provided to us in CD by SEBI is as under: Date Qty. Ordered Qty. sold to persons mentioned in Table IV of the interim order* Qty. sold to others Total Qty. sold Qty. unsold 26.4.2013 150000 87649 62351 150000 ---- 7.5.2013 250000 25000 ---- 25000 ---- 8.5.2013 64691 14691 50000 64691 ---- 20.5.2013 100000 10000 ---- 100000 ---- 20.6.2013 123028 123028 ---- 123028 ---- 26.6.2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd Global Limited was not out of his own funds but funded by Radford group or other suspected entities; p) That similarly no evidence has been brought on record that consideration received on sale of shares of Radford Global Ltd. was black money of Sh. Mukesh Mittal routed through Radford group or other suspected entities and converted into Tax free LTCG; q) That SEBI itself has admitted that there were proper Board Resolutions in place for issuing the preferential shares. The company had properly issued of preferential shares after taking shareholder/board approvals. SEBI has not contended or contested the validity of the issue of the preferential allotment and hence the preferential shares allotted to the assessee were under due process of law; and r) That in the absence of cogent material no much presumption can be drawn that entire purchase and sale transactions of Sh. Mukesh Mittal was a device for the purpose of money laundering by Sh. Mukesh Mittal and to convert black money into tax free LTCG. 2.4 The AO, however, denied the claim of ₹ 5,76,90,819/- being not taxable u/s 10(38) of the Act on sale of shares of M/s Radford Global Ltd. in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed both in law and on fact in sustaining addition of ₹ 5,94,89,044/- representing long term on sale of equity share and 3% commission on sale vlue of shares through registered stock exchange and brought to tax u/s 68 of the Act at the rate provided u/s 115BBE of the Act, though the same was eligible for exemption u/s 10(38) of the Act. 1.1 That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term capital asset was not includible in total income of the assessee in view of section 10(38) of the Act. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the calim of sale of share and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irreleva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the assessee. It was submitted that this was the sole reason for rejecting the claim of the assessee. It was argued that the AO did not make any further investigation into the matter. He contended that the material upon relied by the AO was not provided to the assessee. Neither copies of statements of alleged entry operators were supplied nor was cross examination provided. It was submitted that the AO has mechanically lifted the conclusions/observations from the interim order without making any independent inquiries either from the SEBI or the stock exchange to ascertain genuineness of such transactions. He submitted that the theory of preponderance, human probabilities, circumstantial evidence so called rules of suspicious transactions are not applicable in respect of transactions of listed security where the transactions are supported by evidences on record. He submitted that the assessee is a habitual investor having portfolio of investment in shares and has earned capital gains both in preceding and succeeding years. It was submitted that the allegation that there was an astronomical increase in the price of share of M/S Radford Global Ltd. (old Name PS Global Ltd) cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of probability against the assessee. It was argued that the modus operandi was examined by the Kolkata Investigation Wing because there was a rigging in the profit. It was also contended that the order dated 20.9.2017 could not be relied upon since the company M/s Radford Global Ltd. was yet a penny stock company and had not been cleared by SEBI. Therefore, the authorities below had correctly made the addition against the assessee. Reliance was placed upon the decision of Delhi Bench of ITAT in the case of Suman Poddar vs. ITO dated 25.07.2019, which was confirmed by the Hon ble Delhi High Court dismissing the appeal of assessee vide order dated 17.09.2019 in ITA.No.841/2019. The judgment of Hon ble Delhi High Court in the case of Udit Kalra vs., ITO in ITA.No.220/2019 dated 08.03.2019 in which scrip of M/s. Kappac Pharma Ltd., has been considered, was also relied upon. 5.0 We have heard the rival contentions and have also perused the relevant records available with us, especially the orders of the revenue authorities and the case laws referred hereinabove. The assessment order clearly shows that the AO has merely reproduced the modus operandi of the entry providers who boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... global Ltd. The learned CIT-A was also heavily harping upon the orders of the SEBI for confirming the addition. In interim order in Redford global Ltd, dated 19/12/2014 assessee was restricted to access the securities market till further directions. Subsequently, on 20/09/2017, SEBI passed an order in that company holding that there are no adverse findings against the aforementioned 82 entities, which included the family of the assessee, and the assessee himself with respect to their role in the manipulations in prices of the script of the company. Therefore, it revoked the original order passed on 19/12/2014. .. .. 31. Almost similar orders were passed in all the companies wherever the income tax department asked the SEBI to enquire. The assessee has placed all these orders at page number 302 419 of the paper book. Furthermore, the para number 96 of the above order clearly shows that the intimation is also given to The Director General Of Income Tax Investigation, New Delhi and The Principal Director Of Income Tax Investigation Kolkata and Chandigarh for necessary action. From this, it is apparent that reliance on the interim order of securities exchange control Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the assessee to disprove the claim of assessee. It is not the case of the Revenue that amount received on sale of shares is more than what is declared by the assessee. The assessee pleaded that the Interim Order of the SEBI have been diluted by passing final order in which no adverse view have been taken against the aforesaid company. Thus, the assessee s claim of purchase and sale of shares have been supported by documentary evidences. The statement of Shri Sanjay Vohra was recorded by the Investigation Wing, Kolkata, but, the same was not confronted to the assessee and his statement was also not subjected to cross-examination on behalf of the assessee. Therefore, his statement cannot be read in evidence against the assessee. The A.O. did not mention any fact as to how the claim of assessee was sham or bogus. The assessee satisfied the conditions of Section 10(38). The broker through whom transactions were carried-out have not denied the transaction conducted on behalf of the assessee. It, therefore, appears that the addition is merely made on presumption and assumptions of certain facts which are not part of the record. There is no other material available on record to reb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse material against the assessee so as to make the above additions. Considering the totality of the facts and circumstances of the case and financials of M/s EBFL as reproduced above and other years [PB-76], we set aside the Orders of the authorities below and delete both the additions. 7 In the result, appeal of the assessee allowed. 5.4 We also find that the AO has held that many share brokers as well as many employees of these share broking companies in Kolkata, in their statements recorded under section 131 of the Act, have admitted to the fact that they have artificially inflated the prices of the shares of their dummy companies to deliberately provide bogus accommodation entries of the long term capital gain/loss, short term capital gain/loss to the beneficiaries. However, no such statement has been confronted or supplied to the assessee during the course of assessment proceedings. In fact no specific statement has even been referred by the AO in the order of assessment or in the show cause notice extracted in the order of assessment. On the contrary, the fact is that the assessee is a habitual investor. The undisputed details of investment and disinves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.1.2019 1,93,011 13,689 Polka Resorts (P) Ltd. 23.3.2019 1,08,00,000 23.1.2017 22,95,082 85,04,918 MotilalOswal 7.9.2018 1,10,37,986 16.5.2017 98,00,000 12,37,986 5.5 It is also seen that the assessee has placed on record complete documents and evidences to support purchase and sale of shares of M/s Radford Global Ltd. The sale was through screen based trading and STT and all charges were duly paid. The consideration was received through banking channels. In such circumstances, the AO ought to have conducted independent enquiries and verifications with due application of mind before drawing any adverse inference. Thus, the approach of the Assessing authority in making the addition is also contrary to section 142(1) of the Act which provides that for the purpose of obtaining full information in respect of income or loss of any person, the AO may make such enquiry as he considers necessary. 5.6 Much has been argued before us as to the astron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic Food Processing Ltd - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red into by the AO. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO. 5.9 In yet another case of Odeon Builders (P) Ltd 110 Taxmann.com 64, the Hon'ble Supreme Court, while dismissing the review petition, held as under: However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of ₹ 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the Ld. CIT (A) allowed the appeal of the assessee stating: Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has brought any clinching evidence to disprove the evidences produced by the assessee. 24. Our above view is fortified by the decision of the Hon'ble Delhi High Court in the case of Fair Invest Ltd 357 ITR 146. The relevant findings of the Hon'ble Jurisdictional High Court of Delhi read as under: 6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if neces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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