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TMI Blog2018 (10) TMI 1913X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax. We direct the ld AO to delete the addition made u/s 68 of the Act in respect of sale consideration of sale of shares and the corresponding addition towards commission income. Accordingly, the grounds raised by the assessee are allowed in all the appeals herein before us. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee with the depository participant on 7.3.2013. Later these shares were sold in the recognized stock exchange ( i.e open market) through a registered share broker on various dates between April and June 2013 , relevant to Asst Year 2014-15 for ₹ 2,24,33,154/- and LTCG thereon was worked out at ₹ 2,19,33,154/-. The details of the same are as under:- 4. The ld AO sought to treat the said LTCG as bogus as according to him, the scrip did not justify such a huge increase in its sale price and that the increase in share price thereon was only artificial and due to price rigging carried out by some persons in the market. He observed that the financials of the said company ( i.e Cressanda Solutions Ltd ) did not justify such a huge increase in share prices ; that prices have been artificially rigged upwards by some entry operators ; that the scrip was not traded in huge volumes in the market ; and that moreover, the management of both Smart Champs IT & Infra Ltd and Cressanda Solutions Ltd remained the same. He analysed the movement in share price of this scrip and based on the report of the investigation wing, he concluded that the concerned stock had been converted into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of ₹ 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over- looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled as 'Value Investing and Behaviorial Finance (Insights into Indian Stock Market Realities)' wherein the various human behaviour with regard to the time of purchase of scrip and exit from stock markets were listed out. 7. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee as well as the ld DR. The only issue to be decided is whether the LTCG on sale of shares of Cressanda Solutions Ltd earned through sale in recognized stock exchange and subjected to payment of STT through a registered share broker , could be treated as genuine or not. We find that the assessee was allotted the shares of M/s Smart Champs IT & Infra Ltd pursuant to application made by the assessee in that regard together with the cheque payment of ₹ 5,00,000/-. The assessee was allotted 50000 shares by the said company directly on 3.12.2011 ( relevant to Asst Year 2012-13) at face value of ₹ 10 each. This purchase of shares were duly reflected in the books of accounts of the assessee along with other transactions. We find that the assessee had made total investments to the tune of ₹ 8,49,80,332/- including the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging of STT from the assessee in respect of sale of shares made through the recognized stock exchange (enclosed in page 83 of Paper Book). (f) Demat Statement of the assessee in respect of various scrips including the scrip of Cressanda Solutions Ltd containing the number of shares held in each scrip after each sale (enclosed in Pages 84 to 87 of Paper Book). 7.3. With regard to the arguments of the ld DR that at the time of purchase of shares of Smart Champs IT & Infra Ltd by the assessee, the shares of Cressanda Solutions Ltd were very much available in the stock market and the assessee could have very well bought the shares of Cressanda Solutions Ltd from the open market. He need not have resorted to purchasing the shares of Smartchamps and later on get it merged with Cressanda Solutions Ltd. In this regard, we find from the materials available on record, that the assessee was not the director or promoter of either M/s Smartchamps IT & Infra Ltd or Cressanda Solutions Ltd prior to the merger. Assessee was only a shareholder in Smartchamps and pursuant to the merger of that company with Cressanda, the assessee was allotted shares in Cressanda Solutions Ltd, which cannot be fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs PCIT, Nagpur & Another in ITA No. 18/2017 dated 10.4.2017 which is also a non-jurisdictional High Court decision. In these circumstances, the Hon'ble Apex Court in the case of Vegetable Products had held that when there are conflicting views on an issue for and against the assessee by the different non-jurisdictional high courts, the construction which favours the assessee should be followed. Accordingly, the decision of Hon'ble Punjab & Haryana High Court supra would have to be followed in the instant case before us. 7.5. We also find that the entire issue with regard to sale of shares of Cressanda Solutions Ltd had been the subject matter of adjudication by this tribunal in the case of Navneet Agarwal, L/H of Later Kiran Agarwal vs ITO in ITA No. 2281/Kol/2017 dated 20.7.2018, wherein it was held as under:- "10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows. 11. The assessee in this case has stated the following facts and produced the following documents as evidences: 1. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing in the ledger is placed in the paper book at page no. 66. 8. The holding period of the said scrip is more than one year (above 500 days) through in order to get the benefit of claim of Long Term Capital Gain the holding period is required to be 365 days. 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 evidencesproduced by the assesseeare 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 or the general observations based on stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, just the modus operandi, generalization, 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 circumstance unerringly and reasonably raising an int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 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 smuggl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 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 ofnatural 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 SC1623, 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 betaken 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a 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. Radh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -3-2005[2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 7. In view the above, we are of the opinion that if thetestimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the 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 CALCUTT AHIGH COURT in the case of BLBCABLES & CONDUCTORS [ITA No. 78 of2017] dated19.06.2018. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner." The Court also held the following vide Page 3 Para 5 the following: "Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the 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 co-relation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assesse/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law as laid down in the above-mentioned judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax. 21.Under the circumstances and in view of the above discussion, we uphold the contentions of the assessee and delete the addition in question. 22. In the result, the appeal of the assessee is allowed." 7.6. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the ld AO to delete the addition made u/s 68 of the Act in respect of sale consideration of sale of shares and the corresponding addition towards commission income. Accordingly, the grounds raised by the assessee are allowed in all the appeals herein before us. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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