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TMI Blog2021 (11) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... e script involve in the above case is also in the present case. Thus we also find support and guidance from the finding given in aforesaid case. We hold that the capital gain earned by the assessee cannot held bogus merely on the basis of some report which was unearthed in case of third party/parties unless cogent material brought against particular assessee. - Decided in favour of assessee. - ITA No. 280/AHD/2019 - - - Dated:- 29-10-2021 - Shri Rajpal Yadav, Vice President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri Ketan Shah, with Shri Aman Shah, A.Rs For the Revenue : Shri S.S. Shukla, Sr.D.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-3,Ahmedabad, dated 24/01/2019 arising in the matter of assessment order passed under s. 143 of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2015-16. 2. The only interconnected issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by treating the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the activity of providing bogus/accommodation entry in form of long-term capital gain to the beneficiaries on the purchase and sale of the companies as discussed above. 3.4 Similarly, the AO also found that SEBI has suspended the trading of the shares of the companies as discussed above on the stock exchange vide order dated 28-04-2015 and 01-01-2015. 3.5 There was no consistency between the price rises of the shares of the aforesaid companies viz a viz financial performance of these companies. Accordingly, the price rise in the shares of these companies in such short period of time does not have any conformity. 3.6 On analyzing the trade data obtained from the stock exchange, the AO found that the trading in the scripts of these companies were very limited in the period beginning from April 2013 to November 2013. Thereafter, there was sudden hike in the trading of the scripts of these companies which suggests that the price was rigged up in the organized manner in order to extend the benefit to the beneficiaries by generating exempted long-term capital gain in their hands. 3.7 Based on the above, the AO proposed to treat the amount of capital gain shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares has not immediately dematerialized them. Rather the assessee kept the share with himself for a long time in physical form. The shares were dematerialized upon the splitting up of the shares of the company namely M/s Life Line Drugs Pharma Pvt. Ltd. There was no reason provided by the assessee for holding the shares for such a long time in physical form. 3.13 The assessee has also not justified the reason for the rise in the price of the share in such a short span of time despite there was no information on record about any future plan/project of the company. Similarly, the financials of the companies were also not suggesting such price rise in the scripts. 3.14 The party who sold the shares to the assessee was registered broker. But the assessee did not use his services to dematerialize the shares of the aforesaid companies. As such the assessee, after a long gap has dematerialized the shares with the assistance of another broker namely M/s Monarch Research and Brokerage Pvt Ltd. 3.15 There were summons issued to the seller of the scripts to the assessee being M/s Bhagwandas Co. and the broker of the assessee under section 131(1)/133(6) of the Act. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial evidence are very much important in holding the genuineness of these type of transaction. As such the analysis of trading data of share of both the companies, it emerged that these are penny stock. The assessee by using the modus operandi of penny stock i.e. invested in unknown script in offline transaction at very nominal amount and generated huge exempted income in short span of time after price of the share increased in organized manner. Accordingly the learned CIT(A) after placing reliance on various case law confirmed the order of the AO. 5. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal. 6. The learned AR before us filed a two paper books running from pages 1 to 233 1 to 277 and contended that the assessee was not involved in reading of the price of the scripts. Likewise, there was no opportunity of cross-examination of the statements/details obtained by the investigation wing of Calcutta was provided. Thus, in the absence of such verification, there cannot be any addition to the total income of the assessee by treating the long-term capital gain as unexplained cash credit under section 68 of the Act. 7. On the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for exemption under section 10(38) of the Act. However, there was no information available on record whether the name of the assessee was appearing in the investigation carried out by the investigation wing of Kolkata or any other investigation carried out by the Income Tax Department. 8.3 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that the assessee in question was part of this scam. The chain of events and the live link of the assessee s action that he was involved in the scam should be established based on cogent materials. The allegation as discussed above implies that cash was paid by the assessee and in return the assessee received LTCG, which is an income exempted from tax, by way of cheque through banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the Revenue. 8.4 There is no dispute raised by the Revenue with respect to the following facts: (i) All the evidence of sale and purchase of shares, including contract notes were submitted. No fault with these documents has been found. (ii) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. 8.6 Respectfully following the judgment of Hon ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of both companies is concern. 8.7 We also draw support and guidance from the judgment of Hon ble Punjab and Haryana High Court in the case of PCIT Vs. Prem pal Gandhi reported in 94 Taxmann.com 156 wherein it was held as under: 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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