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TMI Blog2018 (2) TMI 2087X X X X Extracts X X X X X X X X Extracts X X X X ..... venue. From the materials produced before us there is nothing on record to establish that the transactions of purchase and sale of shares made by the assessee are dubious other than the fact that the share prices of M/s. PFL Infotech Ltd., rose substantially without sound backing and the statements of few persons such as Shri Aspi Bamanji Vairava, Shri Pankaj Kumar K Shah Shri Dipti P Shah. At the same time it should be kept in mind that stock prices may raise due to certain hidden factors which may be not known to the public at large even with respect to blue chip companies. Hence conclusion cannot be bluntly made on the basis of surmises and conjectures in the case of any assessee when certain other material factors are in favour of the assessee. The Hon ble Punjab Haryana High Court in the case CIT vs. Anupam Kapoor [ 2007 (2) TMI 159 - PUNJAB AND HARYANA HIGH COURT ] in a somewhat similar situation has categorically stated that no presumption could be drawn by the Assessing Officer merely on surmises and conjectures. We hereby direct the Ld.AO to delete the addition made by invoking Section 68 of the Act and also to grant deduction U/s.10(38) of the Act by treating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otech Ltd. From the information gathered from the survey, the Ld.AO made the following findings: (i) The assessee had purchased 17,49,000 shares in the month of July and August 2012 for Rs.3,91,41,485/- at the rate of Rs.22.38 per share. Thereafter, though the financials of the company were minimal the stock prices shot up to Rs.760/- per share in the month of May 2014 without any basis. (ii) At the time of investment of Rs.3.91 crores by the assessee in the purchase of shares of M/s. PFL Infotech Ltd., the company s share was unworthy for such investment. (iii) At the time of sale of the share the shares were quoted at profit-earning ratio of nearly 21,000 times which is highly improbable in the normal course unless the shares are spiked artificially. (iv) The company did not possess any credentials worthy of mentioning. (v) The initial name of the company was M/s. Pioneer Farms Ltd and was engaged in the business of poultry farming. Thereafter the name of the company was changed to M/s.PFL Infotech Ltd thereby giving a colour of Software Company in order to take the benefit of booming software industry. (vi) The company for the past four years was disclosing mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. PFL Infotech Ltd. (xviii) Though many of the notice U/s.131 of the Act sent to the buyers of the shares was returned as un-served, the assessee failed to co-operate with the department to produce the buyers of the shares or to prove that the shares of M/s. PFL Infotech Ltd. are not spiked. (xix) One of the buyer Shri Aspi Bamanji Viarava in his letter dated 12.12.2016 had stated that he had not undertaken to purchase the share of M/s. PFL Infotech Ltd. When confronted with the assessee, he had replied stating that the sale transactions of the shares were made through BSE. However as per the office record of the Revenue the sale transaction was direct between the assessee and Shri Aspi Bamanji Viarava. (xx) Similarly the other purchaser of the shares Shri Pratik Pankaj Kumar Shah and his relatives Shri Pankaj Kumar, Ms. Deepti Pratik and Smt. Bharathi Pankaj vide their letter dated 12.12.2016 had stated that their Demat accounts were operated by Shri Bhupesh Rathod for a small commission. When confronted with the assessee, the assessee simply replied by stating that the purchase and sale of shares were made through BSE. (xxi) It was a well-known fact that the messa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income from profits and gains of business . h) Drawing the same analogy the profits earned by the assessee on sale of shares amounting to Rs.34,68,10,572/- has to be treated as income under the head profits and gains of business and not under the head capital gains . i) For the above stated reasons the assessee is not eligible to claim the exemption U/s.10(38) of the Act with respect to the gain of Rs.32,90,96,125/- arising out of sale of shares. j) Since M/s. PFL Infotech Ltd., lacks credentials, identity in the market and financially unworthy, it is apparent that the share price of M/s. PFL Infotech Ltd., was pumped and dumped during the period of the shareholding by the assessee company and clearly points out that the transactions are fabricated to suit the assessee. k) The deposition of the assessee that he has been tipped that the stock prices of M/s. PFL Infotech Ltd., is bound to escalate in a short span of time is itself an evidence to establish that the transactions are artificially spiked. l) The above facts have also leads to establish that the assessee had colluded with entry operators to artificially spike the shares. m) The statement made by Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 623; The company, whose shares are spiked has no fundamentals. The buyer of shares are not credit worthy The assessee is not able to provide a satisfactory reason to substantiate the genuineness The assessee only insists that the shares are sold through stock exchange after suffering STT. Beyond this aspect, he has no further evidence to adduce The spiking of shares and being bought at such unreasonable and excessive price defeating the theory of human probabilities, The transactions in illiquid shares has only brought maximum profits to the assessee and his family members and that too exempt profits, which is again against the principle of Human Probabilities Thereafter the Ld.AO heavily relied in the decision of the Mumbai Benches of the Tribunal in the case ITO vs. Shamim M. Bharwani reported in 69 taxmann.com page 65, wherein it was held that Held that it was noted that the purchase of shares was off market purchase not reported in the stock exchange. Moreover, the purchase was through a back date contract note in cash and, there was no trial. It was also noted that the shares belonged to a penny stock company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue and same is within reach of assessee, judicial body cannot act on such interested testimony of assessee alone. Further reliance was placed in the decision of the Hon ble Apex Court in the case CIT vs. P. Mohanakala others reported in 291 ITR 278, wherein the burden of proof with respect to cash credit U/s.68 of the Act is vested on the assessee by relying in the decision of the Hon ble Apex Court in the case Mrs. Sumathi Dayal. (viii) The assessee had failed to discharge his duty in proving the fact and substantiating the transactions adhered to natural course of event and human conduct. Reliance was placed in the decision of the Hon ble Apex court in the case K.Ponnusamy vs. State of TN wherein the importance of proving a fact is elaborated. (ix) Heavily relying in the decision of the Mumbai Benches of the Tribunal in the case ITO vs. Shamim M. Bharwani cited supra it was opined that when all the adverse factors are viewed holistically, there cannot be an iota of doubt in classifying the transactions as manipulations. Therefore the Ld.CIT(A) came to a conclusion that it was well established, the capital gain earned by the assessee is actually his unexplained income re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.22.38 per share for Rs.3,91,41,485/-. (ii) M/s. PFL Infotech Ltd., did not possess any credentials worthy of mentioning. (iii) M/s. PFL Infotech Ltd. was only earning income from other source of approximately Rs.40 lakhs per annum for the past four years and also had negative reserves when the assessee sold the shares at an exorbitant price amounting to Rs.760 per share. (iv) The profit-earning ratio of shares was merely 21,000 times which is improbable in the normal course unless shares are spiked artificially. (v) The assessee did not have any previous experience in trading of shares. (vi) M/s. Lodha Securities Ltd., Mumbai had only traded in the shares of M/s. PFL Infotech Ltd. (vii) There were adverse reports from money life in such share price rigging operations. (viii) The assessee and his relatives were in the habit of dealing with illiquid shares which was spiked artificially during the past. (ix) The investment made by the assessee in M/s. PFL Infotech Ltd., based on a tip received from third party appears to be peculiar and such similar transactions was made by the brother of the assessee by purchasing shares of M/s. Risa International. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Ld.AO in Annexure E , that nearly 355 individuals had made bulk deals in shares of M/s. PFL Infotech Ltd., through NSE and BSE. However neither the Ld.AO has made detailed investigations with respect to all these individuals in order to pin them also along with the assessee for having dealt with the shares of the alleged penny stock company M/s. PFL Infotech Ltd nor the facts pertaining to those persons are brought to our knowledge. Further from the facts of the case, it is evident that the entire transactions are transacted through recognized stock exchange and all the financial transactions are made through banking channels and the same is not in dispute. The Ld.AR had also affirmed that though SEBI had debarred the trading of shares of M/s. PFL Infotech Ltd., for a short-while due to technical reasons, the bar was lifted subsequently and the shares are being traded in the recognized stock exchange till date. This fact is also not disputed by the Ld.DR either. The finding of the Ld.AO that the company M/s. PFL Infotech Ltd., did not have any credentials worthy of mentioning only leads to a suspicion that the transactions are bogus. But it should be kept in mind that in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see will be able to get such particulars from strangers who had purchased shares from the assessee through recognized stock exchange. In fact the Revenue had all the opportunity to summon them and obtain the requisite particulars which they had grossly fails to exercise. The Ld.AO has also relied on the message propagated by money life but he has not made a finding as to how it is applicable in the case of the assessee. The Ld.AO has also pointed out about the bank accounts being opened by various individuals without following KYC norms. However the Ld.AO has not examined those individuals in order to establish his adverse finding on the assessee. It is also pertinent to mention that no detailed Paper Book is filed by the Revenue before us with respect to M/s. PFL Infotech Ltd., or the assessee to establish that the assessee has indulged trading in penny stock company for converting his unaccounted money. The reference made by the Ld.AO with respect to asset classification by banking institutions viz., available for sale (AFS) and the relevant CBDT Circular No.17 dated 26.11.2008 is not applicable to the case of the assessee because the assessee is not a banking institution. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the Ld.AO that the assessee and his relatives were in the habit of dealing with illiquid shares which are spiked artificially will not hold water unless all those instances are proved with substantive evidence. The observation of the Ld.AO that the assessee had purchased the shares only to obtain profit from sale of those shares and had no intention for earning dividend income also does not seem to be appropriate because any investors is at liberty to exploit gain from dealing with their investment in the best possible manner. In the case of the assessee though there is a strong needle of suspicion arising due to the unnatural fluctuation of the price of the shares of M/s. PFL Infotech Ltd., no clear cut evidence is brought forth by the Revenue in order to nail the assessee for penal consequence. In these circumstances we do not find any merit in the Order of Ld.AO for making addition in the hands of the assessee U/s.68 of the Act with respect to the Long Term Capital Gain earned by him from the sale of shares of M/s. PFL Infotech Ltd., or treating the Long Term Capital Gain earned by the assessee as income from business or denying the benefit of Section 10(38) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case the issue was with respect to addition made under the head cash credit U/s. 68 of the Act towards foreign gifts received from one common donor and the evidence indicated that the donor was to receive suitable compensation from the assessee though the money came by way of bank cheques and was paid through the process of banking transactions which was by itself of no consequence. But in the case of the assessee before us the issue is with respect to purchase and sale of shares through regulated market such as stock exchange and the watch full eye of SEBI. e) In the case CIT vs. Krishnaveni Ammal reported in 158 ITR 826, the Hon ble Jurisdictional Madras High Court held that when there was information to effect that Multani Bankers had only indulging in hawala transactions by merely lending their names, the credit entries in the name of the various Multani Bankers appearing in the books of the assessee did not represent genuine transaction because though the assessee had stated that crossed checks are available they were not produced before the Revenue. In the case of the assessee the issue is totally different. f) In the case Somnath Maini vs. CIT reported in 306 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and the decisions cited by the assessee are in support of the claim of the assessee. 8.5 We do understand the genuine anxiety of the Revenue to tax the assessee due to the various unnatural happening of events, but as a Judicial body our hands are tied due to the lack of material evidence against the activities of the assessee and we cannot step into the shoes of the Revenue by making further investigations and enquiries to tie up the loose ends left out by the Revenue. From the materials produced before us there is nothing on record to establish that the transactions of purchase and sale of shares made by the assessee are dubious other than the fact that the share prices of M/s. PFL Infotech Ltd., rose substantially without sound backing and the statements of few persons such as Shri Aspi Bamanji Vairava, Shri Pankaj Kumar K Shah Shri Dipti P Shah. At the same time it should be kept in mind that stock prices may raise due to certain hidden factors which may be not known to the public at large even with respect to blue chip companies. Hence conclusion cannot be bluntly made on the basis of surmises and conjectures in the case of any assessee when certain other material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chased the cheque. In the absence of any cogent material in this regard, having been placed on record, the Assessing Officer could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the Assessing Officer. Therefore, the Assessing Officer could not have added the income, which was rightly deleted by the Commissioner (Appeals) as well as the Tribunal. 8.7 In the case Omar Salay Mohamed Sait vs. CIT reported in 37 ITR 151, the Hon ble Apex Court categorically held that on no account whatever should the Tribunal base its findings on suspicions, conjectures or surmises: nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the sort, its findings even though on questions of fact will be liable to be set aside by the court. 8.8 In the case Umacharan Shaw Brothers vs. CIT reported in 37 ITR 271, the Hon ble Apex Court held that where conclusion arrived at was due to suspicion which could not take the place of proof but based on many surmises and conjectures reliance cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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