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TMI Blog2023 (11) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is not justifiable to link the fact with the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are regarding the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. There were not brought any evidence from independent enquiry to corroborate the allegation. As such, the AO has highlighted various suspicious circumstances, but no addition can be made merely on the basis of suspicious circumstances or presumption unless some cogent material evidence brought on record. See case of CIT vs. Sumitra Devi [ 2014 (2) TMI 1205 - RAJASTHAN HIGH COURT] Whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. Justice cannot be delivered in a mechanical manner. what we see on the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocate with Shri Parimalsinh B. Parmar Shri Kushal Fofaria, A.Rs For the Respondent : Shri Vijay Kumar Jaiswal, CIT. 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)-6, (in short Ld. CIT(A) ) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2014-15. 2. The assessee has raised the following grounds of appeal: 1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO of adding long-term capital gain of Rs. 5,51,09,170/- as unexplained cash credits u/s 68 of the Act. 2. The learned CIT(A) has erred in law and on facts in confirming the addition despite AO not supplying necessary material to the appellant on the basis of which impugned addition has been made and also not providing appellant with the opportunity to cross examine persons whose statements were recorded u/s 133A of the Act. 3. Both the lower authorities have passed the orders without prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly high price. After the listing of shares, a huge amount of trading was carried out during F.Y. 2013-14 and the price of the script rapidly increased as high as to Rs. 448 per share. However, from April 2014, the share price of the company started decreasing and reached as low as to Rs. 14 per share and thereafter the price becomes constant. Hence, the impugned script was manipulated with the help of entry provider, broker and sub-brokers. The trading of the impugned script was also suspended from trading by the SEBI vide order dated 19-12-2014 and also restricted M/s Comfort Fincap Ltd and M/s Comfort Securities Ltd from entering into capital market for alleged insider trading. 4.2 The AO also found that DDIT Kolkata, in country wide investigation carried out, found 84 scripts of different companies utilized by the entry operator and broker or sub-broker to provide accommodation entry in the form of LTCG and STCL etc. M/s Comfort Fincap Ltd is included in the list of 84 scripts identified by the DDIT-Kolkata. It was also found that the investigation wing of income tax Mumbai also carried survey proceeding at the premises of Comfort group wherein statement of Shri Anuj Aggarwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentary evidence such as share allotment letter, contract note, demat account etc. 7. The allegation of the AO is that the scrip of M/s Comfort Fincap Ltd is a penny stock and the modus operandi adopted by it is like penny stock. However, no evidence in this regard brought on record by the AO to suggest that he has been involved in any such activity of penny stock. Further, the AO alleged that several entry operators admitted having provided accommodation entry in the impugned script, but he has not routed his transaction through such operator. It was also contended that the materials relied on, and statement referred by the AO were not provided for rebuttal, nor the opportunity of cross examination was provided therefore no credence can be given to such material and statements. The assessee submitted that he sold impugned script through ICICI securities whereas the AO alleged to have traded through M/s Comfort Securities Ltd which in factually incorrect. The AO alleged that the impugned script was rigged up but nowhere pointed out who rigged up the price of script and further he has no knowledge of such activity of rigging up the price. It was further alleged that the trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found in be satisfactory: (emphasis added). Thus the onus is on the taxpayer to explain to the satisfaction of the AO the nature and source of any sum credited In his/her books. In this case, the AO based on information in his possession had reason to believe that the transaction of shares was bogus, hence the onus was on the appellant to rebut this presumption which he has failed to do miserably. The appellant had 2,00,000 shares of Comfort Fincap. That would make him a big investor of this company. The appellant could have produced some person of significance from the company before the AO to deny allegations of rigging in this share. The appellant did not do so. Thus the appellant failed to discharge the onus cast on him to prove the presumption of AO wrong. Thus there is no substance in various contentions of the appellant. Further, there are several other peculiar aspects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 387/- on opening for trading when the company is listed on the stock exchange. All the above aspects/facts mentioned above lead to the conclusion that transaction in question was rigged in order to garner huge LTCG and claim the same as exempt. Hon'ble Supreme Court In Sumati Dayal v. Commissioner of Income-tax [1995] 80 TAXMAN 89 (SC) held as follows: 4. It is no doubt true that in all cases in which a receipt is sought to be taxed as Income, the burden lies on the department to prove that it is within the taxing provision and if receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act las upon the asse Parimisetti Sutharamamina's casa (supra) at p. 536. But, in view of section 60 of the Act, where any sum is found cited in the books of the assessee for any previous year the same may be charged to income-tax sales the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was not the real. The taxing authorities were not required to while looking at the documents produced before them. They were entitled to look Into the surrounding circumstances to find out the reality of the recitals made in those documents. Hon'ble Bombay High Court, Nagpur Bench In Income Tax Appeal No. 18/2017 In the case of Sanjay Bimalchand Jain L/H Shantidevi Bimichand Jain vs Pr. CIT-1, Nagpur Another has confirmed addition on account of bogus LTCG on penny stock shares. Hon'ble Court has held as follows: The assessee had on the advice of an income tax Consultant purchased shares of two penny stock Kolkata based companies ie., 8000 shares at the rate of Rs. 5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs. 4/- per share on 05.06.2003 from Syncom Marketing Pvt. Ltd. and of Skyzoom Distributors Pvt. Ltd. the payments were made by the assessee i cash for acquisition of shares of both the companies. The address of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, ie, the broker through whom the assessee purchased the shares and the broker through whom the shares were sold, were located at Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs. 65,000/- in cash for the purchase of shares of shares of the two penny stock companies. The authorities found that thought the shares were purchased by the assessee at Rs. 5.50 Ps. Per shares and Rs. 4/- per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs. 486.55 Ps and Rs. 485.65 Ps per share. The broker through whom the shares were soles by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned CIT(A) the assessee is in appeal before us. 10. The learned AR before us filed paper book running from pages 1 to 57 and inter-alia contended that the shares were sold after the payment of STT on the floor of the stock exchange where the buyers and the sellers are not known to each other. There is no dispute raised by the revenue as far as the purchase of the shares is concerned. All the purchases are supported by the necessary documentary evidence such as letters of allotment, share certificates, contract notes. 10.1 Besides the above, there was no evidence justifying any live nexus in the assessee or the entry operator or the company or its directors as discussed above. Likewise, there was no information regarding the exchange of cash out of the sale of shares transactions. As such, the AO has made the addition based on suspicion but the same cannot partake the character of the evidence. 10.2 The information/materials/statements recorded of the 3rd parties were not provided for the cross-examination. Therefore, no adverse inference based on such materials can be drawn against the assessee. 10.3 The learned AR also submitted that the principles laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pg.23 of P/B; Contract notes w.r.t sale of shares - Pgs.24-32 of P/B; Demat account (Relevant extract) - Pg.33-34 of P/B; Revenue has not at all brought any cogent material on record so as to even remotely demonstrate any infirmity in such documentary evidences placed on record by the assessee. AO has allowed deduction of cost of acquisition from the total sale consideration of shares (Pg.29 of Asst. Order rw Pg.4 of PB) which implies that purchase of shares has been admitted to be genuine transaction by AO. As regards suspension of trading in scrip vide order dated 19.12.14. It is post facto event i.e., such event is occurred after the end of year in question (i.e., FY 13-14/AY 14-15). The said aspect has been elaborately discussed in the synopsis of arguments filed during the course of hearing. As regards sharp rise in price of the scrip in question, the same is beyond the control of the assessee and cannot be the guiding for treating genuine gains as bogus. The said aspect has been elaborately discussed in the synopsis of arguments filed during the course of hearing. There is no evidence to prove that there is any live nexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als available on record. In the present case, the long-term capital gain declared by the assessee on sale of shares of M/s Comfort Fincap Ltd for ₹ 5,51,09,170/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph which has also been confirmed by the learned CIT(A). 12.1 The 1 st observation of the AO for holding the impugned capital gain as bogus was that the at the time of investment by the assessee the company was not known in public domain and shares were purchased in offline mode. In this regard, firstly we note that the offline purchase of share is not prohibited under the statute, secondly if someone invests in the shares of a company which at that time was not known in public domain or made investment in private placement does not mean that the investment is not genuine or prearranged unless some adverse material is available on record. 12.2 It was also alleged that the price of the share of M/s Comfort Fincap Ltd. was increased manifolds in a short period of time which was not believed by the authorities below o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom entering a transaction at stock market. However, we note that SEBI has not taken any action against the script of the impugned company as the action was taken against the director promoter and the company from accessing to share market. 12.3 Further, the price of a share listed on the stock exchange is not linked to the financial strength of the company. As such the same is governed by several market driven factors. The assessee has also made an investment in the scripts of other companies. We also note that the price of the impugned scrip reached as high as Rs. 448 per share, however, the highest price at which the assessee transferred was Rs. 280 to 303 per share. Thus, in our considered view, had the assessee indulged in prearranging transaction for taking accommodation entries, then he should have transferred entire holding at the highest possible price. 12.4 The AO further alleged that the CEO of Comfort Fin Securities and key person of the comfort group in the statement recorded before the DDIT Kolkata admitted having provided accommodation entry in the script of M/s Comfort Fincap Ltd. Similar, admission was also made by the other stockbroker during the search and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought on record suggesting that there was an exchange of cash against the long-term capital gain shown by the assessee. Here we pertinent to refer the order of the co-ordinate bench of Mumbai Tribunal in case of ITO vs. Indravadan Jain HUF in ITA No. 4861/Mum/2014. In the said case the assessee Indravadan Jain HUF purchased share of M/s Ramakrishna Fincap Ltd in the year 2003 for Rs. 3.12 per share at the floor of Kolkata stock exchange through the broker namely M/s Basant Periwal Co. The assessee Indrvadan Jain HUF sold the impugned share in the year 2005 at Rs. 155.04 per share at the floor of Kolkata stock exchange through the broker namely M/s Basant Periwal Co and claimed exempted long-term capital as per the provision of section 10(38) of the Act. Subsequently the AO received an information that an investigation carried out by the SEBI wherein it was found that broker namely M/s Basant Periwal Co was indulged in price manipulation through synchronized and cross deal in scrip of Ramkrishna Fincap Ltd. The assessee sold his holding in Ramkrishna Fincap Ltd during the same period when the broker namely M/s Basant Periwal Co. was found to be indulged in manipulation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis- -vis findings recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A). 12.6 The above finding of the Mumbai Tribunal came to affirmed by the Hon ble Bombay High Court vide order dated 12th July 2023 on instance of further appeal preferred by the Revenue in Income Tax Appeal No. 454 of 2018. Considering the facts involved in above mentioned case viz-a-viz facts involved in the case of the present assessee, we find that the case of the present assessee is better placed. 12.7 Likewise, we also note that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary documentary evidence in support of the nature of transaction and sources thereof. The necessary details furnished by the assessee stand as under: 1. Purchase consideration of shares was paid through cheque. 2. Share was duly demat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Sumitra Devi reported 49 taxmann.com 37 wherein it was held as under: 7. True it is that several suspicious circumstances were indicated by the AO but then, the findings as ultimately recorded by him had been based more on presumptions rather than on cogent proof. As found concurrently by the CIT(A) and the Tribunal, the AO had failed to show that the material documents placed on record by the assessee like broker's note, contract note, relevant extract of cash book, copies of share certificate, de-mat statement etc. were false, fabricated or fictitious. The appellate authorities have rightly observed that the facts as noticed by the AO, like the notice under s, 133(6) to the company having been returned unserved, delayed payment to the brokers, and dematerialisation of shares just before the sale would lead to suspicion and call for detailed examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary. 12.10 The controversy also arises whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccounted 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 the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the wrong acts of the persons investigated as far as long-term capital gain earned on sale of share of M/s Comfort Fincap Ltd is concern. 12.13 We also note that this Tribunal in the case of Parasben Kasturchand Kochar Mehta Lodha Co. Chartered Accountant vs. ITO bearing ITA No. 549/Ahd/2008 involving identical facts and circumstances has held as under: 7. We have gone through the relevant record and impugned order and heard both the parties. Assessee submitted that he is a customer of ICICI Bank and having demat account of ICICI Securities Ltd. and he has purchased shares through ICICI Securities Ltd. and money has been paid through banking channel. Copies of bank statement and Demat account have been submitted before the lower authorities. 8. Ld. A.R. also drawn our attention towards the statement of Edelweiss Broking Ltd. through the said company shares were sold and also shown us copy of the Contract Note and all these details were furnished before the lower authorities. The assessee has earned long term capital gain from the sale of companies share i.e. Alpha Graphic India Ltd. and Blazon Marbles. 9. In our considered opinion, in such case assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f as a shell company. Trading of shares of M/s SAL was permitted by SEBI. Prime facie, all the conditions provided u/s 10(38) of the Act seems to have been fulfilled by the assessee. 17. As regards the second issue raised is that assessee was not provided opportunity of cross examination, we observe that Ld. A.O has referred to some investigation carried out by the Department in the case of some brokers and other assessee(s) located at Kolkata and other places and there is a reference of the company M/s SAL. However it is not disputed that name of the assessee is not appearing in such report nor any evidence was found by the Ld. A.O which could indicate that assessee was also a part or connected to the alleged racket of providing accommodation entry of bogus LTCG nor any proof of any agreement between the assessee and other persons mentioned in the report has been found. So the basis of addition is primarily on the statement of third party as well as the information gathered from other sources. Perusal of the records shows that the assessee has not been provided any access to such report nor any opportunity was provided to cross examine those persons who accepted to have prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and respectfully following judicial precedents and the decisions of Co-ordinate benches squarely applicable on the instant cases, are of the considered view that in the case of the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF), the claim of exempt income u/s 10(38) of the Act of Long Term Capital Gain from sale of equity shares deserves to be allowed and no addition is called for the estimated brokerage expenses made in the hands of the assessee(s). Thus finding of Ld. CIT(A) is set aside and the Grounds raised by the assessee(s) in ITA Nos.889/Ind/2018, 474/Ind/2019, 206/Ind/2019, 60/Ind/2019, 61/Ind/2019 and 987/Ind/2019 are allowed. 12.15 It is also important to note that the addition was made by the AO based on the statements/information received from the 3rd party, but no opportunity was afforded by the revenue for the cross-examination which is against the principles of natural justice as held by the Hon ble Apex Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006. Likewise, the Hon ble Apex court in the case of Kishinchand Chellaram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... National Saving Certificate 28,000.00 PPF A/c -0694568620 11,80,078.00 Share of Priyablue Import Export Pvt. Ltd. 50,000.00 Share of Priyablue Infrastructure Pvt. Ltd. 50,000.00 Share of Priyablue Shipping Pvt. Ltd. 50,000.00 Share of Priyablue Textile Pvt. Ltd. 50,000.00 Share of Priya holding Pvt. Ltd. 22,200.00 Shares of Adamji Building Premises 250.00 Shares of Priya Blue Industries Pvt. Ltd 3,61,53,684.00 ULIP 15,000.00 Grand Total 12.18 Before parting it is also important to highlight that the learned DR at time of hearing v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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