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TMI Blog2024 (1) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as unsuspecting investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. Decided in favour of assessee. - Shri Narendra Kumar Choudhry, Hon'ble Judicial Member And Shri S. Rifaur Rahman, Hon'ble Accountant Member For the Assessee : Shri Rahul Sarda For the Department : Shri Ujjawal Kumar Chavan ORDER PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short Ld. CIT(A) ] dated 04.05.2023 for the A.Y. 2014-15. 2. Brief facts of the case are, assessee filed its return of income on 31.03.2015 declaring taxable income of ₹.13,49,630/- and the return of income was processed under section 143(1) of Income-tax Act, 1961 (in short Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is artificial increase by circular trading of shares forming carte. Further, he observed that trading of this scrip was suspended by BSE. This itself shows that the above said scrip is traded in the market by artificially hiked the prices to create non-genuine Long Term Capital Gain. 5. After reproducing the sale of shares by the assessee in the open market in his order (Page No. 10) in which Assessing Officer has listed the various quantities, various rates and to various buyers in his order, for the total sum of ₹.52,27,792/-, considering the fact that SEBI after thorough investigations in such penny stock cases has certified that such transactions are rigged and are carried out to convert black money into white. Accordingly, he considered the above transaction as non-genuine and represents undisclosed income of the assessee liable to be added under the head Income from other sources as opposed to submissions of the assessee that section 68 of the Act cannot be invoked as there is no unexplained credits in the accounts and all documentary evidences along with other evidences has been submitted. 6. The Assessing Officer analysed the above said share transactions and cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raded and having any knowledge about the fundamentals of the penny stock companies, though, she was summoned u/s. 131 of the I.T.Act, 1961 to ascertain whether she possess any knowledge about shares. f. Financial analysis of the penny stock companies: The net worth of the penny stock company is negligible. Even though the net worth of the company and the business activity of the company are negligible, the share prices have been artificially rigged to unusual high. g. Arranged transactions: The transactions entered by the assessee involve the series of pre-conceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. 7. By relying on the decision of Hon ble Supreme Court in the case of Sumati Dayal v. CIT (214 ITR 801), Durga Prasad More v. CIT and CIT v. P. Mohankala and decision of Delhi ITAT in the case of Hersh Win Chadha v. DCIT (ITA No. 3088 to 3098 3107/Del/2015), Assessing Officer made the addition under section 68 of the Act of ₹.52,27,792/- and unexplained cash expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. Further, Ld. Assessing Officer has not brought on record the Final SEBI Order, which also not available on Public Domain: 7) Further, during the course of scrutiny hearing, the Ld Assessing Officer had issued the Show Cause Notice and our client/appellant had also replied in details to explain the point wise answer with necessary judicial pronouncement. 8) Our Client/appellant again reiterates that the explanation provided as above is not contrary to facts and explanation provided during the course of the Scrutiny hearing. Ld. CIT (APPEAL) require to kindly consider the above-mentioned explanations in defence of Investment in Shares of KAPPAC PHARMA which is listed and traded in Recognised Stock Exchange. 9) Our Client/Appellant also want to submit the copies of the List of Shareholders for the FY 2012-2013, 2013-2014 which were downloaded from the Ministry of Company Affairs in which the name of the Appellant was also reflected as Shareholders. It had it be a case of Bogus Long-Term Capital Gain from Penny Stock the name of the Appellant wouldn't have been there in the List of Shareholders for the years mentioned in this earlier paragraph. The List of Shareholders for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been struck off from the Registrar of companies. Reliance placed on decision of LT.A.T., Mumbai in the case of Shakti Hardware Collections Private Ltd. 6301/Mum/2014 dated 31.01.2018. It is also submitted that the alleged information received by the Ld. AO from investigation wing about the company Kappec Pharma Limited was never made available to the assessee which violates principles of natural justice and thus renders entire proceedings as vold. Reliance placed on the Judgment of Hon'ble Supreme Court in the case of Sona Bullders [2001] 119 Taxman 430. Further, it is submitted that no material was found by the Id. AO which could establish that the assessee had converted unaccounted money into accounted money by managing bogus LTCG. Reliance placed on judgment of Hon'ble Delhi High Court in the case of Krishna Devi ITANo. 125 of 8/16/22, 2020 dated 15.01.2021 Judgment of Hon'ble Bombay High Court in the case of Uttamchand Jain [2009] 182 taxman 243 dated 02.07.2009 Principal CIT Hitesh Gandhi in ITA No. 18/2017, dated 16-2-2017 (Punj. Har.); The Tribunal upheld the findings recorded by the CIT(A). It was categorically recorded by the Tribunal that as noticed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited to the bank account of the assesse. Once the assesses produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. Since there is no Substantial Question of Law, and in lieu of the explanation and documentary proof submitted, submit a humble prayer to consider the above mentioned points while disposing of the Appeal favourably. 9. Ld. CIT(A) after considering the findings in the assessment order which is based on the investigations of Directorate of Investigation, Kolkata and further, analyses of the Assessing Officer, Ld. CIT(A) dismissed the appeal filed by the assessee by relying on the decision of Hon ble Punjab and Haryana High Court in the case of CIT v. Prem Pal Gandhi and decision of Bangalore ITAT in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal deems fit. 11. At the time of hearing, Ld.AR of the assessee submitted that assessee has transferred 7550 shares of KPL and earned Long Term Capital Gain exemption under section 10(38) of the Act. Further, he submitted that assessee has submitted various documentary evidences in support of the above said transaction and he brought to our notice contract notes of sales of shares [Page No. 43 to 49 of the Paper Book], details of cheque issued by stock broker of the assessee towards sales [Page Nos. 50 to 60 of the Paper Book], bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities. 12. Further, he submitted that Assessing Officer and Ld. CIT(A) have not pointed out any discrepancies in the documentary evidences submitted by the assessee. Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation, Kolkata. Ld. AR contravened the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res was taken in order to book the extraordinary gains. d. The fact that even in a case there is rigging in the price of the shares by certain individuals, there would always be certain innocent investors who sell the shares upon witnessing huge rise in prices without being party to the price rigging, was also acknowledged by the coordinate bench of this Tribunal in the case of Manish Kumar Baid v. ACIT (ITA No. 1236-37/Kol/2017, dated 18th August 2017). Another coordinate bench of this Tribunal in the case of ITO v. Ronak Iqbal Lakhani (ITA No. 835/Mum/2022, dated 17th January 2023) held that merely because some person misused the share market to rig certain shares in the share market for nefarious purpose, cannot be the ground to draw adverse view against innocent regular investors . e. Therefore, in the absence of any material to show the involvement of the Appellant in the alleged price rigging or that the Appellant was party to any wrong doing in any manner, no addition can be made to Appellant's income. f. The AO/ CIT (A) have relied on alleged general findings of the investigation report of the Directorate of Investigation, Kolkata. Admittedly, even in the said investiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther evidence that shares of Kappac Pharma were artificially hiked to create non- genuine LTCG to the assessee along with other beneficiaries (Pg. 8 of AO order) The alleged directions issued by SEBI are not available in public domain. The AO has not brought on record what those alleged SEBI directions were and how the Appellant was connected with the same. The alleged BSE notice is also not available in public domain. The only information regarding action being taken by SEBI against KPL which is in public domain is an Order dated 30.04.2019 wherein only a monetary penalty of a meagre amount of Rs. 1,00,000/- was imposed on the KPL for violation of PIT Regulations, 1992. In default of payment of the monetary penalty, coercive proceedings were adopted against KPL under Attachment Proceeding 5438 of 2019 (04.12.2019) which were vacated by Release Order No. RRD-3/50/2020 dated 09.11.2020. - Order dated 30.04.2019 - pg. 108 to 117 - Attachment Proceeding 5438 of 2019 (04.12.2019) - pg. 118 to 121 - Release Order No. RRD-3/50/2020 dated 09.11.2020-pg. 122 Neither is there any allegation against the Appellant nor has any proceeding been initiated against the Appellant. 3. The SEBI after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be expected to prove the unusual rise and fall of share prices to be natural and based on the market forces as sought to be done by the AO in the present case. To expect an assessee to preserve data/ information about an investee company which prompted him to invest in this scrip is unreasonable and the observation in this regard fails to appreciate the nature of stock market transactions which are often made on the basis of oral advice. 6. Assessee has failed to show having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies, though, she was summoned u/s 131 of the LT. Act, 1961 to ascertain whether she possess any knowledge about shares (Para 8.1(e)/ pg. 12 of AO order) The Appellant had proper knowledge in the shares she invested and she has duly informed the AO that the investment was made on the basis of oral advice. No further question questions were asked by the AO in this regard. There was not even a single question which the Appellant failed to answer. The AO did not point out any question which the Appellant has failed to answer properly. The statement of the Appellant was recorded and a perusal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying fundamentals of KPL which would have justified the price rise. The Appellant states that even assuming (but not admitting) that certain persons who rigged the price of the shares, the Appellant was neither a party to the same. The Appellant sold the shares at the price available on the stock market. The Appellant reiterates his fundamental submission set out hereinabove. General statements in the CIT (A) Order without any material i) The order of the CIT (A) also proceeds on the basis that merely because the Appellant has dealt in a penny stock, the Appellant is a party to the alleged price rigging and bogus transaction without appreciating that the Appellant was not a party to the alleged price rigging and bogus transaction. The Appellant, being a shareholder, had sold the shares on the stock exchange to book his gains without being party to any such wrongdoing. The price was available to all shareholders to sell on the stock market. j) The CIT (A) has wrongly observed that the Appellant has not been able to rebut the findings of the AO and that the Appellant has made general statements. In fact, the CIT (A) failed to appreciate that there was no material to link the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. Munish Financial (ITA No. 2637 2638/Mum/2022, dated 31 March 2023). iv. CIT v. Shyam R. Pawar [2015] 229 Taxman 256 (Bom.). v. Swati Luthra v. ITO [2020] 181 ITD 603 (Del.). vi. Dipesh Ramesh Vardhan v. DCIT (ITA No. 7648/Mum/2019, dated 11th August 2020). vii. Prakash Javia HUF v. ITO (ITA No. 464/Ind/2019, dated 25 May 2021). viii. Yogesh Kumar Dalmia v. ACIT (ITA No. 774-75/Kol/2018, dated 9 August 2019). 14. On the other hand, Ld. DR relied on the order of the lower authorities. Further, Ld. DR submitted as under: - a. The Department has not accepted the purchase of the shares as genuine. b. The company, M/s Kappac Pharma Limited ( KPL ), was a loss making company and did not report any sales. The price chart of the scrip shows a bell curve which was typical of a 'penny stock'. C. That KPL was a 'penny stock' and there were illegal dealings in it was a proven fact. Therefore, the Appellant cannot be treated as an innocent investor. The fact that Appellant has dealt in this penny stock and has purchased the shares in cash is sufficient to treat the long term capital gains as bogus on the basis of preponderance of probabilities. d. The obtaining of long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ended 31 March 2022 was worse than its performance for the year ended 31 March 2021, despite which the price of the shares was high and even showed an increase. The bell curve in the price chart of KPL which was relled on by the learned Departmental Representative is visible in the price chart of Zomato Limited also. The arguments on behalf of the Department fail to factor in the speculative nature of prices and that the prices also depend demand-supply factors. 6) Rejoinder to argument in para 3(c) above - This argument is contrary to the law laid down by the jurisdictional High Court in the case of CIT v. Shyam R. Pawar [2015] 229 Taxman 256 (Bom.) (pg. 206 to 210 of paperbook - 1) holding that something more was required which would connect the Assessee to the transactions . No statement has been made by any person naming the Appellant as having been involved in availing bogus long term capital gains entry. No material has been found by the Investigation Department which relates to the Appellant's alleged involvement. Also, no such material has been provided to the Appellant. These factual aspects were not disputed by the learned Departmental Representative. Furthermore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing officer in that case had examined SEBI's findings and had brought out sufficient material to demonstrate that the transactions were not genuine, the findings were not controverted by the assessee by placing evidence, there is a finding in this judgement that the Revenue has brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of accounts . However, all these factors are ex facie absent in the present case. b. Suman Poddar (pg. 152 to 159 of paperbook 1) - In this case, the Delhi HC reproduced the observations of the Tribunal in para 11 of Tribunal's judgement (@pg. 157 of paperbook 1). A perusal of the same makes it clear that the assessee was not aware about its own stockbroker through whom the transaction was carried out. The Tribunal also found the fact that the assessee did not venture to involve himself in any other transaction despite steep profits as a relevant factor. Furthermore, in that case, there was specific confirmation with the Revenue that the assessee has indulged in non-genuine and bogus capital gains and that Investigation Wing had also conducted enquiries which proved that the assessee is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as unsuspecting investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 held as under: - 1. The following question of law is proposed: Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961? 2. We have considered the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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