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TMI Blog2023 (7) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transactions. Therefore, we deleted the addition. Addition u/s 69C - Since we have deleted the main addition u/s 68, Ground raised by the assessee for addition u/s 69C, w.r.t. notional commission expenses @ 2% of LTCG being unexplained expenditure, is consequential in nature and hence deleted. Charging of income tax @ 30% u/s 115BBE would also not survive, as we have deleted the main addition. - Shri Pawan Singh, JM And Dr. A.L. Saini, AM For the Appellant : Shri Rajesh Upadhyay, AR. For the Respondent : Shri Vinod Kumar, Sr. DR. ORDER PER DR. A. L. SAINI, AM: Captioned appeals filed by the assessee, pertaining to the Assessment Year (AY) 2014-15, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), [in short the Ld. CIT(A) ], National Faceless Appeal Centre (in short the NFAC ), Delhi, which in turn arises out of an assessment order passed by Assessing Officer u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ), dated 28.12.2016. 2. The grounds of appeal raised by the assessee are as follows: 1. Ld. CIT(A), NFAC has erred in law and on fact to conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epared, appeal memo, grounds, condonation petition, affidavit etc. in connection with filing of 2nd appeal. 5- That the delay in filing the appeal for-137-days is neither willful nor deliberate but due to the newly introduced system of service of orders electronically through portal. I am not well equipped and up-dated with the new system. I have fully co-operated in assessment proceedings as well as appellate proceedings. Neither assessment order nor CIT(A) order is ex parte. I was totally unaware about electronically service of appeal order. Otherwise appeal can be filed in time. I have not been benefited in any way by filling of late appeal. On the contrary, I am carrying out huge burden of tax, interest, Penalty etc. on my shoulders. I humbly submit that the impugned order is high pitched order and is also arbitrary. 4. Apart from this, ld Counsel also submitted that entire delay has resulted due to mistake of assessee`s Tax Consultant, Shri Pradip Gohil, who has not checked the order of ld CIT(A) in the e-portal of Income Tax Department and has not advised the assessee from time to time. 5. On the other hand, Learned Senior Departmental Representative (Ld. Sr. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. We, therefore, condone the delay in filing appeal and admit the appeal for hearing. 9. Succinctly, the factual panorama of the case is that assessee before us is an Individual and filed her return of income on 04.03.2015, declaring total income of Rs.4,22,502/-. The assessee`s case was selected for scrutiny through CASS and notice u/s 143(2) of the Act was issued on 18.09.2015 and the same was duly served upon the assessee on 24.09.2015. Subsequently, notice u/s 142(1) of the I.T. Act alongwith questionnaire dated 13.06.2016 were issued to the assessee and served upon the assessee. In response to the notices issued u/s 143(2) and 142(1) of the Income Tax Act, 1961, the assessee attended from time to time and furnished the details before the Assessing Officer. During the year under consideration, the assessee has shown income from business as well as income from other sources. The assessee has also shown Long Term Capital Gain of Rs.45,01,840/- in her return of income, which was claimed as exempt u/s 10(38) of the Act. On the perusal of the details filed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer has issued a show cause notice to the assessee to explain the transaction. 12. In response to the show cause notice, the assessee submitted its reply to the assessing officer, vide assessee`s reply dated 16.12.2016. However, the assessing officer rejected the contention of the assessee and held that financials of the companies do not justify such phenomenal rise or fall in the market price. The same are evident from the charge given above. On perusal of bank account and contract note of sale of share, it is revealed that the assessee has shown credit of Rs.49,01,840/- in his bank account as sale proceeds of shares Sunrise Asian Ltd. It is evident from the investigation that the actual source of this credit is the unaccounted cash of the assessee, therefore assessing officer made addition under section 68 of the Act. 13. Further, a sum of Rs.98,037/- being commission paid @ 2% of the LTCG was also added by the assessing officer, as unexplained expenditure under section 69 of the Act. 14. The Assessing Officer also held that tax on the above unaccounted income of Rs.49,99,877/- (Rs.49,01,840 + Rs.98,037) should be calculated @ 30% as per the mandate of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with such person has not been provided to the assessee. The Ld. Counsel also submitted that license was not cancelled of the stock exchange broker, through whom the transactions were conducted. There is no evidence before the assessing officer that the assessee has received the cash back against such transaction. The transaction is supported by the Ledger account of Conart Trader, Debit note, share certificate and moreover, the transaction was conducted through banking channel and STT was paid. Therefore, ld Counsel contended that addition made by the Assessing Officer may be deleted. 18. Shri Rajesh Upadhyay, also stated that addition so made by the Assessing Officer should not be sustained under section 115BBE of the Act, because the addition made by the Assessing Officer is not the subject matter of Section 68 of the Act. Therefore, the rate prescribed under section 115BBE of the Act, is not applicable to the assessee under consideration. The assessee s matter is relating to Section 45 of the Income Tax Act (Capital Gain), therefore addition should have been made by the assessing officer under the head capital gain and not u/s 68 of the Act and therefore the provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted these evidences and documents. The Assessing Officer does not mention why he is not accepting these evidences. On the contrary, the Assessing Officer has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises. 21. We note that assessee is an individual and filed her return of income (ROI) for assessment year (A.Y) 2014-15 on 04.03.2015, showing total income of Rs.4,22,502/-. In the said return of income (ROI), the long term capital gain (LTCG) on sale of shares at Rs.45,01,840/- was also shown. The assessee has claimed exemption u/s 10(38) of the Act, as LTCG was on listed equity shares and STT has been paid by assessee. The entire transaction was through banking channel. However, Assessing Officer made addition of Rs.49,01,840/- u/s 68 and addition of Rs.98,037/- was made u/s 69 of the Act, holding that transaction entered into by the assessee is in the nature of sham transactions, which is being done by assessee, in order to rout its own money to give it a color of genuine transaction. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arging of tax at 30% as per the mandate of section 115BBE of the Act. Thus, Assessing Officer has violated principal of natural justice. In this regard, ld Counsel relied on the decision of ITAT Ahmedabad in the case of ITO vs. Mohammed Arif Ibrahimbahai Shaikh in ITA No.1115/AHD/2019 dated 30.05.2022; wherein it has been held as under: During the course of assessment, assessing officer issued notice proposing addition of INR 1.25 cores u/s 40A(3), whereas, in the assessment order assessing officer has made addition of INR 4.365 crores. That the show-cause issued by the Ld. assessing officer through proposing disallowance of Rs.1.24 crores, the addition was ultimately made to the tune of Rs.4.265 crores violating of the principle of natural justice. In this regard, Ld Counsel also relied on the judgment of Hon`ble Supreme Court in the case of Uma Nath Pandey Vs. State of UP, AIR 2009 SC 2375, wherein it was observed, as follows: 8. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.03.2014 RTGS 32,27,539.63 -49 11.03.2014 NEFT 1,95,711.34 -49 Total 48,74,007.65 With respect to BSE date produced by the assessing officer on page 2 and 3 of assessment order; it was submitted that the assessee has furnished copy of purchase bill. The Payment of purchase of 10,000 shares of Conart Traders Ltd., was made by cheque that can be seen from her SBI passbook. It is also appearing in her balance-sheet as on 31.03.2012 and 31.03.2013. Assessment for assessment year (A.Y) 2013-14 was made by Assessing Officer u/s 143(3) of the Act. The purchase of shares of Conart Traders Ltd., is accepted by Assessing Officer. The said company was amalgamated with Sun Rise Asian Ltd, (in brief SAL ) by virtue of order of Hon'ble Bombay High Court. The assessee has produced numerous data and details of SAL which was the basis of her decision to make the investment. All time high share price was Rs.605.50 as on 31.03.2015 and from the month of Jan 2013 to July 2015, the price rang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspicion, and surmises as against settled proposition of law that suspicion howsoever strong could not partake the character of legal evidence. The entire case of Assessing Officer was based on mere presumption that the assessee ploughed back her own unaccounted money in the form of bogus LTCG. The presumption needs to be corroborated by some evidence to establish the same. It is trite law that presumption, however, strong, cannot be a substitute, nor can it take place of evidence. For the said proposition, reliance is placed on Hon'ble Supreme Court decision, in the case of Omar Salav Mohamed Sait reported in (1989) 37 ITR 151 (SC) wherein it was held that no addition can be made on the basis of surmises, suspicion and conjectures. 27. We note that Assessing Officer has relied on the report of Investigation Wing Kolkata dated 27.04.2015. At the outset, these could not be relied on for the simple reason that the assessee has never taken any accommodation entry from any broker, she has supplied complete details of SAL as well as the SEBI registered broker, Nirmal Bang Sec. Pvt. Ld., through whom she has done sale transaction of shares by paying STT. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mum/2018 (Mumbai Trib.) 9) Anjana Sandeep Rathi vs. ACIT [ITA No.4369/Mum/2018 (Mumbai Trib.) 10) Dipesh Ramesh Vardhan vs. DCIT [ITA No.7648/Mum/2019 (Mumbai Trib.) 11) Kumari Ayush Nyati vs. ITO [ITA No.203/Ind/2019 (Indore Trib.) 12) Smt. Manorama Devi Sharma vs. ITO [ITA No.39/Ind/2019 (Indore Trib.) 13) Shri Shiv Narayan Sharma vs. ACIT [ITA No.889/Ind/2018] (Indore Trib.) 28. We note that Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai, [2022] 142 taxmann.com 247, held that where Assessing Officer noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition under section 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement and shares were retained for long time and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The findings of the Hon`ble Court is reproduced below: 2. As submitted by learned senior advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such long time. These circumstances suggested that the investment was not bogus or investment made in penny stock. The shares were purchased in order to invest and not for the purpose of earning exempted income by frequent trading in short span. 6. The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises. 7. Resultantly, appeal is dismissed . 29. We note that findings of the Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai(supra) is squarely applicable to the assessee`s facts under consideration. The genuineness of investment in the shares by the assessee was substantiated by him by producing contract note, Transaction was through recognised Broker, transaction was done through banking channel on which STT was paid. The shares were held by as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oresaid 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 pre- planned 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments made in penny stock. 7.1. In order to prove the purchase of shares, the assessee filed copy of the allotment letter, ledger account of Conart Traders Ltd. physical share certificate, copy of the bank statement reflecting payments made for purchase of SAL shares. Similarly, for Sale of shares, the sale were being routed through demat account. Copy of the ledger account of four share brokers through whom sales were made. Copy of the bank statement reflecting the sale consideration received after STT. Thus the Assessing Officer has no evidence that the purchase of sale of shares are done through cash and the entire transaction to be bogus. 7.2. We further see from records that the present sale of Sunrise Asian Ltd shares by the assessee is relating to 12,15,840 shares only, as against 39,61,270 shares held by the assessee. After the above sales, still the assessee is retaining 27,45,430 shares of SAL, thus the Ld AO is not justified that the sale of SAL Shares at such high prices in nothing but a Penny stock. If the assessee would have indulged the sale of SAL shares as a Penny stock, then it would not have retained 27,45,430 shares which is more than 2/3rd of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchand Kochar (cited supra) held as follows: .. 2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- 9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the Principal Commissioner of vs Para the appellant after earning of the long term capital gain. 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No.62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. Vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals, the exception is in paragraph 4 with regard to the certain facts of the assessees case (SwatiBajaj). We are not very appreciative of the manner in which the bunch of appeals have been disposed of. The cardinal principles which courts and tribunal have followed consistently is that each assessment year is an individual unit and unless and until it is shown that there are distinguishing feature in a particular assessment year, the decision taken for the earlier years are to be followed to ensure consistency. While doing so the Courts/Tribunals are required to examine the facts and render a finding as to why the decision in the earlier assessment years should be adopted or not. 52. Apart from the above, the Hon'ble Court noted that the assessee had never mentioned before the AO that, he wanted the copy of investigation report or the statements of the brokers/entry operators and therefore the assessee's plea regarding non-availability of relevant material or denial of cross-examination claimed was rejected. The relevant observation of the Hon'ble High Court is as under: ...Nothing prevented the assessee from mentioning that unless and until the report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cion and on account of fact that a substantial quantum of capital gains has been made by the assessee. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. The ld. Assessing Officer has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, despite the assessee's specific request, no opportunity of cross examination was provided to the assessee on the basis of whose statements reliance has been placed to hold that the sale of shares was sham / bogus. It would be useful at this stage to refer to some judgments which have dealt with the issue before us: (i) In the case of PCIT vs. Smt. Krishna Devi, ITA No.125/2020, the Delhi High Court vide order dated January 27, 2021 held that the fact that there was an astounding jump in the share price within two years, which is not supported by the financials, does not justify the AO's conclusion that the assessee converted unaccounted money into fictitious exempt LTCG to evade taxes. The finding is unsupported by material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Suresh Kumar Agarwal vs. ACIT, ITA No 8703/Del/2019 held that the assessee has produced contract notes, demat statements etc. discharged the onus of proving that he bought sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. The ITAT held that the AO ought to have examined a number of issues (which are enumerated in the order) and shown that the transaction is bogus. The capital gains are genuine and exempt from tax. (v) The Mumbai ITAT in the case of Vijayrattan Balkrishan Mittal vs. DCIT, ITA No.3311/Mum/2019 held that the fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid cash and in return received exempt LTCG gains. 7.1. Notably in the case of Anjana Sandeep Rathi Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles of natural justice. Hence, the impugned order passed by the Ld CIT (A) suffers from legal infirmity. We, therefore, allow the sole ground of appeal of the assessee and set aside the impugned order passed by the Ld. CIT (A). Accordingly, we direct the AO to allow the claim of the assessee. 6. The ld. Departmental Representative has failed to controvert the findings of Tribunal in the case of Shri Narayan R. Rathi whose case is on the same pedestal with identical set of facts. In fact a perusal of the assessment order in the case of assessee reveal that the Assessing Officer in para 8.3 has observed that 3000 shares were jointly held by the assessee and Narayan Ramachandra Rathi. The facts of present case are similar to the facts of case in the case of Narayan R. Rathi decided by the Co-ordinate Bench. No distinction in facts has been brought to our knowledge by the Department. Thus, for the parity of reasons, addition made under section 68 of the Act deserves to be deleted. Further, the Assessing Officer is directed to allow the benefit of section 10(38) of the Act to the assessee. 7. In the result, the appeal of the assessee is allowed. 7.2 In lig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT Ahmedabad in the case of M/s. Ice Worth Reality LLP, vide ITA Nos. 565 566/Ahd/2020, for Assessment Years 2012-13 2015-16, order dated 13-03-2023 (supra), deleted the addition made by the Assessing Officer in respect of Sunrise Asian Ltd ( SAL ) shares, which is the impugned shares before us. We note that Assessing Officer has not been able to point out any evidence whatsoever to allege that money changed hands between the assessee 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. 34. We note that addition under section 68 of the Act made merely on the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine or sham or demonstrating assessee's involvement in any kind of manipulation, cannot be made. Thus, the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising contract notes, brokers, banking details in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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