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TMI Blog2024 (2) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ad discharged his onus of proving the fact that shares purchased by her were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are reflected in Demat account and sale of shares are through Demat account. More so, when there is no dispute regarding the purchase price and sale price of shares. We are unable to persuade to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. So many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent : Shri Om Parkash, Sr. DR ORDER 1. The appeal in ITA No. 1831/Del/2023 arises out of the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ld. CIT(A)‟, in short] in Appeal No. ITBA/NFAC/S/250/2023-14/1052537146(1) dated 02.05.2023 against the order of assessment passed u/s 147 read with Section 143(3) of the Income-tax Act, 1961 dated 31.12.2018 (hereinafter referred to as the Act‟) by ITO, Ward-1, Moradabad (hereinafter referred to as ld. AO‟). 2. The assessee has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the reopening the assessment order. 2. On the facts and in the circumstances of the case and in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirming the addition of Rs. 39,51,648/- under section 69A of the IT Act. 3. On the facts and in the circumstances of the case and in law, the Id Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kolkata Investigation Directorate had undertaken investigation into 84 penny stocks and given details findings indicating bogus LTCG/STCL entries claimed by large number of beneficiaries. The name of the beneficiaries includes the name of the assessee also. The modus operandi involving operators, intermediaries and the beneficiaries has been details in the investigation report prepared and disseminated by the Kolkata Directorate. It is also worth mentioning that Securities and Exchange Board of India (SEBI) has passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG, SEBI considering the inputs form Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scrips. These actions include passing interim direction, suspending the trade, reducing the price band etc. In a large number of penny stocks, the price band had been reduced to the lowest bank of 2%. Out of these scrips, and interim orders have also been passed by SEBI in the case of 11 scrips, giving a finding that price in the scrips was rigged. Details of such orders are av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, of clause (b) of explanation 2 to section 147 are applicable to of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. This case is within four years from the end of the assessment year under consideration. Hence, necessary sanction to issue, the notice u/s 148 has been obtained separately from Joint Commissioner of Income Tax as per the provisions of section 151 of the Act. 5. The assessee filed legal objections to the reasons recorded for reopening the assessment before the ld. AO apart from filing all the facts with documentary evidences in support of the claim of exemption u/s 10(38) of the Act in respect of sale of 100000 shares of KAFL. None of the documentary evidences furnished by the assessee were found to be false or any adverse inference drawn by the ld. AO on the same. It is pertinent to note from the facts of the assessee that assessee had been a regular investor in stock markets and furnished the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered stock broker at the prevailing market prices for Rs. 39,64,750/- in the Bombay Stock Exchange (BSE) Platform. This sale transaction is duly supported by the Contract Note issued by the registered stock broker. f) The said sale transaction had duly suffered Securities Transaction Tax (STT) of Rs 3,966/-; brokerage of Rs 9,054.36 and other charges of Rs 81. The assessee accordingly received the net amount of sale consideration of Rs 39,51,648/- which was sought to be added by the ld. AO as unexplained money u/s 69A of the Act. 6. The objections to the reasons recorded were disposed by the ld. AO by a separate order dated 29.11.2018 reiterating the stand taken in the reasons recorded without rebutting the assessee s factual and legal submissions. 7. Later the ld. AO proceeded to frame the re-assessment wherein the net sale consideration of Rs 39,51,648/- was added as unexplained money u/s 69A of the Act in the hands of the assessee as according to the ld. AO , the said consideration was obtained by the assessee from the secondary market out of artificial price rigging of shares of KAFL in connivance with the entry operators. This action of the ld. AO was upheld by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies were carried out by the ld. AO either on the broker or with the stock exchange with regard to transactions carried out by the assessee. The ld. AO had merely relied on the Kolkata investigation report without linking the assessee with the various allegations leveled in the said investigation report. 11. I find that the ld. AO had not proved with any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so called entry operators and brokers who were involved in artificial price rigging of shares. No evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators. This fact is also proved by the SEBI Investigation and its final order dated 21.9.2017 listing out the name of the entities and persons who were involved in price manipulation of shares of KAFL. Admittedly, the assessee or his broker was not mentioned in the said list. Further Sanskruti Vincom Pvt Ltd (entity from whom assessee bought the shares in off market) and Panchshul Marketing Ltd (entity whose shares were bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are more general in nature and does not implicate the assessee herein in any manner whatsoever. I am unable to persuade myself to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. So many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. In this process, they also burn their fingers by incurring huge losses without knowing the fact that the particular scrip invested is operated by certain interested parties with an ulterior motive and once their motives are achieved, the price falls like pack of cards and eventually make the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on said transaction could not be treated as unaccounted income u/s 68 of the Act. The relevant operative portion of the said judgement is reproduced below:- 5. We have perused the concurrent findings and on which heavy reliance is placed by Mr. Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr. Sureshkumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (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 in that case. On such basis, the ITAT had returned the finding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some evidence to establish a link that the assessee had brought back her unaccounted income in the form of LTCG. Reliance in this regard is placed on the decision of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT reported in 80 taxmann.com 284 (Mumbai-Trib.)(SB) The Tribunal observed as under: 46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability ‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld. AO but he miserably failed to substantiate that. The Hon ble High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld. AO was misplaced and not substantiated. 21. I find that the Hon ble Calcutta High Court in the case of CIT vs Shreyashi Ganguli in ITA No. 196 of 2012 had observed that in that case, the Hon ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI‟s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. 22. I find that the Hon ble Calcutta High Court in the case of CIT vs Bhagwati Prasad Agarwal reported in 2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009, had observed that the Assessee claimed exemption of income from Long Term Capital Gains. However, the ld. AO, based on the information received by him from Calcutta Stock Excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case. 11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs. 5 to 55 and from 9 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained in order to give effect to orders of the higher appellate authorities. The Hon ble Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. Hence I deem it fit and appropriate to follow the decisions of Hon ble Jurisdictional High Court referred supra wherein the impugned issue is decided in favour of the assessee. Moreover, when there are two conflicting decisions of various High Courts, the Hon ble Supreme Court in the case of Vegetable Products reported in 88 ITR 192 (SC) had held that Construction that is favourable to the assessee should be adopted. Hence by following this principle, the decision of Hon ble Calcutta High Court and other decisions that are rendered against the assessee, need not be followed by this Court in the peculiar facts and circumstances of the instant case. 26. Considering the totality of the facts and circumstances of the instant case and respectfully following the judicial precedents relied upon hereinabove, I hold that the reopening of assessment had been initiated by mere surmise and conjecture without having any cogent material to fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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