9911796707
TMI Blog2024 (2) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase and sales transactions recorded in this case. There is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee except in the latest SEBI report of 2020, there is only restriction on trading of this script but there is no reference to assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as an 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. Even otherwise, in the cases of Swati Luthra [ 2019 (7) TMI 526 - ITAT DELHI] and Radheyshyam Khandelwal v. ACIT [ 2021 (7) TMI 493 - ITAT INDORE] dealt with identical scrip wherein the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative of the assessee attended and submitted the relevant information as called for. 6. During the course of the assessment proceedings, with regard to claim of LTCG on sales of shares, Assessing Officer observed that during the search action, based on seized material and evidence gathered it was revealed that the assessee has shown abnormal long-term capital gain from penny stock i.e., Turbotech Engineering Ltd. in A.Y.2013-14 and A.Y. 2014-15. Further, Assessing Officer observed that as per working of long-term capital gain attached with return of income, assessee has claimed exemption u/s 10(38) of the Act. However, as per the details filed by the assessee during the course of assessment proceedings, assessee has shown long term capital gain from Turbotech Engineering Ltd. in A.Y.2013-14 and A.Y. 2014-15 are as below: Name of Scrip No. of equity shares Mode of Acquisition Date of Acquisition Cost of Acquisition Year of sale Sale Consideration Gain/ Loss Turbotech Engineering Ltd. 40,000 Phy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Turbotech Engineering Ltd. in F.Y. 2011-12 and F.Y. 2012-13 for Rs. 3,49,549/-. However, we would like to state that, the assessee has purchased 75,000 shares from M/s. Haresh Infrastructure Pvt. Ltd. for Rs. 1,50,000/- on 22.11.2011 and 2,75,000 shares were purchased on 19 th April 2012 @1/- from M/s. Ekta Shares and Securities. Copy of invoices mised by M/s Haresh Infrastructure Pvt. Ltd. and M/s. Ekta Shares and Securities were already submitted to your Honour vide earlier submissions. However, we are again enclosing herewith the same for your Honour's kind perusal and records as per annexure 1. b. The assessee dematerialized 75,000 shares of M/s. Turbotech Engineering Ltd. on 08/02/2013 and 2,75,000 shares on 30/03/2013 with the demat account maintained with broker Nirmal Bang Sec. Pvt. Ltd. Copy of demat statements were already submitted to your Honour vide earlier submissions. However, we are again enclosing herewith the same for your Honour's kind perusal and records as per annexure 2. c. In the return of income filed for A.Y. 2013-14, the assessee has claimed exemption u/s 10(38) on sale of share of M/s. Turbotech Engineering Ltd. The working of wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submission. However, we are again enclosing herewith the same as per annexure 8. 4. Accordingly, since the holding period from the date of purchase to the date of sale is more than 1 year, gain arising from sale of share is Long Term Capital Gain which is exempt u/s 10 (38) correctly disclosed in Income Tax Return. 5. However, arbitrarily rejecting the above documents and facts brought on record by the assessee, your Honour, has alleged that the information received by you shows that the above transaction carried out through recognized stock exchange is a colourable device and an accommodation entry. Your Honour has further alleged that the rise of stock price has been manipulated by brokers/entry providers merely to accommodate the assessee and provide non genuine long term capital gains. 6. Further, your honour has also alleged that the brokers and operators have also accepted in their statement that they have given accommodation entry to the assessee. 7. In this respect, it is submitted that the assessee has duly proved the genuineness of the transaction through which the assessee has claimed exemption u/s 10(38) of the Act. The same can be seen as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and receipts has been made through banking channels. 11. Further, we would like to state that, when the sales transactions were entered, the same were entered on recognized stock exchange. Therefore, it is impossible for an investor to know or find out who is the purchaser or to whom the sold equity shares are delivered to. It may be surmise or a conjecture may be drawn with the assessee's case based on circumstantial evidence. However, the facts and documentary evidence placed before your honours substantiate the genuineness of the transactions undertaken by the assessee. 12. Further, as regards your honors contention that the assessee has entered into this transaction for allegedly converting the unaccounted money into genuine money through such long term capital gains, we submit that the assessee is regularly trading in long term/ short term shares and in general practice of trading in shares and is not an isolated transaction which the assessee has entered into. Further, we would like to state that during the period under consideration, assessee had entered into all transactions with a rational motive of earning income thereto and has properly accounting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the discussion in the preceding paras it is concluded that long term/short term capital gains booked by assessee in his books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings. a. Mode of acquisition of the shares: The assessee has purchased 40,000 shares of M/s Turbotech Engineering Ltd. for Rs 80,000/- in cash. The assessee has not traded in other scrips showing he was not a genuine investor. b. Sale of shares and unusual rise in the price: The assessee has sold the 40,000 shares at the sale consideration of Rs 1,71,91,404/-, thus resulting the long term/short term capital gain totaling Rs 1,71,11,404/-, which is 214 times the increase of the cost price, and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: During the search and seizure in the assessee case, it was identified that assessee alongwith his family member have booked long term capital gain in the scrip named M/s Turbotech Engineering Ltd. listed on Bombay stock Exchange which were identified by Investigation Wing, Kolkata, an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes. There are statement of various entry providers, operators, share-brokers and exit-providers in the entire arrangement. 6.23.2 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make- believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and series of steps taken a to accomplish such share transactions, in an integrated manner, with a view to ascertaining the true nature and character of such purchase and sale of shares. Legal Position 6.23.3 Honourable SC in case of Sumati Dayal Vs CIT has held that: 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 taxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in itself, albeit low, so as to cast a serious doubt on the truth of the reported 'facts', which together make up for a bizarre statement, leading to the inference of collusiveness or a device set up to conceal the truth, ie, in the absence of credible and independent evidences .. Thus considering the findings of the search/ survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG of Rs 1,71,11,404/- claimed exempt u/s 10(38) of the act treated as non-genuine and the sale consideration received of Rs. 1,71,91,404/- on the penny stock taxed as an unexplained cash credit u/s 68 of IT Act, 1961. Penalty proceedings under section 271(1)(c) of the Act are separately initiated for furnishing inaccurate particulars of income. Further, accommodation entry charges in the form of commission are paid in cash to entry operators. The source of cash is not explained. In respect of accommodation entries of LTCG, the market rate is 3% of the amount of entry. Accordingly, an amount of Rs. 5,15,733/- @3% paid on Rs. 1,71,91,104/- added u/s 69C of IT Act, 1961. Pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. On the facts and circumstances of the case and in law the Ld. CIT(A) erred in confirming the action of Ld. A.O. in passing the impugned assessment u/s 153A of the Act in the absence of any incriminating material found during the course of search, making the assessment order illegal and without jurisdiction. 2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in making the various additions/ disallowance in the absence of any incriminating material found during the course of search action, as per the grounds contained in the assessment order or otherwise. 3. On the facts and circumstances of the case and in law, Ld.CIT(A) erred in confirming the action of ld. AO in treating the long term capital gains on sale of M/s Turbotech Engineering Ltd. earned by the appellant as non-genuine and bogus transaction as per the grounds stated in the order or otherwise. 4. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the action of ld. AO in making addition of Rs. 1,71,11,404/- by invoking provisions of section 68 of the Income Tax Act, 1961 being the amount of sale value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The details of purchase of shares of M/s. Turbotech Engineering Limited made by the assessee is tabulated as under : Date of purchase quantity of share Issue Price (₹.) Amount 22.11.2011 75,000 2 1,50,000 19.04.2012 2,75,000 1 2,75,000 3,50,000 4,25,000 7. In respect of the above referred shares, part purchase consideration was paid through broker M/s. Ekta Shares Securities amounting to Rs. 2,75,000/-. The balance consideration of Rs. 1,50,000/- was paid in cash to M/s Haresh Infrastructure Pvt Ltd. Copy of invoice, ledger account and cash receipt duly acknowledged by the seller is placed at page no. 23-32 of the paper book of AY 2013-14. iii) Re: Dematerialization of Shares 8. It is submitted that, the above shares were dematerialized on 08.02.2013 and 30.03.2013 as per the SEBI Rules. In this regard, copy of demat statement of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated that the said script has been suspended merely on surveillance measure which could not be the base to make an addition by the AO. It is pointed out that pursuant to the said suspension order; no further action taken by SEBI against the company has been brought on record by the AO. Therefore, AO's action of treating the transaction as non-genuine merely on the basis of SEBI order does not hold any relevance. 15. Further, the AO has relied upon the SEBI order dated 14.05.2019 passed in the case of certain person to allege that the script has been manipulated. In this regard, it is submitted that the said order has been passed in the case of certain unrelated persons who were doing transaction in the impugned script amongst themselves which were manipulative in nature. It is relevant to point out that there is no allegation of SEBI that all the transactions done in the impugned script is not genuine. 16. Moreover, AO has failed to establish any link between the assessee and the persons barred by SEBI. No negative interference has been passed in respect of assessee or his transactions done in the impugned script. Therefore, such investigation of SEBI has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng. Such facts has categorically been mentioned in the judgement of Swati Luthra (supra). Therefore, both factually and materially it is distinguishable from the instant case before us. It is relevant to mention that the orders passed by the SEBI are only of the year 2015 and not during that material point of time i.e. the period between 22.11.2011 and 23.05.2013 when the appellant was holding the shares. Moreso, the subsequent orders passed by the SEBI absolving some companies including M/s Turbo Tech Engineering Pvt. Ltd. whose scribes were under suspicion in the absence of any finding of rigging of price diluted the issue. c. Decision of Delhi Tribunal in the case of Smt. Simi Verma V. ITO vide ITA No. 3387/Del/2018 dated 06.11.2018. (Page no 118-123 of case law compilation) 7. I have carefully perused the orders of the authorities below and relevant documentary evidences brought on record. Purchase and sale of shares are documented and exhibited at pages 1 to 8 of the paper book. Sale of shares are carried out in BSE at the prices prevailing in the market which are duly supported by contract notes issued by the broker. The entire transactions have been discarded b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to bring on record any evidence to link assessee with such entry providers. 21. Further, the AO has also relied upon the statements of various exit providers who have accepted of providing accommodation entry on commission basis. He has also relied on the statement of one Mr.Prawesh Berai and Mr. Anil Kumar Khemka. In this regard, it is stated that copies of the said statements were never provided to the assessee. Also, nowhere in the said statements, the name of the assessee has been specified. It is stated that no material was brought on record by the AO to show that the assessee had nexus with any of the individuals whose statements were recorded and relied upon by the AO. It is also pointed out that no opportunity of cross examination was granted to the assessee. 23. In this regard, reliance is placed on the decision of Delhi Tribunal in the case of Smt. Shikha Dhawan v. ITO vides ITA No. 3035/Del/2018 dated 27.06.2018 wherein the statement of Mr. Anil Kumar Khemka has been discussed and it was held that such evidences cannot be held as evidence against the assessee. The said decision is placed at page no. 47-72 of the case law compilation. The relevant para is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Haryana High Court in the case of PCIT v. Hitesh Gandhi bearing IT Appeal No. 18 OF 2017 (O M) dated 16.02.2017 (Page no 27-33) g. Rajasthan High Court in the case of CIT v. Smt. Pooja Agarwal dated 11.09.2017 reported in 99 taxmann.com 451 (Page no 34-36) 26. In view of the above mentioned facts and judicial decisions, we request Your Honour to delete the addition made in the case of the assessee. 15. Further, Ld.AR of the 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, details of cheque issued by stock broker of the assessee towards sales, 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. 16. 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 Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs DCIT, CC-1(1) dated 20.03.23 in ITA No. 621/Mum/2021 and other ITAS ii. Hon'ble SC decision in the case of Suman Poddar vs ITO (2019) - 112 taxmann.com 330 SC iii. DCIT vs Lotus logistics Developers Ltd. (2022) - 136 taxmann.com 110 Mumbai Tribunal A bench iv. ITO 19 (3)(4) Mumbai vs Shamin M Bharwani - (2016) - 69 taxmann.com 65 Mumbai Tribunal E bench v. Sanat Kumar vs ACIT, Circle 14(1) Delhi (2020) 122 taxmann.com 75 (Delhi Tribunal E bench) vi. Satish Kishore v ITO ward 47(2) New Delhi (2019) 110 taxmann.com 307 (Delhi Tribunal G bench) 20. Considered the rival submissions and material placed on record, we observe that the assessee is a regular investor as brought to our notice by the Ld AR at page 3 of the paper book, as per the Balance Sheet of the assessee as on 31.03.2013, assessee held shares and Debentures worth of Rs. 26,23,89,205/-. It shows that the assessee is a regular investor and had also made the investment in the scrip under consideration. The AO observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ( RFL ) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ( STT ) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained. 12. Mr. Hossain s submissions relating to the startling spike in the share 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, int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Sarkar to the appellant during assessment proceedings and merely extracted copies of their statement in the assessment order only. The Ld. AO has not confronted any material to the assessee nor provided any adequate opportunity to the assessee to defend her case. Since the statements were not confronted to the assessee, she was deprived of her right to cross examine the witnesses. Also whatever they have stated in their statement is no gospel truth and cannot be applied blindly to all the persons who have brought the scrips in the entire country. Thus, under these circumstances, atleast some inquiry should have done from these persons, whether they have provided any entry to the assessee, if the request for cross examination was not possible at that stage. Cross examination of a person in whose basis any adverse inference is drawn, then it cannot be primary evidence or material to nail the assessee and simply based on the statement no addition can be made. This has been held so by various courts, and also by Hon'ble Apex Court in the case of M/s Andaman Tiimber Industries vs. CCE (SC) reported in 127 DTR 241 has held as follows: According to us, not allowing the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. 14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon'ble High Court of Delhi in the case of Udit Kalra vs ITO in ITA No. 220/2019. Relevant extracts of said judgment are extracted as below: The assessee is aggrieved by the concurrent findings of the tax authorities-including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs. 13,33,956/- and Rs. 14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs. 12/- per share whereas the market price of the shares at the time of their sale, was Rs. 720/-. It is contended that the assessee was not granted fair opportunity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinguishable from the facts of the case of Udit Kalra vs ITO so relied by ld DR. 16. We further find that Ld. AO has also mentioned about some order of SEBI. This order also was never confronted to the appellant during assessment proceedings. Moreover, the said order seems to be passed in year 2015, whereas the appellant had purchased the shares in year 2011 and 2013 and sold them in year 2014. It was evident from this document only that no action has been taken by the SEBI against the company during the period when the appellant holds the shares. Thus, even otherwise, we find that the order of SEBI so relied by ld. AO and CIT (A) is not applicable for the transactions under consideration. In any case as stated above, the SEBI in its subsequent decision has absolved most of the companies including the companies whose scrips are under suspicion, as they were nor found to be rigging the price. This fact alone vitiates the case of revenue. 17. We also find that the Ld. AO has raised objection regarding the cash purchase of shares and that shares were dematerialized few days back only from the date of sale. There is no law which prohibits the purchase of shares in cash, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Accordingly the grounds raised by the assessee is allowed. The case laws relied by the Ld. DR are distinguishable to the facts of the case. 24. As far as Ld. DR submission that this scrip transaction is suspended by the SEBI and he brought to our notice the SEBI order, however, there is no specific findings against the script under consideration or on the assessee. It was also brought to our notice that this script is still traded in the stock exchange. 25. With regard to Ground No. 5 and 6 relating to addition on account of commission paid on alleged bogus share transaction. Ld.AR of the assessee submitted that the above grounds are consequential to the ground no 3 4 as stated above. Thus, once the share transaction is held genuine and explained, the said addition shall also be deleted. He Further, submitted that the addition has been made by Assessing Officer merely on surmises without any evidence on record and thus may kindly be deleted. On the other hand, Ld DR objected to the above submissions and prayed that both the bogus LTCG and commissions paid on the same may be sustained. 26. Considered the rival submissions and material placed on record, we already held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
