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TMI Blog2024 (2) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... exit providers. We can only presume that the assessee is one of the beneficiary in this transactions merely 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. Thus grounds raised by the assessee allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... for A.Y. 2014-15 online on 01/08/2018. Thereafter, notices u/s 143(2) and 142(1) of the Act along with questionnaire was issued on 26/09/2018 and served upon the assessee. 7. In response, Authorized Representative of the assessee attended and furnished the relevant details as called for viz. note on business activity, computation of income, Balance sheet, details of Agricultural income with supporting. Form 16 in support of Salary received, details of bank accounts with statement/s, detailed note on sale of shares sold during the year under consideration. The contents of the note filed by the A.R. is reproduced below: - "07/06/2012 Cheque No. 848033 drawn at SBI Badlapur from saving Account which issued to Maxgain Advisory Pvt. Ltd. for 2000 Equity shares of Rs. 10/- each of Transcend Commerce Ltd for Rs.2,00,000/- which was credited in our saving Account No. 10464808493. Company has issued 2000 shares of Transcend Commerce Ltd credited to our current account dt. 15/06/2012 of Dalal & Broacha Stock Broking Pvt Ltd. On 14/10/2013 Amalgamation scheme put 222 shares for every 100 shares held of Transcend Commerce Ltd amalgamated with SRK Industries Ltd total 20,000 shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order. For the sake of brevity, it is not reproduced. 11. Further, Assessing Officer observed that statement recorded clearly reveals that assessee has no knowledge of share market & he even has no knowledge about broker through whom he has invested in the said shares. It is also a fact that assessee has not entered into share transactions before & not able to answer the questions related with capital gains so earned by him during the year under consideration. As per the modus operandi detected by the Kolkata Investigation wing, the assessee has taken the route of merger and amalgamation method. 12. Assessing Officer by relying on various judicial pronouncements came to the conclusion with the following observation: - "18. This entire edifice through which the assessee claimed to have earned huge tax exempt gains within a very short span of time fails the tests of both genuineness and human probabilities. In the case of Sumati Dayal vs. CIT (214 ITR 801) the apex court propounded the principle of human probabilities and applying 5 it in that case held that whether apparent is real is to be decided on the basis of incriminating circumstances. The supreme court even took no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents... 20. The Hon'ble Supreme Court, in the case of Chuhar Mal V CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the A.O is not fettered, by technical rules of evidence, as held by the Hon'ble Supreme Court in the case of Dhakeshwari Cotton Mills v CIT (1954) 261 TR 775. The Hon'ble Supreme Court, in the case of Chuhar Mal V CIT (supra) held that what was meant by saying that Evidence Act did not apply to the proceedings under Income- tax Act, 1961, was that the rigors of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings before them, they were prevented from doing so. It was further held by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged to income-tax as the income of the assessees of that previous year. The expression "the assessee offers no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion." In this case the SC reversed the decision of the Hon'ble Madras High Court and upheld the findings of the lower authorities regarding transactions of gift received by assessee even though through banking channel to be though apparent but not be real one. 23. In another case of Usha Chandresh Shah vs. ITO (ITA No. 6858/Mum/2011) the Hon'ble ITAT Mumbai upheld the findings of the AO who concluded that the assessee has adopted the methodology of acquiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by applying the principle of human probabilities added the share sale receipts as other income of the assessee from unexplained cash credits u/s 68. Similar findings were made by the ITAT in the case of Arvind M Kariya vs. ACIT (ITA NO. 7024/Mum/2010). Reliance is also placed in the case of Somnath Mani vs. ITO (100 TTJ 917) wherein the Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have to be held to be non-genuine. 26. In the case of Jankinath Sarangi v. State of Orissa. Shri Hidayatullah, C.J., observed there at page 394 of the report "there is no doubt that if the principles of natural justice are violated and there is a gross case this Court would interfere by striking down the order of dismissal; but there are cases, We have to look to what actual prejudice has been caused to a person by the supposed denial to him of a particular right." Judged by this principle, in the background of the facts and circumstances mentioned before, I am of the opinion that there has been no real prejudice caused by infraction of any particular rule of natural justice of which appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee u/s 10(38) of the Act is hereby denied and assessed as unexplained cash credit u/s 68 of the Act. Penal Proceedings u/s 271(1)(c) are initiated separately for concealing particulars of income." 13. By relying on the decision of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT (214 ITR 801), CIT v. Durga Prasad More [1971] 82 ITR 540], Assessing Officer made the addition under section 68 of the Act of Rs.1,53,23,114/-; under section 69C of the Act to the extent of Rs 51,860/- taxable income of the assessee. 14. Aggrieved assessee preferred appeal before the Ld. CIT(A) and raised grounds of appeal and filed detailed written submissions. Ld.CIT(A) after considering the submissions and findings in the assessment order, Ld. CIT(A) dismissed the appeal filed by the assessee by observing as under: - '5.5 In the instance case, regarding the purchase and sale of M/s.SRK Industries Ltd., the AO has elaborately discussed in assessment order. The shares in which the appellant has claimed to have made a deal, are identified as Penny Shares by the investigation wing of the department because rates of these shares are not based on business results of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation) Kolkata. The scrip in which investment was made by the appellant is admittedly a penny stock and the said stock by its very nature and functioning is mysterious. Normally, in the share market an investment is always made only in good stock and the good stock is identified in the market where it has sound fundamentals with a good target record of giving dividend over a period of time. The share in questions definitely not a stock in that category. The penny stock always exhibits a cyclic pattern where both the buyer and seller seek an advantage of an artificially created market situation to exploit and avoid taxation. 5.8 The appellant being very new to trading in penny stock and the earning of such huge profit by a person not known to such type of trading is against human probabilities. For this proposition, relied on the decision of Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (Supra) reported in 214 ITR 801, the Hon'ble Supreme Court categorically observed that if there is sufficient indication based on the probabilities of an occurrence to disbelieve the statement made by the assessee, even when advanced with prima facie evidence, the AO may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that where assessee could not Explain receipt of alleged share transactions profits credited in his bank accounts, then sale proceeds had to be added as income of assessee under section 68 iii) Balbir Chand Maini vs. CIT [2011]12 taxmann.com 276 (P&H) Section 69 of the Income-tax Act, 1961-Unexplained investments- Assessment year 1998-99-During assessment proceedings, Assessing Officer found that assessee had purchased certain shares of a company at rate between 2.50 and 3.40 per share in month of April, 1997 and part of those shares were sold through a broker at 55 per share - He came to opinion that value of said shares could not be as high as 55 per share -He recorded statement of broker who admitted to have purchased shares in question but failed to produce books of account and other relevant documents- He also found that alleged sale of shares had not taken place through any stock exchange -On scrutiny of books of account of broker, it was found that there were cash deposits in its bank account preceding issue of Cheques in name of assessee for purchase of shares claimed to be sale proceeds of same shares received in advance -Broker could not give details of purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned by the assessee on those transactions were denied and the same was treated as unexplained cash credit u/s.68 of the Act. 5.12 The appellant has relied on several case laws as well as by the assessing officer. In this case, the issue is not of the application of any particular case law. The legal propositions being well settled, each case rests on its own facts and the decision in this case has been decided on the basis of the facts and circumstances of the instant case. 5.13 To sum up, there is no denying the fact that, the appellant has bought penny stock, as the operators/brokers had admitted at the time of search action and also as discussed above. The Assessing officer has treated the purchase and sale of these shares as bogus/accommodation entries and the same has been brought to tax u/s.68 of the Act. In view of the above stated facts, the addition made by the assessing officer is sustained and the appeal of the appellant on these grounds is dismissed. 6.0 Ground No.5 is directed against the addition of 51,860/- on account of commission paid for getting accommodation entry. The AO has made addition on the ground that, these payments pertain to the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother reported in (2018) 89 taxmann.com 196(Bombay) order dated 10.04.2017 wherein it has held that whether, on facts, assessee had indulged in a dubious share transaction meant to account for undisclosed income in grab of long term capital gain, thus, exemption under section 10(38) could not be granted to assessee- Held, yes- Whether transaction of sale and purchase of shares of penny stock companies was an adventure in nature of trade, thus, same was to be taxed as business income- Held, yes [Para 3] [In favour of revenue]. 7.3 Recently, the Hon'ble ITAT Bangalore in the case of Smt. M. K. Rajeshwari vs. ITO Ward-3, Raichur reported in ITA No.1723/Bang/2018, A.Y.2015-16 order dated 12.10.2018 has upheld the order of the CIT(A) that, the profit arising from purchase and sale of penny stock fall within the ambit of adventure in the nature of trade and the same is taxed under the head " business income". 7.4 The appellant has relied on several case laws as well as by the assessing officer. In this case, the issue is not of the application of any particular case law. The legal propositions being well settled, each case rests on its own facts and the decision in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO at any stage during assessment proceedings or in the assessment order. The Appellant has sold all the shares of SRK Industries Ltd on various occasions during the year under appeal on the transparent trading platform of Bombay Stock Exchange and has furnished (a) Share Broker's contract notes issued by LFC Securities Pvt Ltd (registered with BSE and SEBI) evidencing sales transactions of shares of SRK and also showing payment of STT and other levies on such sale, (b) Copy of demat account issued by DP Dalal and Broacha Stock Broking Pvt Ltd registered with NSDL showing debit (outward entries) for those shares sold during from 08/01/2014 to 13/01/2014, (c) Ledger account of the Appellant in the books of LFC Securities Pvt Ltd wherein the bills for sale of the impugned shares and receipts from the brokers against sale of the said shares are distinctly shown and (d) copy of Bank statement showing amounts received from the said Share Broker in respect shares sold. It is pertinent to note that the AO has not found fault with the documentary evidences produced by the Appellant as regards purchase and sale of shares of SRK and hence the Long Term Capital Gain of Rs.1,53,23,114 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ureka HUF vs. I.T.O [ITA No. 1650/Kol/2018](copy enclosed) • Shree Shreyans Chopra vs. ACIT [ITA 661/Kol/2018](copy enclosed) • Smt. Amrita Baid vs. I.T.O. [ITA No. 2477/Kol/2017) • Smt. Snehlata Chopra vs. 1.T.O. [ITA No. 1386/Kol/2018] • Smt. Pushpa Devi Chopra vs. I.T.O. [ITA No. 1388/Kol/2018) • Smt. Sampat Devi Chopra vs. 1.T.O. [ITA No. 1387/Kol/2018) 20. On the other hand, Ld. DR relied on the order of the lower authorities and he brought to our notice Para No. 3 of the assessment order and Page No. 21 of the assessment order to submit that assessee has made this investments one time and also not aware of the Financials or Director and the details of relevant scrip. In this regard, Ld. DR relied on the following case law: - • Smt. Mamta Agarwal v. ITO in ITA No. 1414/Chny/2018 dated 06.12.2018. • Shri Hitendra c. Ghadia v. DCIT in ITA No. 621/MUM/2021 dated 20.03.2023. • Smt Asha Rajendera Gupta v. ACIT in ITA No. 7712/MUM/2019 dated 13.04.2023. 21. Considered the rival submissions and material and various case laws placed on record, we observe that the assessee is not the regular investor and had specifically made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t;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 law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs." 22. Further, the Hon'ble Delhi High Court in the case of Pr. CIT v. Smt. Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - "8. Mr. Hossain argues that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT (supra) and Smt. Bhavna B. Kothari vs. ITO (supra), the scrip involved was M/s. S.R.K. Industries Ltd. and the co-ordinate Bench of the Tribunal has held the long term capital gain to be genuine and not bogus. The operative part in the case of Smt. Geeta Khare vs. ACIT (supra) is extracted below: "7. We have heard the rival submissions. The primary facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the ld AO had placed reliance on certain statements recorded by the Investigation wing of Kolkata Income Tax Department during some survey proceedings conducted in third party cases. We find that in none of those statements, the name of the assessee or the name of the brokers through whom assessee had transacted were mentioned. We also find that there is no mention of any connivance on the part of the assessee with the share broker and stock exchange to launder the unaccounted monies of the assessee and bring it back in the form of sale proceeds of shares and claim exemption u/s 10(38) of the Act for the long term capital gains derived thereon. None of the parties on whom survey actions were conducted were related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of price and subsequently taking accommodation entry for Long term capital gains. We find from the demat statements for the period 1.4.2012 to 31.3.2013 and 1.4.2013 to 31.3.2014, the assessee had dealt in various reputed scrips and had duly dematted the same and all these transactions are duly reflected in the demat statements issued by the depository participant. 7.6. We find that the ld DR made general submissions with regard to the investigations carried out by Kolkata Income Tax Department after identifying 84 scrips to be penny stocks and the modus operandi adopted by those scrips with the connivance of various entry operators, brokers and stock exchange. We find that the ld DR was not specifically able to controvert the documentary evidences filed by the assessee for purchase and sale of shares and various other documents referred to in the Paper Book. The ld DR also filed written submissions wherein he had reiterated the findings of the ld AO. 7.7. We find that the co-ordinate bench of Kolkata Tribunal in ITA No.661/Kol/ 2018 in Shreyans Chopra vs. ACIT dated 25.7.2018 on similar set of facts and circumstances had held as follows:- "IN THE INCOME TAX APPELLATE T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Jurisdictional High Court had in the following cases, upheld the claim of the assessee:- • CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 • CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC) dt.08/05/2017 • CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009 6.2. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on account of sale of shares in the case of both the assessees. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed. 7. In the result, appeal of the assessee is allowed. Kolkata, the 25th day of July, 2018. Sd/- [J. Sudhakar Reddy] Accountant Member Dated : 25.07.2018 7.8. It would be pertinent to address the case law relied upon by the ld DR before us on the decision of Hon'ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs. Pr.CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s. Richmand Securities Pvt Ltd regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s. Richmand Securities Pvt Ltd held that the sale transaction was genuine. 7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of Rs. 1,41,08,484/- represented unexplained investment under section 69 of the Income Tax Act, 1961 cannot be faulted. 8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs. 7.10. In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA was not justified in upholding the action of the ld AO in bringing the long term capital gains on sale of shares of SRK Industries Ltd in the sum of Rs. 2,26,36,372/- as unexplained income of the assessee treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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