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TMI Blog2022 (8) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand. Income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. Whether a person who genuinely purchases the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... EEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad, dated 06/11/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Year 2014-2015. 2. The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 1,04,55,043.00 on account of bogus long term capital gain. 3. The assessee is an individual and partner in the firms namely M/s Patel Jewellers and M/s Patel Gold Center. The assessee on 18th October 2012 purchased 13000 equity shares of M/s Transcend Com Pvt Ltd at a face value of Rs. 10 per share. Subsequently, the company M/s Transcend Com Pvt Ltd got merged with M/s SRK Industries Ltd w.e.f. 21st December 2012 and the assessee was allotted 28860 shares of M/s SRK Industries Ltd at a face value of Rs. 10 each as a result of amalgamation. Thereafter, the shares of M/s SRK Industries Ltd were split into 2 share of Rs. 5 each and accordingly, 28860 share held by the assessee were conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstantial/ surrounding evidences but the assessee failed to prove the genuineness of such exempted capital gain. The AO also referred the judgment of Hon ble Supreme Court in case of Sumati Dayal reported in 214 ITR 801 and Durga Prasad More reported in 82 ITR 540. 4.1 The AO in addition to the above also found that price movement in the scrip of the M/s SRK Industries was very abrupt, unrealistic and without the support of any financial base which is beyond human probability. The shares were purchased in off market and dematerialized just a week ago before sale. There was no other evidences of purchase of share except bill issued by one M/s Saikat Trade Link Pvt ltd. which does not bear the mode of receipt for consideration. The family member of the assessee also earned similar capital gain on sale scrip of SRK Industries whereas the assessee and family member were not involved in the investment activity in shares before and after. Therefore, the principles of human probability should also be applied to find out the real intent of the transaction. The AO also referred numerous judicial pronouncement. Thus, the AO in view of the above held the long term capital gain of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf serving contention in the form of statement without any further corroborative evidences which do not have any evidentiary value in the eyes of law. In view of above facts of the case, it is amply clear that the facts of the case are squarely covered by the decision of Ahmedabad Tribunal in the case of Chartered Motors Pvt. Ltd. vs. ACIT in IT(SS)A No. 26/Ahd/2012 which has been upheld by Hon'ble Gujarat High Court. In another case of CIT vs. Mukesh R. Marolia in ITA No. 456 of 2007, ITAT, Mumbai wherein the shares were not recorded on the floor of stock exchange but effected through off-market trade held to be valid and Hon'ble Bombay High Court while confirming the decision held that off-market trade is no unlawful activity. It is further seen that SLP filed by the department against the said decision has been dismissed by the Apex Court - CIT vs. Mukesh R. Marolia in SLP (Civil) No. 20146/2012 (SC) dated 27.01.2014. When share purchase transactions were off-market transactions, the same cannot be held to be bogus even if any attempt is made to get details from stock exchanges. I hold that any evidence collected behind the back of appellant and not provided the opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt, The legal effect of the statement recorded behind the back of the assesses and without furnishing the copy thereof to the assessee or without giving time an opportunity of cross examination, if the addition was made, the same was required to be delete on the ground of violation of the principles of natural justice. (b) Decision of Hon'ble Gujarat High Court in the case of CIT Vs. Indrajit Singh Suri - (2013) 33 taxmann.com 281 (Guj.).where the Hon'ble High Court held as under: Where additions were made on basis of statements of persons who were not allowed to be cross examined by assessee, additions were not sustainable. -** (c) Decision of Hon'ble Gujarat High Court in the case DCIT Vs. Mahendra Ambalal Patel Tax Appeal No. 462 of 1999' 13th April, 2010 40 DTR (Guj.) 243 wherein the Hon'ble High Court held as under: Though the AO has placed reliance upon the statements of Shri Manoj Vadodana and Shri G. C Patel for the purpose of taxing the amount in the hands of the assessee, despite specific request being made by the assessee for cross-examining both the said persons, the AO has not permitted the assessee to cross-examine them. In the circumstances, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Jaipur vs. Sunita Dhadda wherein the addition based on third party was deleted for want of cross-examination by the appellant. 4.3 I observe an order of Hon ble ITAT, Ahmedabad in the case of Chartered Motors Pvt. Ltd. vs. ACIT in (T(SS)A No. 26/Ahd/2012, wherein also, the addition was made relying on the statement of Shri Mukesh Chokshi, without granting an opportunity of cross examination and also ignoring the evidences placed on record by the appellant. The facts of this case are similar to the facts of the appellant with a difference that in the cited case the allegation was in respect of share application money while in appellant's case it pertains to LTCG. I have gone through order of the Hon ble ITAT, Ahmedabad Bench in the case of. Chartered Motors (supra) and it is seen that in that case the share application money was received by that assessee through various companies including Buniyad Chemicals and Alembic Securities Pvt. Ltd. allegedly operated by Shri Mukesh Choksi. It was the I case of the AO that Shri Mukesh Choksi was involved in providing accommodation i. entries and he had provided entries of share application money through various companies to the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee. In our considered view, in the I circumstances, the statement of those persons cannot be read against the assessee Our above view finds support from the decision of the Hon'ble Jurisdictional High Court in the case of (i) Heirs and Legal Representatives of Late Laxmanbhai S. Pate! Vs. Commissioner of Income Tax (supra) ' (ii) CIT Vs. Indrajit Singh Suri (supra) (iii) DCIT Vs. Mahendra Ambalal Patel (supra) (iv) CIT vs. Kantibhai Revidas patel(supra) In view of the above settled position of law, we find force in the argument of the assesses that the statements of the persons mentioned above are not admissible evidence against the assesses. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assesses when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s. 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04,55,043/- 4.6 Having held that the share transaction is genuine and eligible for deduction u/s. 10(38), there is no justification of making addition on account of alleged commission paid of Rs. 2,09,200/- by the appellant. Grounds No. 2,3 4 is allowed. 7. Being aggrieved by the order of the learned CIT, the revenue is in appeal before us. 8. The learned DR contended that shares were purchased off market for Rs. 130000.00 which were materialized on a later day before sale of shares. According to the learned DR, there is no human probability for rise in the share price of nonworking company. The learned DR vehemently supported the order of the AO by reiterating his findings contained in the assessment order. 9. On the contrary the learned AR before filed a paper running from pages 1 to 357 and contended that the assessee was never supplied the investigation report or any other document suggesting that the script of M/s SRK industries Ltd was manipulated. There was no action by the SEBI against the impugned company. According to the ld. AR, the script of the impugned company was never delisted from the stock exchange and remained active all over. The learned AR vehemently supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales go hand in hand. In simple words, sales is not possible without having the purchases. Thus, once purchases has been admitted as genuine, then corresponding sales cannot be doubted until and unless some adverse materials are brought on record. As such, we note that the AO in the present case has taken contradictory stand. On one hand, the AO is treating the entire transaction as sham transaction and on the other hand he s allowing the benefit of the cost of acquisition for the shares while determining the bogus longterm capital gain. It is important to note that the AO in assessment order has also made the addition of Rs. 209200/- being 2 percent of the long-term capital gain which the assessee incurred in arranging alleged bogus long-term capital gain. Admittedly, the same was deleted by the learned CIT-A, the revenue has not challenge the same before the ITAT. Thus, it is transpired is this that such expenses were not bogus in nature. Certainly, the impugned expenses have direct nexus with the alleged so-called bogus long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other investigation carried out by the Income Tax Department. It was also not brought any material that those brokers or entry providers have taken the name of the assessee or the broker of the assessee and provided their services either to the assessee or assessee broker. 10.4 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this arrangement. The chain of events and the live link of the assessee s action that he was involved in such rigging up of share price should be established based on cogent materials. The allegation as discussed above implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. This allegation that cash had changed hands, has to be brought on record by the Revenue but we find that there is no such whisper in the order of the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. 10.8 Now the controversy also arises whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of SRK Industries Ltd. Thus, it appears that the assessee acted in the given facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels. The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Ld. 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, ld. A.R. also cited an order of Co-ordinate 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 statement was supplying to the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 10.12 At this juncture we also feel pertinent to refer the order of coordinate bench of Indore in case of Shivnarayan Sharma Ors bearing ITA Nos. 889/Ind/2018, 474,206,60,987/Ind/2019, where in identical fact and circumstances held as under: 16. Since we are adjudicating the above stated common issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered brok ..... X X X X Extracts X X X X X X X X Extracts X X X X
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