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TMI Blog2024 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... nipulate the price as given in SEBI order dated 19.12.2014. It is not disputed that no action has been taken by SEBI against the assessee or her broker M/s. Anand Rathi. So the reliance placed by AO on SEBI order without linking it with assessee or her broker is irrelevant/misplaced and erroneous. Since there is no testimony which incriminate assessee or her broker, reliance made by AO to draw adverse view cannot be countenanced. We note that the AO has also referred to the SEBI report wherein according to him, the SEBI was pleased to suspend the trading of the scrip of M/s. Sunrise for certain period. But, nothing turns on it, because by suspending sale for some time, does not in any way link assessee or her broker with wrongdoing or connected to Shri Vipul Bhat. As decided in Bhavin Vaghasia [ 2023 (6) TMI 1399 - ITAT MUMBAI] material on record supports the case of the Assessee/Legal Heir that transactions of sale of shares of Sunrise Asian were genuine transactions undertaken during normal course by the Assessee who had knowledge of the stock-market and had been making investments in shares since many years. Accordingly, the claim of exemption under Section 10(38) of the Act is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was a penny-stock and for coming to such a conclusion he referred to the investigation report prepared by Investigation Wing of the Department (Kolkata) wherein the modus-operandi of persons like assessee had indulged in converting their unaccounted money by way of transacting in penny- stock (M/s. Sunrise in this case) and claimed bogus LTCG. The AO referred to the statement given by Shri Vipul Vidur Bhatt recorded u/s 132(4) of the Act wherein he admitted (during the course of search in his premise) that prices of acquisition and sale of M/s. Sunrise shares were manipulated. And thereafter, the AO was of the opinion that the assessee s LTCG was part of an organized scam/circular trading and by doing so, the assessee was evading tax, launder money by becoming beneficiary of that organized scam. And thus, he was of the opinion that LTCG claim of the assessee to the tune of Rs. 23,88,825/- which was claimed as exempt income u/s 10(38) of the Act cannot be allowed. According to him, the entire transaction giving rise to the capital gains are merely fictitious bogus accommodation entries through which unaccounted money of the assessee has been converted into accounted money in the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,000 HDFC Bank 27.05.2013 And Ld. AR drew our attention to Physical copy of Share Certificate of M/s Conart Traders Ltd (which was held in the name of M/s. Santoshima Tradelink) found kept at Page no. 65A of PB, from whom assessee purchased 5000 shares which fact is evident from the reverse side of the share certificate wherein it is noted that as per register Folio No. 633, the 5000 shares have been transferred in the name of assessee as on 22.11.2011. The purchase consideration of Rs.1 Lakh has been paid by assessee on 27.09.2011 to M/s. Santoshima which fact is evident from perusal of Bank Statement found kept at Page 66 of PB as well as debit note found placed at page 65 PB, and thereafter, assessee has transferred the shares of M/s. Conart Traders to Demat Account which fact is evident from Demat statement from 01.04.2013 to 31.03.2014: ( Refer Page 24-24 of PB) and Financial Data of M/s. Conart Traders as per Audited Annual Reports, which facts are seen from perusal of chart given below. FY Revenue Net Profit No. of Eq Shares EPS Increase % 2209-10 2511608 640161 823770 78 2010-11 16885330 1562933 823770 1.90 143.60% FY Share capital Reserves Total No of Eq Shares Book V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crip and that there is no order/adverse view expressed by SEBI against assessee or against her broker. According to Ld. AR thus it can be seen that AO has drawn adverse view against the claim of LTCG only on the basis of general report of Investigation Wing, Kolkata wherein it is stated that scrip of M/s Sunrise Asian Ltd is a penny stock, and thus the AO erred in concluding that the assessee is beneficiary to claim exempt capital gain, without there being any iota of evidence of assessee/broker indulging in any wrong doing. The Ld. AR pointed out that assessee had purchased share at a price of Rs. 20 per share and sold when the average price was at Rs. 491/-only. Thus price rise in last 2 years was merely 24 times. Therefore, according to Ld. AR, the observation of AO to the effect that share prices rose to abnormal levels is not correct and is based on incorrect appreciation of facts. According to Ld. AR, nothing turns on the general-statement/information/modus-operandi adopted by some unscrupulous entity operators for making bogus claim of LTCG (as stated in investigation wing report/statement of Shri Vipul Bhat), which material is irrelevant to the facts of the case of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Exchange after remitting STT. And claimed LTCG on such transaction, which was denied by the AO on the strength of investigation report which identified scrip of M/s. Sunrise as a penny stock. The assessee in order to prove the transaction (purchase sale of scrip of M/s. Sunrise) has filed the primary documents regarding purchase of shares of M/s Conart like debit-note, Share Certificate, proof of payment through bank, Demat statement, Hon ble High Court order amalgamating M/s. Contart Traders with M/s. Sunrise; and fact of sale of scrips of M/s. Sunrise through Bombay Stock Exchange was proved by copy of contract of sale of scrip of M/s. Sunrise, proof of sale consideration received through banking channel, payment of STT, De-mat statement etc. Thus by producing the primary documents, assessee has proved the purchase of shares and the holding of shares have been proved by producing the copy of the Demat statement; and the event of sale of scrips of M/s. Sunrise has taken place through the electronic platform of Bombay Stock Exchange and proved by contract notes after remitting STT. Thus, proving the event of sales of scrip and it is found that the purchase/sale consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares of M/s. Sunrise by taking note that in that case also assessee had purchased share of M/s. Contart Traders and after amalgamation with M/s. Sunrise, the scrips were sold in the same manner as done in the case of the assessee; and the AO in that case also denied claim of exempt income u/s 10(38)/LTCG on the same reasons as done in this case. And the Tribunal allowed the claim of assessee. Since the facts and circumstances are similar/identical, we rely on the ratio of the decision in the case of Bhavin Vaghasia (supra) and applying the same mutatis mutandis with the facts of the assessee s case hold that the action of the AO cannot be sustained for the reason that there was no evidence to suggest that the assessee had indulged in any wrong doing for making the claim of LTCG/exemption u/s 10(38) of the Act. There is no evidence to suggest that the assessee had any link with Shri Vipul Bhatt; and note that the SEBI order has not made any adverse order against assessee/broker. And the AO has not found any infirmity of the primary documents filed by assessee to prove the purchase sale of the shares. In such a scenario, we rely on the decision of the Tribunal in the case Bhavin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 68 of the Act. 21. We have given thoughtful consideration to the submission made by both the sides, perused the order passed by the CIT(A) and the Assessing Officer and considered the legal position. 21.1. At the outset we would like to deal with contentions raised on behalf of Assessee/Legal Heir and the Revenue 21.2. We note that SEBI Order clearly records that the person acting in concert were able to manipulate the quoted price of shares listed on stock exchange to their advantage. The Investigation Report also records that the provisions of Section 10(38) of the Act were exploited by persons acting in concert (such as operators, brokers, syndicate members and exit providers) for abetting persons having unaccounted income to introduce the same in books through banking channels as capital receipts or tax exempt capital gains income with the help of shell companies or jamakharchi companies under control of the persons acting in concert. Securities Exchange Board of India (SEBI), as a securities market regulator, has passed orders identifying and penalizing persons/concerns acting in concert indulging in price rigging through synchronized trading in shares through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court has observed as under: 13. In stating that .Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities. Human minds may differ as to the reliability of a piece of evidence. But in that sphere the decision of the final fact finding authority is made conclusive by law. (Emphasis Supplied) 22. Accordingly, we proceed to examine the surrounding facts and circumstances of the present case. 22.1 It is admitted position that Sunrise Asian is one of the penny stock companies listed on Bombay Stock Exchange (BSE) used for generating bogus LTCG. A perusal of the Assessment Order shows that the Assessing Officer has placed reliance on the Investigation Report while making the addition of INR 86,12,600/- under Section 68 of the Act by treating the transaction of sale of shares of Sunrise Asian as a bogus penny stock transaction. 22.2 According to the Investigation Report, penny stock transactions generally involved the following persons: (i) Syndicate Members are generally promoters of penny stock companies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer has concluded that the exit entry providers are M/s Comfort Securities Limited and Mr. Anil Agarwal key person of Comfort Group. 22 .3 Further, according to the Investigation Report, bogus penny stock transactions involved the following stages (i) Purchase/Acquisition The beneficiaries acquire penny stock at a nominal rate which generally takes place as off-market transaction. The shares can be acquired by way of conventional method (i.e. purchase of share of listed company), or Merger Method (i.e. share of unlisted company acquired through off-market transaction - such as purchase or preferential allotment, are swapped for shares of listed company through a scheme of merger of unlisted company into a listed company) We note that in the case before us, the Assessee acquired shares of Sunrise Asian under Merger Method. 18000 share of Conart Traders Limited were allotted to the Assessee for consideration of INR 3,60,000/- and under the scheme of merger, whereby Santoshima Tradelink Limited and Conart Traders Limited were merged into Sunrise Asian, the Assessee was allotted 1 share of Sunrise Asian for 1 share of Conart Traders Limited. (ii) Price Rigging After the purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pre-arranged 24. The contention of the Appellant is that the above conclusions drawn by the Assessing Officer are without any basis or material on record. 25. We have perused the SEBI Order, Investigation Report, SEBI Order, dated 19/12/2014 and the statement of Mr. Vipul Vidur Bhatt and Mr. Anil Agarwal. Sunrise Asian [Script Name: SUN ASIAN and Script Code: 506615] has been identified as 1 of the 84 penny stock in the Investigation Report at Serial No. 59 of the list of BSE listed penny stocks used for generation of LTCG. 25.1 In the Assessment Order, the Assessing Officer has identified Mr. Vipul Vidur Bhatt as an Operator. However, there is nothing on record to link the Assessee with Mr. Vipul Vidur Bhatt. The Assessing Officer seems to have drawn inference on the strength of the statement given by the Mr. Vipul Vidur Bhatt to the effect that the beneficiaries of bogus LTCG were allotted shares of Conart Traders Limited on preferential basis in 2011-12. Perusal of material placed on record shows that the Assessee did acquire shares of Conart Traders Limited by way of allotment in 2011-12. The Assessee has made payment of INR 3,60,000/-, through bank account, for allotment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not find any mention in the Investigation Report and/or the SEBI Order. 25.7 The Assessing Officer has concluded that the Comfort Group and Mr. Anil Agarwal acted as exit providers. However, on perusal of the record we find that there is nothing on record which can form the basis of the aforesaid conclusion. On perusal of the SEBI Order, dated 19/12/2014, that Comfort Group and Anil Agarwal were acting for operators for penny stock scripts other than Sunrise Asian. The only link between Sunrise Asian and Confort Group seems to be that one of the companies of Comfort Group (i.e. Comfort Securities Ltd.) acted as a Broker facilitating bogus LTCG trades. However, for the Assessee, ITI Financial Services Limited was the broker. Therefore, the sale transactions undertaken by the Assessee cannot be said to have any link with Comfort Securities Ltd. We note that in reply to question no. 26, Mr. Vipul Vidur Bhatt had stated that he will furnish a list on beneficiaries within 10 days. However, no reference to such list has been made in the Assessment Order. It is also not the case of the Revenue that the name of the Assessee finds mention in the list of 83 connected entities/persons ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,529,242.27 Therefore, the Assessing Officer has, in Paragraph 5.2 of the Assessment Order, incorrectly stated that the Assessee has mainly traded in single script. 25.10 We note that in paragraph 5.0 (vii) of the order impugned, the CIT(A) has stated that the Appellant being very new to trading in penny stock and the earning of such huge income by a person not known to such type of trading is against human probabilities. This is factually incorrect as the Assessee has been registered as subbroker with SEBI and has been making personal investments since 2007. Further, apart from sale of share of Sunrise Asian, the Assessee had also sold share of other companies during the same period and earned a substantial return which have been accepted by the Revenue as genuine. The detail of the aforesaid sale transactions are as under: Name of Shares Quantity Profit % Gains on Cost Bayer Cropscience Ltd 750 10,60,394 641.21% Natco Pharma Ltd. 600 8,08,972 366.88% 25.11 Further, on perusal of paragraph 7.21 of the SEBI Order, we find that during Patch 2 (01/07/2013 to 07/05/2014) 62 connected entities listed in Table 8 of the SEBI Order had traded amongst themselves. The name of the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s allowed in respect of capital gains of INR 86,12,600/- arising from sale of shares of Sunrise Asian during the previous year relevant to the Assessment Year 2014-15. Ground No. 1.1 and 1.3 are allowed. 27. Before parting we would like to observe that the Assessing Officer had summoned the Legal Heir and recorded his statement wherein the Legal Heir had expressed ignorance about the transactions under consideration. The Assessing Officer had on the basis of the statement concluded that the no satisfactory explanation was furnished regarding the aforesaid transactions. In our view, the approach adopted by the Assessing Officer cannot be countenanced. It is likely that the Legal Heir may not have personal knowledge of the transactions undertaken by his father and therefore, the Assessing Officer must also take into consideration the documents/details placed on record. Having said as aforesaid, we are not convinced by the contention advanced on behalf of the Assessee/Legal Heir that the provisions of Section 68 cannot be attracted in case where the assessee has passed away as such assessee can no longer be asked to furnish an explanation which is pre-requisite for invoking Section 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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