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TMI Blog2024 (1) TMI 1329X X X X Extracts X X X X X X X X Extracts X X X X ..... been fulfilled by the assessee (s) and hence, the issues raised in the instant appeal by department regarding the bogus claim of Long Term Capital Gain would be liable to be rejected. Denial of natural justice - Assessee deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down in the case of Andaman Timber Industries [ 2015 (10) TMI 442 - SUPREME COURT] that not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected . Thus, the order of the ld. CIT(A) in deleting the addition on account of disallowance of claim of exemption on long term capital gains on sale of shares u/s 68 and commission payment u/s 69C of the Act is held to be justified, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased shares and that the company was floated for the purpose of providing the accommodation entries, in view of the price rise of shares in short period. Accordingly, the AO rejected the claim of the appellant as bogus and made the addition. 3. Aggrieved with the assessment order, the appellant preferred an appeal before the CIT(A), who examined the issue and called for remand report from the AO on multiple occasion on the reply filed by the appellant. After appreciating the facts of the case, the CIT(A) has deleted the addition by observing as under: 4.3. I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. Since the addition of Rs 1,13,66,376- was made by the AO with respect to the long term capital gain declared by the appellant, therefore vide letter dated 02.08.2017, the AO was requested to furnish following information/ copy of impounded seized documents or loose papers, if any. It is seen that the AO while completing the assessment has made the addition in respect of the Long Term Capital Gain declared by the appellant. In the connection you are requested to kindly furnish following information cop of impound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by 21.09.2017, so that the appeal can be decided. If the information/ copy of impounded seized documents/ loose papers requisitioned vide letter dated 02.08.2017 are not received by his office by 21.09.2017. It shall be concluded than the AO is not in possession of the information/ copy of impounded seized documents loose papers requisitioned vide letter dated 02.08.2017 and the appeal shall be decided accordingly. 4.5. The AO submitted the report dated 21.09.2017 as under- Kindly refer to your office letter No. CIT(A)/AJM/2017-18/2864 dated 02.08.20) on the above subject. In this connection, it is submitted that the case was selected for scrutiny moder CASS with reasons of Substantial Increase in capital in a year Mismatch in amount paid to related persons w/s 40A(2)(b) reported in Audit report and ITR During the course of assessment proceedings, it was noticed that the assesses his shown exempted income of Rs. 1.12.66.376/- u/s 10(38) of IT. Act, 1961 relating to LTCG on sale of shares of Mis Sun Asian (Sun Asian Limited). In this regard, kindly find enclosed CD containing Investigation Report, statement of different person by the Investigation Wings, details of transaction etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been conducted on promoters of many BSE listed Companies, the Share Operators and the Brokers, who had arranged for the Bogus Long term Gain. The Investigation revealed that the company M's SUNRISE ASIAN LTD. was one such Company which had been providing accommodation entry for obtaining the Long Term Capital Gain. The relevant discussion along with the statement of entry provider has already been made in the Assessment Order dated 27.12.2016, It is also pertinent to mention here that the entry provider in the statements as recorded on oath, have accepted the involvement through various shell/paper companies (Jamakharchi Companies) in trading in the scrip of Mis SUNRISE ASIAN LTD. (iv) In this regard, it is pertinent to mention here that Dy Director of Income-tax (Ire), Unit- 2(3), Kolkata has clearly mentioned in the Chapter 3 titled as Brief Discussion on All Listed Penny Stocks (Scripts) used in Bogus- LTCG Scam of Investigation Report Project Bogus LTCG STCL Through BSE Listed Penny Stocks that they have unearthed and identified some 84 odd companies which are Listed on BSE and are being used for providing bogus accommodation entry of LTCG STCL. The DDIT(Inv) has also provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Sunrise Asian Li stands in Sr no. 59 The investigation carried by the Wing could unearth and identify a huge syndicate of Entry Operators share brokers and money launderers, involved in providing bogus accommodation of LTCG. The modus operandi of the said companies has been discussed in assessment order in detail. In the instant case. M/s Conan Traders ltd is floated just for the purpose of giving LCG entries which was later merged with Sunrise Asian Led. No business activities as such were carried and by this company. In the preset case, assesses is beneficiary and in the guise of LTCG on share purchase from a bogus company floated for purpose of accommodation entry and subsequently shown to have sold the shares and by this may managed to convert his black money into white. Assesses furnished copy of the revocation of suspension in trading of Equay of Sunrise Asian Ltd, copy of Historic share price of Sunrise Astan Ltd. and Annual Report of Sunrise Asian Ltd also but these documents does not prove that the transaction in question was not bogus. Revocation order furnised in appellate proceedings pertains to F.Y. 2010-11, which is not relevant in the present case as survey has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of riot less than 12 months and STT has also been paid on the transaction of sale of the shares, therefore the LTCG earned by the appellant on sale of shares of Sunrise Asian Ltd. is held to be exempt u/s 10(38). Hence, following the decisions of jurisdictional ITAT Jaipur in the case of Shri Meghraj Singh Shekhawat vs. DCIT Pramod Kumar Lodha vs. ITO, Ward-6(2), Jaipur, DCIT vs. Saurabh Mittal. ITO Bharatpur vs. Kapil Mittal, Vivek Agarwal vs. ITO, Shri Purshotam Soni vs. ITO, Shri Pramod Jain and others vs, DCIT, Circle-3, Jaipur and Rajasthan High Court in the case of Smi, Pooja Agarwal, referred above. decision of Supreme Court in the case of Andaman Timber Industries vs CCE (127 DTR 241) and other decisions relied upon by the appellant, the addition of Rs. 1.13,66,376/- made by the AO u/5 68 is here by deleted. As I have already deleted the addition of Rs. 1,13,66,376/- made u/s 68, therefore, the addition of Rs. 2,27,328/- made by the AO u/s 69C made with respect to the commission claimed to have been paid by the appellant @1.5% on the sales consideration of Sunrise Asian Ltd. is also deleted. 4. The Ld. CIT (DR) strongly supported the assessment order. He contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndore Bench are as under : 15. We have heard the rival contentions and perused the records placed before us and carefully gone through the judgments referred relied by all the parties. There are two common issues raised in the instant appeals. Firstly challenging the finding of Ld. CIT(A) confirming the action of the Ld. A.O denying the benefit of exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares and holding it to be Bogus allegedly earned from dealing in penny stock companies and also making addition for estimated brokerage expenses for arranging bogus capital gain. Second common grievance is by way of raising the legal issue contending that since no opportunity was awarded to the assessee to cross examine the third persons, whose statement were taken as a base to make additions, the impugned additions are liable to be deleted. 16. Since we are adjudicating the above stated common issue on the basis of above assessee namely Shri Shiv Narayan Sharma, we note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of Rs. 1,50,000/- . There is no restriction under the law to purchase equity shares on off line mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. The relevant extract of the decision of Co-ordinate Bench, Mumbai is reproduced below:- 6. We have carefully heard the rival submissions and perused relevant material on record. So far as the factual matrix is concerned, there is no substantial dispute regarding the same. The perusal of record would reveal that the assessee purchased certain shares of an entity namely M/s STL as early as September, 2011. The shares were converted into demat form in assessee s account during the month of March, 2012. The transactions took place through banking channels. The investments were duly reflected by the assessee in financial statements of respective years. The copies of financial statements of M/s STL for FYs 2009-10 2010-11 which led to investment by the assessee in that entity was also furnished during the course of assessment proceedings. Subsequently, M/s STL got merged with another entity viz. M/s SAL pursuant to scheme of amalgamation u/s 391 to 394 of The Companies Act, 1956. The Scheme was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng has been brough ton record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon ble Supreme Courtin M/s Andaman Timber Industries V/s CCE (CA No. 4228 of 2006)where in it was held that not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. The whole basis of making the addition is third party statement without there being any tangible material. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of legal evidence as held by Hon ble Supreme Court in Umacharan Shaw Bros. V/s CIT (1959 37 ITR 271).Therefore, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner. 10. The above conclusion is further fortified by the fact that in share sale transactions through online mode, the identity of the buyer of the shares would not be known to the assessee. Therefore, the adverse conclusion drawn by Ld. Assessing Officer merely on the basis of the fact that the buyer of the shares were group entities of Shri Vipul Bhat, could not be sustained. The fact that there were independent buyers also would rebut the same and weaken the conclusion drawn by Ld.AO. 11. The Ld. AR has relied on plethora of judicial pronouncements in support of various submissions, which we have duly considered. These decisions would only support the conclusions drawn by us that once the assessee has discharged the onus of proving the genuineness of the transactions, the onus would shift on the revenue to dislodge assessee s claim and bring on record contrary evidences to rebut the same. Until and Unless this exercise is carried out, the additions could not be sustained in the eye so flaw. 12. To enumera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who monitors and regulates the stock exchanges stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the Id. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. However, we note that the said enquiry Was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction under taken by the assessee or for that matter, the price and realization on sale of shares so undertaken by the assessee through the stock exchange. Further, it has been held in the aforesaid case that the findings of investigation modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee's involvement or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and it has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the D-mat account only. Hence the delivery of shares a/so stand proved. The AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any evidence to implicate the assessee or to prove that the transactions are bogus I am of the view that the capital gains declared by the assessee cannot be doubted with. In that View of the matter the addition made towards expenses is not also sustainable. 25. In light of above discussions and in the entirety of facts and circumstances of the case and following the decisions of the Hon'ble jurisdictional High Court And of that of the Coordinate Benches in case referred su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, Shri Purshotam Soni vs. ITO, Shri Pramod Jain and others vs, DCIT, Circle-3, Jaipur and Rajasthan High Court in the case of Smt. Pooja Agarwal, and decision of Supreme Court in the case of Andaman Timber Industries vs CCE (127 DTR 241) relied upon by the appellant, while deleting the addition of Rs. 1.13,66,376/- made by the AO u/s 68 of the Act and the addition of Rs. 2,27,328/- u/s 69C with respect to the claim of commission paid @1.5%. 7. On similar facts, the issue involved in the present case has been dealt with by the Co-ordinate Bench of Mumbai and Jaipur where the Long Term Capital Gain earned from sale of equity shares of M/s SAL holding has been treated as genuine wherein it is also noted that in the case of appellants Shri Shiv Narayan Sharma and Prayank Jain the alleged company, M/s Conart Traders Ltd. subsequently merged with M/s SAL under the order of Hon ble Mumbai High Court and thus, the present case is squarely covered by the decisions of the coordinate bench (Supra). 8. Similar issue of the alleged bogus Long Term Capital Gain from sale of shares of Turbo tech came up before the Co-ordinate Bench, in the case of Swati Luthra wherein the Co-ordinate Bench ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Timber Industries vs. CCE(SC) reported in 127 DTR 241 has held as follows: According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 15.1.2021, in the case of PCITV/s Krishna Devi Others ITANo. 125/2020 where in dealing with the similar issue of claim of exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares it has considered its earlier judgment delivered in the case of Suman Poddar V/s ITO (supra) and has decided against the revenue confirming the order of the Tribunal stating that it be the last fact finding authority who on the basis of evidence brought on record has rightly came to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. Relevant extract of the judgment of Hon ble Delhi High Court in the case of PCIT V/s Krishna Devi Others is reproduced below:- 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated here in after. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the entire concept us of case and the evidence brough ton 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 other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain s s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee (s) that namely Shiv Narayan 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 broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI nor the trading of these scrips were suspended. In the present case, the appellant has entered into the transactions of purchase and sales of shares, duly supported by the documents which have not been rebutted either by the AO or by the LD. DR and therefore, in our considered view, since the conditions provided u/s 10(38) of the Act have been fulfilled by the assessee (s) and hence, the issues raised in the instant appeal by department regarding the bogus claim of Long Term Capital Gain would be liable to be rejected. 11. Without prejudice to the above, the assessee deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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