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TMI Blog2024 (11) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... red 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. AO and CIT(A) has applied the concept of human probabilities and held the above said scrips to be a penny stock without bringing on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed in the case of Ziauddin A Siddique [ 2022 (3) TMI 1437 - BOMBAY HIGH COURT ] Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine - Decided in favour of assessee. - Shri S.Rifaur Rahman, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Assessee : Shri Ruchesh Sinha, Advocate For the Revenue : Shri Virendra Singh, Sr. DR. ORDER PER S.RIFAUR RAHMAN,AM: 1. These appeals are filed by the assessee against the separate orders of ld. Commissioner of Income-tax Appeals-30, New Delhi (hereinafter referred to Ld. CIT (A) ) dated 23.09.2022 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of mind and consequently the assessment order passed requires to be quashed. 4. That on the facts and circumstances of the case, the ld. CIT(A) has failed to appreciate that the assessment order being passed in violation of the principle of natural justice by not providing opportunity for cross examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A) and without giving adequate time and opportunity to the assessee to represent its case. 5. On the facts and circumstances of the case, the Ld. CIT(A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs. 1,14,61,699/- as against the income of (Rs. 21,74,900) declared by the appellant. 6. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs. 92,86,799/- on account of LTCG on sale of shares without appreciating the facts of the case. 7. That the Ld. CIT(A) has erred, both on facts and in law, enhancing the income by Rs. 1,85,735/- on account of alleged notional commission @2% paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterialized in D-Mat account, (c) Out of these shares he has sold 38,900 shares during the F.Y. 2011-12, and (d) He is a regular investor in shares. It is reiterated that all the relevant documents to substantiate the transaction was duly filed by the appellant Re: For the A.Y. 2013-14 G. It is submitted that out of 1,50,000 shares, appellant has sold 38,900 shares in the FY. 2011-12 relevant to the A.Y. 2012-13. Thereafter, on 8.06.2012 the assessee was allotted 164400 and 75800 number of shares as result of share split. The assessee was therefore having 351300 number of shares in the F.Y 2012-13 relevant to A.Y. 2013-14, which has been sold by him on various dates for a sale consideration of Rs. 3,03,20,995/- and he earned LTCG exemption U/s 10(38) being STT paid on it. On the basis of an investigation report, the Ld. A.O has considered such long-term capital gain as part of accommodation entry and made the addition of both LTCG income of Rs. 2,89,87,795/- under section 68 of the Act. Re: Passing of the reassessment order: The assessee, for substantiating the transaction, duly submitted (a) bank statement, (b) Contract notes, (c) transaction account statement with the registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er/ CIT(A) order it shall be clear that the same does not contain even a whisper that the document submitted by the Appellant was not genuine/ were defective. It is submitted that the payments were received through banking channels and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled. It may the case that the share price of M/s Wagend Infra Venture Ltd could be subject matter of artificial price rigging, but there is no evidence brought on record by the Ld. AO that either the assessee or his stock broker was involved in connived transactions in order to earn the exempt long term capital gains. The entire exercise of reopening and the consequential re-assessment had been made by the Id. AO only out of pure surmise and conjecture. The assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was engaged in business of trading in shares claimed long term capital gains arising out of sale of shares as exemption under Section 10(38).The Assessing Officer denied claim and made certain additions into assessee's income on grounds that said gains were earned through bogus penny stock transactions and companies to whom sold shares belonged were bogus in nature. The Tribunal observing that assessee by submitting records of purchase bills, sale bills, demat statement, etc., had discharged his onus of establishing said transactions to be fair and transparent, same not being earned from bogus companies was eligible for exemption under Section 10(38) of the Act. The High court by impugned order held that no substantial question of law arose from Tribunal's order. The SC dismissed the SLP against said impugned order. 3. RELIANCE PLACED ON THE ALLEGED INVESTIGATION REPORT IS BAD IN LAW/ CRYPTIC: A perusal of the reassessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or indepe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behaviour and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Revenue. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. So many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. In this process, they also burn their fingers by incurring huge losses without knowing the fact that the particular scrip invested is operated by certain interested parties with an ulterior motive and once their motives are achieved, the price falls like pack of cards and eventually make the gullible investors incur huge losses. In this background, the only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the third party information has no evidential value until the assessee is provided an opportunity of cross examination of the person who alleged that he has provide accommodation entries through LTCG. In these type cases, the spread of the network of the entry operators and the number of persons taking accommodation entries are large and therefore, it is not possible for every A.O. to summon every entry operator/broker and record his statement. The entry operator in this case before the Investigation wing. Income tax department has accepted oath that M/s Wagend Infra Venture Ltd. was being used for the purpose of providing bogus entries of LTCG. 7. THE ADDITION MADE IN THIS CASE IS AGAINST THE SETTLED JURISPRUDENCE AS ENUMERATED IN VARIOUS CASE LAWS RELIED AND ENCLOSED BY THE APPELLANT: In this regard, kind attention of this Hon ble Bench is invited to the copies of the case laws which has been enclosed by the appellant from S.no. 1 to 12 in the paper-book. In the said compilation, the appellant has placed copies of six judgements on the issue under consideration of various High Courts and six judgements of this Hon ble Tribunal on the issue under consideration. The rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. The ITAT was of the opinion that balance sheet/statement of the affairs cannot be equated to books of account because a pass book of the bank cannot be treated as a book of account of the assessee because this is proved by the banker, which is given to its customer and is only a copy of the customer's account in the books maintained by the bank. The bank does not act as an agent of the customer nor can it be said that the banker maintains the pass book under instructions of the customer (assessee) the relationship between the banker and customer is one of the debtor and creditor only. Therefore, a cash credit appearing in assessee's passbook relevant to a particular previous year, in a case where the assessee does not maintain books of account, does not attract the provisions of section 68 Even otherwise, in this case when no defects and discrepancies are being pointed out in the document submitted by the appellant then provisions of section 68 cannot be invoked, at all. 9. Further the appellant for the other two grounds that in this case: The first, the reassessment proceedings have been invoked in a mechanical manner, merely placing reliance on the report of the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. We can only presume that the assessee is one of the beneficiaries in these 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. We observe that the Hon ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: - 1. The following question of law is proposed: Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 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 other party, prevailed upon the ITAT to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed. 10. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of human probabilities and held the above said scrips to be a penny stock without bringing on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed. 11. In the result, appeal filed by the assessee is allowed. 12. With regard to appeal for AY 2013-14, since the facts are exactly similar to AY 2012-13 our above findings in AY 2012-13 are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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