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TMI Blog2024 (12) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AO 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 bring 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 Anubhav Sharma, Judicial Member For the Assessee : Shri Saubhagya Agarwal, Advocate, Shri Gaurav Shukla, Advocate And Shri Vineet Bhatnagar, Advocate For the Revenue : Ms. Harpreet Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penny stock and relying on the investigation report on penny stock from the Investigation Wing, he disallowed the same u/s 68 of the Act to the extent of Rs. 29,71,941/-. 5. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and raised grounds of appeal as well as filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the addition made by the AO. 6. Aggrieved, assessee is in appeal before us raising following grounds of appeal :- 1. That on facts and in circumstances of the case and in law, Ld CIT(A) erred in sustaining the action of the Ld AO. 2. That on facts and in circumstances of the case and in law, Ld CIT(A) erred in confirming the order passed u/s 143(3) by the Ld. AO despite the fact that no notice u/s 143(2) was issued subsequent to the filing of valid revised return. 3. That on facts and in circumstances of the case and in law, Ld. CIT (A) erred in sustaining the addition of Rs. 29,71,941/- under section 68 of the Act treating the gain accrued on the shares of Channel Nine as bogus. 4. That the Ld. CIT(A) mechanically addressed the concern of the assessee that Ld Assessing Officer had passed the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions and has accepted the Appellant's claim that the gains arising therefrom qualify as Long-Term Capital Gains (LTCG). 9. That regarding the transactions involving shares of M/s Channel Nine Entertainment, the AO has concluded that the LTCG claimed by the Appellant is non-genuine, deeming the said transactions as bogus and bringing the income to tax under the provisions of Section 68 of the Income-tax Act, 1961 ( the Act ). 10. That a notice under Section 142(1) of the Act were issued on 08-03-2017 and 03-05-2016 and were duly served by the Respondent. 11. That in response to the notice, the Appellant submitted documentary evidence, including a copy of the bill issued by the broker, bank statements reflecting the purchase and sale of shares, the statement of account in the books of the broker, bills for shares sold through the broker, bank statements evidencing payment receipt on the sale of shares, and a copy of the Demat statement, and other relevant documents. 12. That the Ld. AO however, disregarded the submitted evidence and proceeded to rely upon the daily trade data of the company, the sudden increase in the price of shares, the report of the Kolkata Directorate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is a mandatory jurisdictional requirement for initiating scrutiny assessment proceedings. 22. That the said mandatory requirement makes the Impugned order and addition made therein unlawful/legally unsustainable vide Carona Ltd. v. Parvathy Swaminathan Sons (2007) 8 SCC 559: 21. Stated simply, the fact or facts upon which the jurisdiction of a Court, a Tribunal or an Authority depends can be said to be a 'jurisdictional fact'. If the jurisdictional fact exists, a Court, Tribunal or Authority has jurisdiction to decide other issues. If such fact does not exist, a Court, Tribunal or Authority cannot act. It is also well settled that a Court or a Tribunal cannot wrongly assume existence of jurisdictional fact and proceed to decide a matter. The underlying principle is that by erroneously assuming existence of a jurisdictional fact, a subordinate Court or an inferior Tribunal cannot confer upon itself jurisdiction which it otherwise does not posses. 23. That failure on the part of Respondent to issue notice u/s 143(2) of the Act cannot be mere a procedural irregularity and the same is not curable. It is not a mere formality but it given the jurisdiction to the A.O. to comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k statement confirming the payment for purchasing of share and sale of shares; (Pg. no. 2 5 of Paper book) (v) Copy of contract notes. 27. A summary of the subject shares held and thereafter sold by the Appellant in the said companies via banking channels is as follows: (i) The Appellant respectfully submits that during the relevant assessment year, the Appellant had purchased 6,000 shares of M/s. Channel Nine Entertainment Ltd. (please refer Pg. no. 1 of paper book for Copy of Bill dt. 10.03.2013) (ii) That Appellant respectfully submits that Appellant had purchased these shares and payment for the purchase made through banking channelvide Cheque no. 582373 (Please refer Page no. 2 of Paper book copy of bank statement ). (iii) The shares were lying in the Appellant s DMAT account for more than 12 months. (iv) After which shares were sold on 03.07.2014 through broker (K.K securities Ltd.) on recognized stock exchange. Pertinently both the payment for the purchase of the shares and their sale was made through banking channels only (please refer to page no. 2,3 5 of paper book). (v) The above facts collectively establish the bona fide and genuine nature of the LTCG earned by the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iously so held in DhirajlalGirdharilal v. CIT (1954) 26 ITR 736 as follows: It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises. In the case of Excise Taxation Officer-cum-Assessing Authority v. Gopi Nath Sons 1992 Supp.SCC (2) 312, it has also been so held: 7. ... if a finding of fact is arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant material or if the finding so outrageously defies logic as to suffer from the vice of irrationality incurring the blame of being perverse, then, the finding is rendered infirm in law. 29. In view of the submissions and evidences produced by the Appellant, it is respectfully submitted that the Appellant has duly discharged the evidentiary burden under Section 68 of the Act, 1961, by establishing the genuineness, creditworthiness, and identity of the creditors. The documents furnished unequivocally substantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition made by him. At any stage of the present case, Revenue has not brought on record any material about participation of the assessee with any such dubious transactions relating to accommodation entry, price rigging or exit providers. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office. Once the assessee has produced documentary evidence to establish the veracity of his claim, the burden would shift on the Revenue to establish its case. 7. On the perusal of records, it is discernible that ld. Assessing Officer had proceeded on the basis of analysis of the financials of the company. According to him, sharp jump in the share prices of the aforesaid scrip is not justified. He has relied upon the search and survey operations conducted by the investigation wing of the Department at various locations in respect of alleged penny stock which sets out the modus operandi adopted in the business of providing entries for bogus capital gains. The conclusion drawn by the ld. Assessing Officer of implicating the assessee is un-supported by any cogent material on record. The find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llected at the back of the Assessee without offering an opportunity to cross-examination. 37. That it is pertinent to mention that the Ld. AO during the course of Assessment proceedings, while examining the son (Sobhit Gupta) of the Appellant has shown the statement of some brokers, namely Sh. Anand Chokhani, Shri Abhishek Bubna and Sh. SoumanChudhary. However, the statements of these persons never been reproduced in the Assessmet order. Further (on page no. 31- 47 the assessment order) AO has relied and reproduced the statement of the following persons Namely Ritesh Jain, and Devesh Upadhyay and Sanjay Vora. This factual aspect proves that the present Assessment order has been passed with predetermined mind set in as much as the AO has shown the statement of some other persons and has relied and reproduced the statement of the other persons. It is not the case of the AO, that the persons mentioned later are the same persons and have changed their identities. 38. Furthermore, the Appellant was not afforded an opportunity for cross-examination, despite having specifically asked the same in their response dated 30.11.2017 to the Show Cause Notice dated 21.11.2017. The said request pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as much as contract note, DEMAT A/c, payment of STT, appellant had discharged the burden cast upon it under the Act. 40. That the Appellant in her detailed submission dated 30.11.2017, provided evidence, including contract notes, DEMAT account statements, bank statements, and proof of payment of Securities Transaction Tax (STT), to substantiate the genuineness of the transactions and the income declared. These documents conclusively discharged the burden of proof cast upon her. 41. The genuineness of these transactions was further corroborated by the acknowledgment of the Ld.AO in the assessment order (refer to page no. 25 of the Assessment). This acknowledgment demonstrates the Appellant's compliance with statutory requirements, leaving no basis for any adverse conclusions against her. 42. It is a settled legal principle, as held in Lalchand Bhagat Ambica Ram v. Commissioner of Income Tax (Supra), that once the taxpayer provides cogent and credible evidence supporting their claim, the burden shifts to the revenue authorities to bring on record any contrary evidence. In the present case, no such rebuttal or evidence has been provided by the Ld. AO. 43. It is submitted that Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare prices and generic observations about alleged penny stock scams, without producing any cogent evidence directly implicating the Appellant. Judicial precedents, including Pr. CIT v. Krishna Devi(Supra) have consistently held that mere suspicion cannot substitute for substantive evidence. 49. That the assessment order heavily relies on unverified and extraneous materials, such as SEBI reports and investigation wing findings, which lack any direct nexus with the Appellant's case. Such reliance contravenes the principles of evidence and rational decision-making, making the order bad in law and unsustainable. 50. That the assessment order reflects a predetermined mindset, disregarding the judicial mandate that evidence must be assessed fairly, and the burden of proof shifts to the Respondent once the Appellant furnishes credible evidence. In this case, the Respondent failed to rebut the Appellant's evidence, violating the jurisprudential principle that mere allegations or suspicions cannot justify additions. 51. On the similar facts Hon ble ITAT, Delhi Bench in the case of Archit Gupta vs. ACIT (ITA No. 2624/DEL/2022 and 2625/DEL/2022) has held that - . the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 and registered in stock exchange and increase in share price of Ramkrishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 scrips. 10. We have heard Mr. Hossain at length and given our thoughtful con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a different view. Before us, Mr. Hossain has not been able to point out an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. 11. 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 bring 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. 12. In the result, appeal filed by the assessee is allowed. 13. With regard to appeal for AY 2016-17, since the facts are exactly similar except change in scrips bought and sold by the assessee i.e. Yamini Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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