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TMI Blog2025 (2) TMI 818X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld.CIT(A).
Addition u/s 69C - unexplained commission expenditure - AO alleged that the assessee might have incurred unaccounted expenditure on account of payment of commission to the entry operators and accommodation entry providers alleging them to have assisted him to claim bogus Short Term Capital Gain - HELD THAT:- As this ground of appeal is consequential to the main ground of the appeal regarding addition u/s 68 of the Act in respect of exempt LTCG claim. Since ground relating to the addition made u/s 68 of the Act has already been decided in favour of the assessee, this ground is also dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court, where under it was held that the Court and Tribunal have to judge the evidence before it by applying the test of human probabilities, the surrounding circumstances which exercise had been done by the Assessing Officer?" 8. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in deleting the disallowance of Long Term Capital Gains of Rs. 92,19,830/- overlooking the fact that the entire transactions were stage managed with the object to facilitate the assessee to plough back its unaccounted income in the form of fictitious Long Term Capital Gains and claim bogus exemption?" 9. "Whether on the facts and circumstances of the case and in law the CIT(A) erred in deleting the disallowance of Long Term Capital Gains of Rs. 92,19,830/- without considering the fact that Assessing Office relying on the report of Investigation wing which is premier investigation authority of Income tax department and the onus is on the assessee to establish the genuineness of the price hike and also has to prove that the price of the share was not manipulated. Reliance is placed on Calcutta High Court decision in the case of Pr.CIT Vs. Swati Bajaj (I.A. No.GA/2/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced as loans and investments. The whole process of preferential allotment was a pre-arranged and a managed process so as to allot preferential shares to beneficiaries of bogus LTCG which could later be sold by them for booking accommodation entry of bogus LTCG/STCG in the garb of sale proceeds on sale of shares. The shares were rigged on the stock exchange by manipulation of stock exchange. Various share brokers had confirmed the fact that the shares of STL had been used for providing entry of bogus LTCG/STCG. Various Exit Providers have confirmed that they have purchased the shares of to provide entry of bogus LTCG/STCG. Thus, the AO was of the opinion that no prudent businessman would trade or invest in such penny stock. He also recorded the statement of the assessee and noted that he is an investor in stock market since last several years and according to him, he could not explain why he invested in shares of STL especially when the financials of the company was weak. Further, according to the AO, assessee had no idea of the financials of this company. Therefore, he was of the view that the assessee failed to discharge the burden cast upon him to prove the LTCG claim and ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icious trading of a company on Stock Exchange and as per the statistics 30% of listed companies on BSE are loss-making at any time and then their trading ought to be treated with suspicion. In order to prove the genuineness of the transactions, the appellant had submitted Copies of share application form, allotment letter, bank statement reflecting payment made for purchase of shares along with copy of account payee cheque drawn in favour of STL, copy of report of date-wise sale of shares of STL, copies of contract notes and bills of Motilal Oswal Securities Limited for sale of shares, bank statement reflecting the receipt of the sale consideration on account of sale of shares and demat account statement and ledger of broker. 4.1 The ld.CIT(A) further noted that the appellant had relied upon the decisions of the jurisdictional ITAT, Mumbai in the cases of Dipesh Ramesh Vardhan vs. DCIT [I.T.A. No.7648/Mum/2019; Vijayrattan Balkrishan Mittal vs. DCIT [ITA No. 3429/Mum/2019; order dated 01.10.2019], CIT vs. Jamnadevi Agrawal Ors. [2010] 328 ITR 656 (Bom), Farrah Marker Vs. ITO (ITA No. 3801/Mum/2011 dated 27.4.2018), Gateway Leasing Pvt. Ltd vs. ACIT [WP No.: 2518 OF 2019; Smt. Kalp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her pleaded that the Assessing Officer has relied upon several external document/material like alleged investigation report, statement of third parties, etc. However, the same were never provided to the him. Vide letter submitted on 15.12.2017; the assessee had specifically asked him to provide him with the documents, evidences and statement relied upon and cross examination. However, the AO did not provide the same in utter disregard to the principles of natural justice and fair trial. This action of the Ld. Assessing Officer is contrary to the ratio laid down by Hon'ble Supreme Court in the case of Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006) and Kishanchand Chellaram v. CIT AIR 1980 SC 2117. 5.1 It is further submitted that in appellant's own case, the Hon'ble ITAT 'C' Bench, Mumbai has pronounced order in the favour of appellant for the immediately preceding assessment year (i.e. AY 2014-15) wherein the same transaction was involved. Out of the total shares around 37% percent was sold in AY 2014-15 (for which the order is pronounced by this Hon'ble Tribunal) and the balance were sold during the relevant Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully perused the facts on record, rival submissions, the cited decisions relied upon. We also find that in the preceding assessment year i.e. 2014-15, the same issue on exactly identical facts and circumstances has been dealt with the Co-ordinate Bench of ITAT, Mumbai which in the case of assessee himself and after detailed discussion, deleted similar additions made. From the cited decision of the hon'ble bench vide its order in DCIT-19(1), Income Tax vs Pavan Kumar B Chandan (E-Filed), Mumbai on 22 March, 2024 ITA 2592/MUM/2023 dated 22.03.2024, relevant paras are extracted from the order as below for ready reference: "3. Brief facts as noted by the AO are that the assessee had filed his return of income for AY. 2014-15 was filed on 29.11.2014 declaring total income at Rs. 29,23,137/-. And filed revised return and claimed Exempt income u/s 10(38) of the Act, at Rs 2,05,52,685/-. Later on, the case of the assessee was selected for scrutiny. The AO noted that the assessee has purchased in the month of Nov, 2011 shares of M/s. Shaleen Textile and sold in the month of April, 2013 to Sep, 2013 and claimed LTCG of more than of Rs. 2 cr which is unbelievable. According to the AO, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 30.09.2013 for a consideration of Rs. 2,30,79,975/- and assessee claimed LTCG/exempt income u/s 10(38) of the Act to the tune of Rs. 2,05,52,685/-. The AO taking note of the claim of LTCG/exemption u/s 10(38) of the Act, called upon the assessee to prove the purchase/sale of the shares, and pursuant to it, the assessee filed the following documents: - 5. And it was brought to the notice of AO that the transactions were carried out through Banking Channels and such Bank accounts are the regular Bank accounts of the assessee. The Bank Statements highlighting the script-wise transaction were submitted before AO/Ld. CIT(A) which is found placed in the Paper book and also the aforesaid documents to prove the allotment/demat/sale of shares of M/s. Shaleen Textile Ltd. And since the assessee had filed the aforesaid primary documents before the AO to prove the transaction in question, and since the AO has not found any infirmity in the primary documents filed by the assessee to prove the allotment of shares, dematerialization of the shares, sale of shares, then the assessee has discharged the burden to prove the transaction that it fulfils the eligibility to claim LTCG/exemption u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, but were only providing accommodation entries. According to AO, these entry providers had purchase the shares from assessee at high prices, which establishes that the LTCG claim of assessee is bogus. We cannot agree, because other than giving 107 names of entities, AO has not named the purported exit provider, which purchased the shares from assessee. It is common knowledge that buying and selling in Stock Exchanges are anonymous. Therefore, AO had to prove who purchased shares from assessee and what was their connection/nexus in the whole episode. In the present case, other than making general assertions, AO has failed to bring anything on record to incriminate assessee qua exit providers, so nothing turns on it. Further, it is noted that the AO relied on statements of brokers namely, Pravin Aggarwal (Director - Gateway Financial Services Ltd), Deepak Patwari (Controller of Destiny Securities Ltd) etc. Further, it is noted that they had not named assessee or his broker to be part of the modus operandi to convert assessee's black money to white. Moreover, these statements could not have been used against the assessee because it has not been tested on the touchstone of cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a scheme to accommodate the unaccounted monies of the assessee in guise of capital gains. The AO accordingly added the capital gains derived by the assessee under Section 68 of the Act. On appeal, the Hon'ble jurisdictional High Court upheld the Tribunal order deleting the addition, by observing as under: "..It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs." 11. We may also gainfully refer to the decision rendered by this Tribunal in the case of DCIT Vs Mukesh R Marolia (6 SOT 247) wherein on similar facts and circumstances the addition made by the AO on account of purported bogus LTCG derived on purchase/sale of shares (off-market) was deleted by observing as under: "10. We heard both sides in detail and perused rival contentions in the light of the records of the case and the paper book filed by the assessee. In the return of income filed by the assessee for the year under appeal, the purchase of flat at Colaba for a consideration of Rs. 2,06,72,904 was reflected. The assessee's contribution in the purchase of the flat was @ 70 per cent for which the investment amounted to Rs. 1,44,71,033. The source of investment was, among other things, the sale proceeds of shares of Rs. 1,41,08,484. This amount has been questioned by the revenue authorities. 10.1 The assessee has purchased the shares of four companies viz., Allan Industrial Gases Ltd., Mobi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the help of professional mediators who are experts in off-market transactions. 10.4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee. 10.5 The next set of evidences relied on by the assessing authority are the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of Rs. 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessee's were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessee's. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. 13. The statement of Pradeep Kumar Daga that the transactions with the Haldiram group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessee's were in consonance with the market price. On a perusal of those documentary Chandan evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record. 14. The Tribunal has further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares cannot be linked to the assessee's. Moreover, in the light of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ismissed the appeal of the Revenue. The relevant findings of the Hon'ble High Court which is binding upon us, are as follows :- "2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd.1 but that does not help the revenue in as much as the facts in that case were entirely different ..... X X X X Extracts X X X X X X X X Extracts X X X X
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