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TMI Blog2025 (3) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of receipt through cheque, therefore the Tribunal rightly deleted addition holding that transactions were genuine.
We hereby hold the addition made by AO is not legally correct in making addition on account of LTCG earned from sale of KPL shares done through stock exchange as alleged unexplained cash credit u/s. 68 of the Act and the same liable to be deleted. Thus the Grounds raised by the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... d tax thereon. 3. Aggrieved against the same, assessee filed an appeal before Commissioner of Income Tax (Appeals). The Ld. CIT(A) held that the transaction as bogus and confirmed the addition as bogus Penny Stock Long Term Capital Gain and confirmed the addition made by the Assessing Officer. 4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal: "1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs. 52,75,306/- on account of LTCG earned from share transactions done through stock exchange treated as alleged unexplained cash credit u/s. 68 of the Income Tax Act, 1961. 2. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal." 5. Ld. Counsel Shri P.M. Jaga Sheth appearing for the assessee submitted that the assessee produced all the details of share trading of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court Judgment in the case of PCIT vs. Kuntala Mohapatra reported in [2024] 160 taxmann.com 608 wherein dismissed the Revenue's SLP, by holding that shares were purchased via Account Payee cheques, held in a Demat Account for over 12 months and sold through a recognized stock exchange after payment of Security Transaction Tax (STT) then the assessee was eligible to claim exemption u/s. 10(38) for long-term capital gains. Similarly Hon'ble Supreme Court dismissed Revenue's SLP in the case of PCIT vs. Renu Aggarwal [2023] 153 taxmann.com 579 (SC). Thus Ld. Counsel relied upon various other case laws as cited in Case Laws Compilation: (i) Pr. CIT Vs. Kuntala Mohapatra [2024] 160 taxmann.com 608 (SC) (ii) Pr. CIT Vs. Kuntala Mohapatra [2024] 160 taxmann.com 567 (Orissa) (iii) Pr. CIT Vs. Renu Aggarwal [2023] 153 taxmann.com 579 (SC) (iv) Pr. CIT Vs. Affluence Commodities (P.) Ltd. (2024) 161 taxmann.com 476 (Gujarat) (v) Pr. CIT Vs. Affluence Commodities (P.) Ltd. (ITA No. 593/AHD/2020) (vi) Pr. CIT Vs. Sandipkumar Parshottambhai Patel [2023] 150 taxmann.com192 (Gujarat) (vii) Swati Luthra Vs. ITO [2020] 115 taxmann.com 167 (Delhi - Trib.) (viii) Farzad Sheriar J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol whatsoever on share prices, addition made by Assessing Officer on account of disallowance of losses booked in penny stocks was liable to be deleted by observing as follows: ".... 7. Being aggrieved, the Revenue has preferred appeal before the Tribunal and the Tribunal has held as under: 9. The 3rd ground namely losses booked under penny stocks of Rs. 73,12,905/- on sale of Alang Industrial Gases Ltd. Shares. The assessee has proved the genuineness of the transactions beyond doubt by furnishing contract notes, ledger accounts, bank transactions from books of brokers whereas the AO without any material evidence disallowed the losses of in scripts of Alang Industrial Gases Itd. And the valuation of the closing stock in Kappac Pharma just bases on the SEBI general information and Investigation Wing. Kolkatta. The AO made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares of Alang Industrial Gases Ltd. It is the case of the assessee that it sold only part of the shares and remaining shares have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observing as follows: ".....6. Being aggrieved and dissatisfied by the aforesaid, the assessee approached the Income-tax Appellate Tribunal, Surat by way of ITA No. 8 and 9/SRT/2019 for the Assessment Year 2013-14 and 2014-15. The learned ITAT, Surat having considered the submissions, allowed the said Appeal by observing as under: "22. We note that all evidences of sales including contract notes were submitted by the assessee, as noted by us above. The Assessing officer has not found any fault in the documents, as noted by us above. The payments were received through account payee cheques 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. The assessee is not a party to alleged price rigging. He has no nexus with the company, its directors or operators. He is not concerned with the activity of broker and has no control over the same. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n dicating name of the scrip which was traded on the stock exchange, quantity of equity shares sold; date and time on which such shares had been sold, rate at which sale was executed; stock exchange at which such share had been dealt with; amount of brokerage charged; amount of service tax charged; amount of Securities Transaction Tax charged; amount of BSE transaction charges paid; amount of stamp duty paid. Therefore, evidence with regard to source and purpose for which amount had been received and credited in the books has been submitted and which has not been found false, forged and fabricated. The Identity of the party is established from the contract note itself wherein it has been prominently stated that name of the Share Broker is Mrs. Tradebulls Securities Pvt. Ltd. and that they are member of the Bombay Stock Exchange Ltd. The Demat Account statement evidencing holding of equity shares of Company of which shares have been dealt with at Bombay Stock Exchange and also the quantity which has been sold and the date on which such quantity was sold. The demat account statement, contains BSE settlement number which is very much matching with settlement number appearing in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share broker through account payee which are also fled in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed a side on suspicion and surmises. However, it was held that the transactions of the shares are genuine. Therefore, we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No. 620/2008 is dismissed." 27. In the aforesaid facts and circumstances of the case, we hold that the Id.CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore delete the addition of Rs. 33,15,263. 28. Since, we have deleted the main addition of Rs. 33,15,263/-, therefore, the addition on account of commission payment of Rs. 3,29,188/- which is consequential in nature, and hence the same is here by deleted.' 7. Having regard to the aforesaid finding of facts recorded by the Tribunal, we are not inclined to interfere in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealings) High Court by impugned order held that where Assessing Officer disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accomodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted Whether SLP filed by revenue against said impugned order was to be dismissed Held, yes [Para 2) [In favour of assessee)" 8. Further the Co-ordinate Bench of this Tribunal in the case of Shivani Ashokbhai Shah (cited supra) have considered many other decisions of this Tribunal wherein it was held that KPL share are not a penny stock share by observing as follows: "....16. It was further argued by the Ld. Counsel appearing for the assessee that the scrip of M/s. Kappac Pharma Ltd. was found to be genuine in very many cases in appeal by the ITAT itself. One of such matter is Shri Prakash Javia Huf vs. ITO & Ors. in ITA No.464/Ind/2019 & Ors. and ACIT vs. M/s. Affluence Commod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bnormal increase of the share price of Kappac Pharma Ltd. which in no way could termed as a fair market value looking to the financial position, gross sales and income shown by the listed company KPL and based on all these observations concluded that the alleged transactions of sale of equity shares of KPL are bogus, Kappac Pharma Ltd. is a penny stock company, and the assessee has adopted a colorable devise to convert unaccounted money into accounted money by arranging bogus LTCG. 24. As far as, the contention that share prices of Kappac Pharma Ltd. saw abnormal rise which is not commensurate to the financial results/position of the company, we find that this tribunal has dealt with this issue recently in the case of Aditya Mundra (supra) observing as follows: Para 37 - "On the other hand all the relevant documents to prove the purchase and sale were before the Ld. A.O. Purchases were at the fair market value at Rs. 12/-. Sales have been effected through registered broker after payment of security transaction tax and sold at the prices appearing at the recognized stock exchange. Merely observing that the prices of the equity shares have been increased drastically cannot be a e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 28. Ongoing through the facts of the case, we find that the assets are in the nature of equity shares which are not part of a business stock and have been held for more than 12 months so will comes under the category of Long Term Capital Asset. The equity shares are sold through recognized stock exchange (Bombay Stock Exchange) and security transactions tax have been paid on this transaction. 29. Now coming to the part of purchase and sale: Purchase is off line and made in cash. Ld. AO has raised doubt on the purchases being made in cash but there is no bar under the law to make purchase in cash. In all these cases equity shares were purchase from Shah & Sons Propon Private Limited. PAN No. of the seller was provided before both the lower authorities. The seller namely Shah & Sons Propon Private Limited purchased equity shares in November 2010 and was originally allotted the shares by Kappac Pharma Ltd. which is a company registered at Mumbai. Genuineness of the documents namely share certificate placed page 10 of the paper book is not doubted. For sure the details of shareholder would be available on the portal of the Registrar of Company where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. The CIT(A)'s detailed discussion under challenge to this effect reads as under:-..........." Para 7 - "We have given our thoughtful consideration to rival contentions. There can hardly be any dispute that assessee has placed on record his supportive documentary evidence comprising of relevant purchase bills of shares allotment, certified copies, contract notes, brokerage details etc. We put up a specific query as to whether any of entry operators searched or survey has quoted these assessee's names or not before the departmental authorities. There is no such material in the case file indicating such as statement. I find that this co-ordinate bench's decision in ITA No. 1918/Kol/2018 in Smt. Sangita Jhunjhunwala vs. ITO decided on 04.01.2019 has deleted similar bogus LTCG vide following detailed discussion in para 3 to 5 as under............" Para 8 - "This tribunal's yet another decision in (2017) 60 ITR (Trib) 1 (Bang) Canara Bank vs. JCIT holds that the estopple principle does not apply in income tax proceedings. We therefore reject Revenue's arguments in support of impugned addition. We take into account all the relevant facts and circumstances to adopt the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income u/s 10(38) of the Act. We, thus, set aside the finding of the Ld. CIT(A) in all the instant appeals and direct the Ld. Assessing Officer to allow the claim of LTCG made u/s 10(38) of the Act made by the respective assessee(s) and also delete the disallowance of brokerage expenses of Rs. 61,380/- made in the case of Prakash Javia. 35. In the result, all grounds raised by the assessee(s) are allowed and appeals filed by the assessee in ITANo. 464,465 & 466/Ind/2019 are decided in favour of the assessee and against the revenue." 18. We have carefully considered the judgment passed in case of ACIT vs. M/s. Affluence Commodities Pvt. Ltd. in ITA No.593/Ahd/2020, wherein deletion of addition under Section 10(38) of the Act in respect of the LTCG out of the sale of scrip of M/s. Kappac Pharma Ltd. was upheld. The Co-ordinate Bench while dealing with the same observed as follows: "9. The 3rd ground namely losses booked under penny stocks of Rs. 73,12,905/- on sale of Alang Industrial Gases Ltd. shares. The assessee has proved the genuineness of the transactions beyond doubt by furnishing contract notes, ledger accounts, bank transactions from books of brokers whereas the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no addition could be made with aid of section 68 when such shares were sold in relevant assessment year - Whether on facts, impugned order passed by Tribunal did not require any interference." 10.2. In the case of Maheshchandra G. Vakil (cited supra) held as follows: "Assessment year 2006-07 - Assessee filed return of income declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer framed assessment treating short term capital gain as explained cash credit - Tribunal, however, opined that genuineness of transactions was proved by contract notes for sale and purchase, bank statement of broker, Demat Account Showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange - Accordingly, Tribunal deleted addition made by Assessing Officer - Whether since impugned order of Tribunal was based on appreciation of evidence on record, it did not require any interference." 11. Respectfully following the above Jurisdictional High Court judgments and also the fact that the assessee is a retaining Kappac Pharma shares as stock-in-trade and the closing stock is valued at the market rate. Since the market rate ..... 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