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TMI Blog2022 (9) TMI 1657X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee : Shri. Rajkumar Singh For the Department : Shri. Vaibhav Jain ORDER PER S. RIFAUR RAHMAN (AM) 1. These appeals are filed by different assessees against separate orders of the Learned Commissioner of Income Tax (Appeals)-30, Mumbai [hereinafter in short "Ld.CIT(A)"] dated 15.07.2019 and 18.11.2019 for the A.Y. 2014-15. 2. Since the issues raised in all the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in the case of Suresh M. Jain HUF in ITA. No. 6614/MUM/2019 for A.Y. 2014-15 as a lead appeal. 3. Brief facts of the case are, assessee filed its return of income for the A.Y. 2014-15 on 26.07.2014 declaring total income of ₹.3,74,610/-. The case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. During the assessment proceedings, Assessing Officer observed that assessee has traded in the scrips of M/s. Shree Shalin Textiles Limited. The above said scrip is found to be stocks in which price manipulations were carried out and trading in the scrips was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs 20 per share on 05/12/2011 & on 16/04/2012 no of shares 9500 were issued as bonus in the ratio of 1:19 (i.e. 19 shares were issued as bonus for every 1(one) share held) thereby 9500 bonus shares were issued added to 485 original share aggregating to 9985 shares. Further on 07/03/2013 the shares were splitted into Rs. 2/- per share face value and accordingly 9985 were split into 2/- face value i.e., Total 9985 no of shares splitted to 49,925 shares of face value of Rs. 2/-. b. Out of the total no of shares, 49,925 shares of M/s. Shree Shalin Textiles Ltd. were sold off from the month of May 2013 to June 2013 at the BSE at the average rate of Rs 59.15 approx to various entities for a total sale of Rs. 30.77,531/ C. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above have proved that the director of Shree Shalin textiles Ltd and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved, assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) dismissed the same with the following observations: - i) Impugned Shares were purchased by assessee in off market deal in cash at Rs. 20/ per share on 05/12/2011 when its high/low quoted rate on BSE in December, 2011 was Rs. 73.65 (para 5.5). No invoice for purchase of impugned shares were furnished. Letter of Purva Sharegistry India Pvt. Ltd. furnished for transfer of the impugned scrip is unsigned (para 5.7.2). ii) Huge price rise is not supported by Negligible financial of the impugned company" 8. Aggrieved with the above order of the Ld.CIT(A), assessee preferred appeal before us and raised following grounds in its appeal: - "1. That on facts and circumstances of the case and in law the ld.C.I.T.(Appeals) has erred in upholding rejection of exemption claim of assessee appellant made u/s 10(38) and in confirming the addition made u/s 68 at Rs. 29,64,910/- by the Ld. A.O. treating the entire sale proceeds of listed equity shares as unexplained cash credit which was duly subjected to collection of STT, sold on recognized stock exchange at the prevailing quoted rate after holding the same for more than o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired. ii) With reference to huge rise in alleged shares not supported by financial of the company, we would like to record that as per judgement of jurisdictional High Court of Bombay and also High Court of Delhi on only this sole allegation without bringing any adverse and contrary material on record no addition in respect of alleged penny stock transaction can legally be made in the cases where such transaction has taken place online, STT is duly paid and transaction is reflected in d'mate statement of assessee and also sale proceeds has been received through banking channels. Our further submission in this regard is given hereafter in legal arguments. 6. Legal Arguments: i) Vide Compilation of judgements Part-1 filed before hon'ble Tribunal, in the case of Mrs. Pratibha S. Mhatre by an order dated 11/06/2021 passed by hon'ble jurisdictional ITAT "C" Bench Mumbai in ITA No. 695/Mum/2018 (Page No. 13 to Page No. 21) similar addition made on exactly identical facts as in the case of present appellant in respect of very same scrip, Shree Shaleen Textiles Ltd. has been deleted. ii) Vide Compilation of judgements Part-1 filed before hon'ble Tribunal, in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also disallowance made u/s 69C being legally and factually incorrect therefore may kindly be deleted. 7. Particulars of other two appeals of family members of above assessee before hon'ble Tribunal heard together on 10/08/2022 in whose cases similar additions made are in respect of same alleged penny scrip, Shree Shaleen Textiles Ltd. for same A.Y. 2014-15 and for more or less exactly identical reasons except different amount are as under: Appellant ITA No. No. of Shares sold Amount of Addition Made u/s. 68 Amount of Addition Made u/s. 69C Heena Suresh Jain 6617/Mum/2019 50,000 31,21,781/- 62,435/- Ramesh Kumar M.Jain 315/Mum/2020 60,000 37,36,239/- 76,525/- Ramesh Kumar M. Jain 315/Mum/2020 300 Shares of Jolly Plastic Industries Ltd. 90,043/- Included in 76,525/- This scrip of Jolly Plastic Industries Ltd. was purchased by assessee way back in year 1994 and shown held by assessee in ITR filed by him for earlier assessment years. And because this scrip was categorized by Investigation Wing as Penny Stock, sale proceeds has been added u/s. 68 without bringing any contrary evidence on record which single fact alone goes on to establish that below ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board Meeting held on 14.2.2019 approving the unaudited standalone financial results of SRK Industries Ltd for the quarter ended 31st December 2018 in the format prescribed by SEBI listing norms and the stock exchange. From the said quarterly financials, we find that SRK Industries Ltd revenue from operations for the quarter ended Dec 2018 was Rs 30.61 crores which clearly shows that it is an operational company and not merely a company having no value as alleged by the revenue before us to make it fall under the category of 'penny stock'. Moreover, the status of this company M/s SRK Industries Ltd in the website of Ministry of Corporate Affairs as on 26.2.2019 is still shown under the category of 'Active'. In the said status report of website of ministry of corporate affairs, we find that the fixed assets and current assets of SRK Industries Ltd were subjected to some charge or encumbrance with certain loan creditors and the said charge on assets were also duly cleared by SRK Industries Ltd subsequently. This is evident from the status report mentioned therein as 'closed'. These facts go to prove beyond doubt that SRK Industries Ltd is an operational company even as on 26.2.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been making investments in capital market and equity shares through broker M/s Sharekhan Limited and through relatives and friends. The assessee had also categorically replied in response to Question No. 13 that the investment in shares of SRK Industries Ltd (Transcend Commerce Ltd prior to merger) was made based on the advice of her friend Shri Shivajirao Jondhale. The assessee in reply to Question No. 17 had also stated that she did not make any enquiry about the financial condition of the shares of SRK Industries Ltd but she was told by Shri Shivajirao Jondhale that the value of the shares would get appreciated. This was the sole basis of the assessee making the investment in shares of Transcend Commerce Ltd (Later merged with SRK Industries Ltd) which cannot be doubted at all. In our considered opinion, it cannot be said that all the investment decisions of the assessee would be prudent and would be done only after analyzing the entire fundamentals and financials of the investee company. It is in everybody's knowledge, that an investor would try to take calculated risks by investing his money on an unknown scrip based on certain information from friends, relatives, or in so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hakar Reddy, Accountant Member) ITA No. 661/Kol/2018 Assessment Year: 2014-15 Shri Shreyans Chopra ............................................................. Appellant 3A, Mangoe Lane Kolkata - 700 001 [PAN : AAAFZ 1337 P] Assistant Commissioner of Income Tax, Circle-36, Kolkata.......Respondent Appearances by: Shri Miraj D. Shah A/R, appeared on behalf of the assessee. Shri Satyajit Mandal, Addl. CIT, D/R. appearing on behalf of the Revenue. Date of concluding the hearing : June 28th, 2018 Date of pronouncing the order : July 25th, 2018 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-10, Kolkata, (hereinafter the 'Ld. CIT(A)'), dt. 15/02/2018, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the 'Act'), relating to Assessment Year 2014-15. 2. The assessee is an individual and derives income from business, professional capital gains and other sources. The facts of the case and the issues involved in this appeal are brought out by the Assessing Officer at paragraphs 3 & 4 of the assessment order, which is extracted for ready reference:- "3. Bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided u/s 115BBE). Therefore, an amount of Rs. 5,57,658/- is added back with the total income of the assessee u/s 68 of the I.T. Act as unexplained cash credit during the relevant year. [Addition: Rs. 5,57,658/-] 7. Under the circumstances Rs. 5,50,158/- is treated as bogus and also a sum of Rs. 27,508/- being 5% of Rs. 5,50,158/- is added as undisclosed expenditure within the meaning of section 69C of the Income-tax Act, 1961. [Addition of Rs. 27,508/-]" 4. On appeal, the ld. First Appellate Authority, has classified these transactions as 'suspicious' and confirmed the order of the Assessing Officer. 5. Aggrieved, the assessee is in appeal before us. 6. I have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, I hold as follows:- 6.1. Recently, the Kolkata 'C' Bench of the Tribunal in the case of Navneet Agarwal,-vs. ITO, Ward-35(3), Kolkata; I.T.A. No. 2281/Kol/2017; Assessment Year: 2014-15, while dealing with identical issue of sale of shares decided the issue in favour of the assessee by relying upon a plethora of judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 14. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, in our view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 17. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each". The observations of the Hon'ble Apex Court are equally applicable to the case of the assessee. In our view the assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. "23. A Constitution B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts are provided to the government servant, he will not be able to conduct an effective and useful cross-examination. 29. In Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross examination, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17-3-2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 7. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice." 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES & CONDUCTORS [ITA No. 78 of 2017] dated 19.06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases added the appreciation to the assessee's' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee's' income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner." The Court also held the following vide Page 3 Para 5 the following: "Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as under: "........ We find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.2017 held as under vide Page 6 Para 8: "......We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises." 20. Applying the proposition of law laid down in the above judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax." The scrips in question were the subject matter of adjudication before this Tribunal. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the case, decided the issue in favour of the assessee. We list some of these decisions:- * Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e safely concluded that the decision of Hon'ble Bombay High Court supra is factually distinguishable. 7.9. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Mukesh Ratilal Marolia in ITA No. 456 of 2007 dated 7.9.2011 had held as under:- 5. On further appeal, the ITAT by the impugned order allowed the claim of the assessee by recording that the purchase of shares during the year 1999-2000 and 2000-2001 were duly recorded in the books maintained by the Assessee. The ITAT has recorded a finding that the source of funds for acquisition of the shares was the agricultural income which was duly offered and assessed to tax in those Assessment Years. The Assessee has produced certificates from the aforesaid four companies to the effect that the shares were in-fact transferred to the name of the Assessee. In these circumstances, the decision of the ITAT in holding that the Assessee had purchased shares out of the funds duly disclosed by the Assessee cannot be faulted. 6. Similarly, the sale of the said shaers for Rs 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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