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TMI Blog2023 (6) TMI 1472X X X X Extracts X X X X X X X X Extracts X X X X ..... 016. Consequent thereto, the assessments of the years under consideration were completed under section 143(3) read with section 153A of the Act. The search was conducted on the basis of information received from the Investigation Directorate of Kolkata that the family members of the above said assessee has availed bogus long term capital gains. The AO noticed that the equity shares of a company, which were purchased and sold by the assessee has been identified as "penny stock" by the investigation wing of the Income tax department. It is the allegation of the revenue that some people have manipulated the prices of the equity shares of certain companies in order to take it to unrealistic levels of high/low prices, so that the capital gains/capital losses are generated by certain investors to suit their requirements. The AO took the view that the capital gains declared by the assessee herein from sale of equity shares of M/s Matra Kaushal Enterprise Limited, which has been identified as one of those penny stocks, is bogus in nature. The assessee had declared long term capital gains of Rs. 2.10 crores in AY 2015-16. However, the AO assessed the Sale value of shares realized on sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Trading Co P Ltd on 23.10.2012. The consideration for purchase was paid through banking channels. The above said company was amalgamated with M/s P L Enterprises Limited, vide order dated 24.6.2013 passed by Hon'ble Andhra Pradesh High Court. Subsequently, the name of the above said company was changed to "Matra Kaushal Enterprises Limited" and the face value of shares was also split. Accordingly, the assessee got 10.00 lakh shares and those shares were dematerialized on various dates during the year relevant to AY 2015-16 through a broker named M/s Magnum Equity Broking Ltd. During the year under consideration, the assessee sold 4,14,500 shares in May and June, 2014 for a total consideration of Rs. 2,13,91,985/- through stock exchange and computed long term capital gains of Rs. 2,09,77,485/-. As noticed earlier, the AO has assessed the entire sale consideration of Rs. 2.14 crores as income of the assessee. 9. The AO noticed that the search team had questioned Shri Pankaj Shah during the course of search about the capital gains declared by the family members. In the statements, he submitted that all these share dealings were carried out by his father Late Shri Khantilal Ramanla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption in the various Statements taken from him. He further submitted that he examined the details of share transactions afterwards and found that all the transactions are supported by proper documents and payments. Accordingly, the assessee submitted before the AO that the exemption claimed u/s 10(38) of the Act has been claimed as per law and the same should be granted. The assessee also submitted that the assessing officer has proposed to assess the capital gains u/68 of the Act, but the assessee has proved all the three ingredients with regard to sale of shares/long term capital gains. 12. The AO took the view that the long term capital gain declared by the assessee is bogus for the following reasons:- (a) the assessee, being a prudent business man, did not explain as to why he chose to invest in the shares of companies having weak financials, i.e., the assessee has not shown that he carried out due diligence before buying shares of the above said company. (b) the assessee's claim that the investments were made by his late father is not acceptable, as the assessee was not a minor at the time of investment. (c) the assessee has retracted the admission given at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther submitted that the financial statements of M/s Matra Kaushal Enterprises Ltd, would show that the financial position of the above said company would not justify the high share price movements. And it has also suffered losses. Accordingly, the Ld D.R submitted that the fundamentals of this company were very weak and hence no prudent business man will invest in this company. Hence, it is beyond human probabilities that the assessee has invested in this company. The Ld D R further submitted that accommodation entry providers and exit providers have confirmed that they were helping in manipulation of prices of this share. Accordingly, the Ld D.R submitted that there was pre-meeting of minds between the assessee, company and operators and this capital gain has been generated through collusion of all. 15. The Ld D.R placed her reliance on the following case laws to contend that the long term capital gains declared by the assessee were bogus and hence the AO has rightly assessed the sale proceeds as income of the assessee u/s 68 of the Act:- (a) JCIT vs. Nitin Kumar Dindayal Didwania (ITA 2092/Mum/2019 and others) (b) PCIT vs. Swati Bajaj (2022) (139 taxmann.com 352) (Cal) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly relied upon the report of investigation wing in order to draw adverse conclusions against the assessee. He submitted that the AO did not enquire the broker of the assessee in order to find out the veracity of the transactions, i.e., no enquiry was conducted by the AO independently in order to show that the findings given in the report of the investigation wing is also applicable to the assessee. Accordingly, he contended that there is no reason to reject the claim for exemption u/s 10(38) of the Act. He further submitted that the exemption u/s 10(38) of the Act is a statutory exemption and hence, even if the assessee has agreed to withdraw the same, it cannot be denied to the assessee under the principle that there is no estoppel against the law. 19. The Ld A.R further submitted that the contention of Ld D.R that the company M/s Matra Kaushal Enterprises Ltd is having weak financials is against the facts. He submitted that the turnover of the above said company stood at Rs. 98 crores for the year ending March, 2015. He submitted that the AO has relied upon certain statements given by the operators without putting them to the assessee. He submitted that the assessee is a regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y fault with any of the documents furnished by the assessee in support of purchase and sale of shares. The Ld D.R, however, submitted that the assessee has not furnished the copies of share certificates, share transfer forms etc. But the fact that the shares were dematerialized and credited to the account of the assessee would prove the fact of purchase of shares. In any case, it is not the case of AO also. Hence the transactions of purchase and sale cannot be doubted with as held by Hon'ble jurisdictional Bombay High Court in the case of CIT vs. Jamnadevi Agarwal (328 ITR 656)(Bom). 22. The case of the AO is that the assessee has agreed to withdraw the exemption claimed u/s 10(38) of the Act before the search officials. In this regard, it is submitted by the assessee before tax authorities as well as before us that he could not explain the details of purchase and sale during the course of search proceedings, since all these transactions were carried out by his father, who had since expired. It was further submitted that the assessee had agreed to withdraw exemption u/s 68 of the Act before the search officials, since he was given impression by the search officials that some wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reports of investigation wing, the AO has arrived at the conclusion that the assessee has availed accommodation entries by way of long term capital gains. In this process, the AO has ignored the fact that the assessee is a regular investor in shares. He also could not disprove the fact that the purchase and sale of shares of the above said company was carried out by the father of the assessee, who has since expired. 24. We notice that an identical case of allegations that the assessee has availed accommodation entries for bogus capital gains was examined by the Hon'ble jurisdictional Bombay High Court in the case of Shyam Power (supra). The decision rendered by Hon'ble Bombay High Court in the above said case is extracted below:- "3. Mr. Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. 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 and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. 6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs. 25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law." 25. We may also refer to another decision rendered by Hon'ble Jurisdictional Bombay High Court in the case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022) and relevant discussions made by Hon'ble Bombay High Court are extracted below:- "2. We have considered the impugned order with the assistance of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-ordinate bench are extracted below:- "5.12. We find that the ld. CIT(A) relied on the decision of Hon'ble Delhi High Court in the case of Suman Poddar vs ITO reported in 112 taxmann.com 329 dated 17/09/2019 where the decision was rendered in favour of the revenue. The Special Leave Petition filed by the assessee before the Hon'ble Supreme Court in this case was dismissed by the Hon'ble Apex Court vide its order dated 22/11/2019. But we find that there is yet another decision of Hon'ble Delhi High Court in the case of PCIT vs Krishna Devi and others in ITA 125/2020 ; 130 & 131/2020 dated 15/01/2021 reported in 126 taxmann.com 80 (Delhi HC) wherein similar issue of penny stock vis a vis long term capital gain exemption u/s 10(38) of the Act was subject matter of adjudication, in favour of the assessee. This decision rendered in the case of Smt Krishna Devi considers all the propositions laid out hereinabove and are squarely applicable to the facts before us. In fact the Hon'ble High Court duly endorses the elaborate findings given by the Delhi Tribunal on various facets of the issue. Moreover, in this decision, the Hon'ble Delhi High Court duly considered the decision of Suman P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a preplanned 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no 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. (emphasis supplied by us)" In the case of Smt Krishna Devi (supra), the Hon'ble Delhi High Court has held that 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 respondent. 27. With regard to the reliance placed by the Ld D.R on the decision rendered by Hon'ble Calcutta High Court in the case of Swati Bajaj (supra), the co-ordinate bench has held as under in the above said case of Yogesh Thakkar (supra):- "5.14. We find that the ld. DR had relied on the decision of Hon'ble Calcutta High Court in the case of PCIT vs Swati Bajaj reported in 139 taxmann.com 352 which is an elaborate decision rendered after considering various decisions of various High Courts on the subject. In the said decision, it was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the shoulders of the assessee. In order to discharge the said burden, the assessee has to prove three main ingredients, viz., the identity of the creditor, credit worthiness of the creditor and genuineness of transactions. If the assessee proves all the three main ingredients, then the burden to disprove them would shift to the shoulders of the assessing officer. If the AO fails to disprove the three main ingredients proved by the assessee, then the assessing officer is not entitled to make addition u/s 68 of the Act. The decision rendered by Hon'ble Bombay High Court in the cases of Shyam Power (supra) and Ziauddin A Siddique (supra) are in the context of sec. 68 of the Act. 29. As noticed earlier, the assessee herein has discharged the initial onus placed upon him u/s 68 of the Act. We noticed that the assessee has furnished all documents relating to purchase and sale of securities. The shares have entered and exited his demat account. The purchase and sale transactions have been routed through the bank accounts of the assessee. All these documentary evidences produced by the assessee have not been disproved. However, the AO has simply relied upon the report of the inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2015-16 and 2016-17. The assessee is contesting the decision of Ld CIT(A) in confirming the addition of Rs. 5.00 lakhs and Rs. 10.00 lakhs respectively in AY 2015-16 & 2016-17 relating to unexplained expenditure u/s 69C of the Act. Since the addition has been made in both the years on the basis of very same material, both the appeals of the assessee are being disposed of together. 34. The facts relating to the above said additions are stated in brief. During the course of search proceedings, SMS messages found in the phones of Shri Pankaj K. Shah were examined by the search officials, more particularly the messages exchanged with Mr. Ankur Muchal of M/s. Gloob Interior Design Pvt. Limited. Those messages contained details of payments made to the above said interior decorator's concern. It was noticed that the messages contained details of both cash payments and cheque payments. When questioned about the same, the assessee submitted that the said messages pertained to the interior work done in a property located at Andheri. The assessee submitted that all the payments have been accounted for in the books of account. 35. The assessing officer called for ledger account copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ledger account copy of the assessee as available in the books of M/s Gloob Interior Design P Ltd. From the observations made by the AO in the assessment order, we notice that the above said Interior decorator has booked sales of Rs. 38.00 lakhs in the name of the assessee. According to the AO, the above said amount was expected to be received by cheque. However, the following observations of the AO would show that the above said interior decorator has received a sum of Rs. 40 lakhs as on 08-05-2015:- "b. In the SMS dated 08-05-2015 Sh Ankur Muchal has had stated that he had received Rs. 35 lacs in cheque and Rs. 15 lacs in cash and Rs. 3 lakhs in cheque and Rs. 7 lacs in cash was remaining to be received. From the ledger account of Sh. Pankaj Kantilal Shah in the books of M/s Gloob Interior Design P Ltd for the FY 2015-16, it can be seen that as on 08-052015 M/s Gloob Interior Design P Ltd has received a total amount of Rs. 40 lacs from the assessee and this includes cheque of Rs. 35 lacs and cash of Rs. 5 lacs." The above said observation of the AO would show that the interior decorator firm has received a sum Rs. 40 lakhs, i.e., cheque payment of Rs. 35 lakhs and cash paym ..... X X X X Extracts X X X X X X X X Extracts X X X X
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