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Facts
The assessee filed a return of income for assessment year 2016-17. The Assessing Officer (AO) selected the case for scrutiny and made additions on account of alleged bogus Long Term Capital Gain (LTCG) from the sale of shares of M/s. CCL International Ltd. and other disallowances, assessing the total income at INR 11,98,04,650/-.
Held
The Tribunal held that the transactions of purchase and sale of shares of M/s. CCL International Ltd. were genuine, supported by documentary evidence and banking channels. The AO failed to establish that the transactions were bogus. Thus, the addition made on account of LTCG was deleted.
Key Issues
Whether the Long Term Capital Gains from the sale of shares of M/s. CCL International Ltd. are genuine and eligible for exemption, or if they are bogus transactions as alleged by the revenue.
Sections Cited
143(3), 250, 68, 10(38), 69, 69A, 69C, 40(a)(ia), 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
The present appeal is filed by the assessee against the order dated 26.09.2023 passed by Ld. Commissioner of Income Tax (A)- 24, New Delhi [“Ld.CIT(A)”] in Appeal No.CIT(A), Delhi- 10/10371/2018-19 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 28.12.2018 passed u/s 143(3) of the Act pertaining to assessment year 2016-17.
Brief facts of the case are that the assessee had filed its return of income on 17.10.2016, declaring total income of INR 8,04,97,520/-. The case of the assessee was selected for scrutiny under CASS for the following reasons:-
* “Purchases shown in the ITR is less than the Invoice value of imports shown in the Export Import Data (CBEC-Export Import Data tab of ITS and purchases in P&L Account). * Mismatch in sales turnover reported in Audit Report and ITR (Form 3CD and Total Sales/Gross Receipt in Part A-P&L of ITR). * Custom duty paid as shown in the ITR is less than the Duty Paid as per Export Import Data (CBEC - Export Import Data tab of ITS and Custom duty in P & L Account of ITR). * Lower amount disallowed u/s 40(a)(ia) in ITR (Part A-OD) in comparison to audit report (Form 3CD) * Mismatch in amount paid to an employee as bonus or commission reported in Audit Report and ITR (Form 3CD and Part A-OI of ITR).”
Thereafter, the AO issued various notices from time to time and replies were submitted by the assessee which were placed on record. In the assessment order, it is observed by the AO that in immediately preceding year, additions were made on account of Long Term Capital Gain (“LTCG”) from sale of shares of M/s. CCL International Ltd. by holding the same as penny stock script. It was further observed by the AO that during the year under appeal also, assessee has disclosed LTCG of INR 1,33,95,009/- from the sale of shares of said script and accordingly, after considering the various aspects, with respect to the company, M/s. CCL International Ltd., it was held by AO that the transaction of sale of shares is bogus and entire sale consideration received by the assessee of INR 2,24,20,009/- from the sale of 3,15,000 shares was added in the hands of the assessee u/s 68 of the Act. Besides this, various other additions/disallowances were made on account of unsecured loans etc. and total income of the assessee was assessed at INR 11,98,04,650/- by making total additions/disallowances of INR 3,93,07,130/-.
Against this order, an appeal was preferred by the assessee before Ld.CIT(A) who vide impugned order dated 26.09.2023 partly allowed the appeal filed by the assessee wherein addition made u/s 68 of the Act on account of shares of M/s. CCL International Ltd. was upheld and other additions were partly deleted.
Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before the Tribunal wherein following grounds of appeal are raised by the assessee:- 1. “On the facts and circumstances of the case, the order passed by Ld. CIT(A) is bad both in eyes of law and on facts.
2. That the Ld. CIT(A) has erred in law and on facts by ignoring that the assessment order had been passed in the name and PAN of a deceased assessee.
3. That the Ld. CIT(A) has erred in law and on facts by issuing an invalid DIN as the same is not system generated and without approval, therefore, in violation of CBDT Circular no. 19/2019.
4. That the Ld. CIT(A) has erred in law and on facts by erroneously sustaining the disallowance of addition of alleged bogus Long Term Capital Gain by adding the entire sum of Rs. 2,44,20,009/- which were the sale proceeds of the assessee.
5. That the Ld. CIT(A) erred in law and on facts by sustaining the addition of Rs. 2,24,107/- being claimed as revenue expense on account of interest on EPF and interest on TDS paid by the assessee.
6. That the Ld. CIT(A) has erred in law and on facts by sustaining addition on account of purchases to the extent of Rs. 6,73,818/- by solely relying on the response received u/s 133(6) notice.
7. That the Ld. CIT(A) has erred in law and on facts by sustaining addition on account of loan of Rs. 5,00,000/- given to M/s Tirupati Mining Company by merely stating that the transaction was not genuine as the said company did not file its return.
8. That the appellant craves leave to add, alter, amend, delete the grounds of appeal.”
Ground of appeal No.1 raised by the assessee is general in 6. nature. Ground of appeal Nos. 2, 3 & 5 of the assessee are not pressed hence, Grounds of appeal Nos. 2, 3 & 5 raised by the assessee are dismissed.
Ground of appeal No.4 is with respect to the addition of INR 7. 2,44,20,009/- made by the AO towards the sale consideration received from the sale of shares of M/s CCL International Ltd. by holding the such sale transaction as bogus transaction.
8. Before us, Ld.AR submits that the assessee had purchased the shares of M/s CCL International Ltd. in terms of purchase bill dated 03.05.2013 which is placed at Paper Book page 2 filed by the assessee. It is submitted by Ld.AR that the payment was made through banking channel which has not been doubted by the Revenue therefore, deduction of the cost incurred by the assessee of INR 1,10,25,000/- cannot be held as unexplained money received by the assessee at the time of sale and thus, addition to this extent made by the AO and upheld by Ld.CIT(A) deserves to be deleted. It is further submitted by Ld.AR that after purchases, the same were kept in DEMAT account of the assessee which fact has not been denied by the lower authorities. Copy of the DEMAT Account was filed before the AO wherein the shares of M/s. CCL International Ltd. were duly found credited and at the time of sales, necessary debit entry was made in the DEMAT account. Copy of DEMAT account statement is filed at page 407 of Paper Book. Ld.AR further submits that the shares were sold through the member broker in recognized stock exchange and necessary copies of sales bills were also filed which is an admitted fact. The AO and Ld. CIT(A) doubted the transaction solely on the basis of Report of the Directorate of Investigation Wing, Kolkata wherein the mode of operating for rigging the prices of penny stock was explained and it was stated that there was involvement of multi intermediaries and with the help of such intermediaries, there were significant jump in the price of shares of these scripts. The AO reproduced the extracts of the report of Investigation Wing in the assessment order which starts from pages 3 to 89 of the order thereafter, the AO has reproduced the reply filed by the assessee in AY 2015-16 wherein similar additions were made on the sale of shares of M/s. CCL International Ltd. and finally in para 12 of the assessment order at page 109, AO has made the addition by holding the transaction as bogus based on the findings of such search/survey/inquiry conducted on brokers and entry provides where nowhere name of the assessee was referred. Ld. AR submits that AO has made no independent inquiry during the assessment proceedings for the year under appeal for holding the sale transaction of shares of CCL International Ltd. as bogus. He, therefore, submits that the addition made deserves to be deleted more particularly, when the assessee has been able to establish that the purchase and sales were made through banking channels and all the relevant evidences were filed by the assessee in support and they were remained uncontroverted by the AO who failed to bring on record any contrary material as a result of record of inquiries carried out in support of the conclusion made except relying upon the so-called report of the Investigation Wing.
9. Ld. AR placed reliance on the judgement of Hon’ble High Court in the case of PCIT vs Reeshu Goel wherein the Hon’ble Delhi High Court vide order dated 07.10.2019 affirmed the order of the Tribunal which was in favour of the assessee with respect to the alleged accommodation entries from sale of shares of M/s. CCL International Ltd. He also placed reliance on the judgement of Co- ordinate Delhi Bench of Tribunal in the case of Gaurav Goel vs ITO in [AY 2015-16] wherein vide order dated 03.04.2024, the Co-ordinate Bench held transaction carried out in the script of M/s. CCL International Ltd. as genuine transaction. Ld. AR accordingly, requested for the deletion of the additions made.
10. On the other hand, Ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the assessee has failed to discharge the burden casted upon him. He further stated that the AO discussed in detail about the inquiries and investigation carried out by the Investigation Wing and therefore, the additions made by the lower authorities deserves to be upheld. Ld. Sr. DR further placed reliance on the observations made by Ld. CIT(A) in para 4.3.25 to 4.3.30 wherein Ld.CIT(A) has discussed the issue at length while confirming the additions. Accordingly, Ld. Sr. DR requested for the confirmation of the orders of the lower authorities.
11. Heard the contentions of both the parties and perused the material available on record. It is seen that the assessee has been able to establish that the payment for the purchase was made through banking channels and sale of shares of M/s. CCL International Ltd. was made through recognized stock exchange and necessary documentary evidences were filed thus, the claim of exemption u/s 10(38) towards LTCG is established. The shares were duly credited in the DEMAT account and same were transferred from the DEMAT account when the sales were made after the expiry of period of more than a year. It is also seen that purchase consideration was paid by the assessee from the regular ban account of the assessee in the preceding year where the source was never doubted. Thus, the investment made in the acquisition of these shares is genuine and therefore, no addition could be made to the extent of the investment made in purchases of these shares when the same were sold. Accordingly, the additions to that extent of purchases price cannot be made.
12. It is further seen that the Co-ordinate Bench in the case of Sarika Bindal in [AY 2015-16] vide order dated 13.12.2023 has considered the issue of shares of M/s. CCL International Ltd. and under identical circumstances, allowed the appeal of the assessee by making following observations:- 8. “We have carefully considered the rival submissions and perused the material available on record. The case law cited have also been taken into account. As pointed out on behalf of the assessee, the transaction of existence of purchase and sale of CCL Ltd. giving rise to LTCG claimed to be exempt under section 10(38) of the Act is fully corroborated by the documentary evidences. The shares have been credited in the demat account and transferred out of demat account at the time of sale. Both purchase and sale transactions are carried out through banking channel and by transfer of shares. The prima facie bonafides of existence of transaction executed cannot thus be doubted. It is not the case of the revenue that the capital gain arising to Assessee in not in the nature of LTCG. The case of revenue is that such transactions is an accommodation entry and thus sham. The abnormal increase in prices of share has led to suspicion on bonafides of transaction and was treated as accommodation entry of sham nature. 8.1 The Hon’ble Delhi High Court in the case of Karuna Garg as well as Krishna Devi has held that an astronomical increase in the share price of a company in itself is not a justifiable ground for holding the LTCG to be an accommodation entry. 8.2 As pointed out on behalf of the assessee large number of decisions pronounced by Co-ordinate benches holds the field in favour of the assessee in respect of same scrip of ‘CCL International Ltd.’. 8.3 Significantly, the Assessing Officer in another case namely ‘Parth Yadav’ has framed the reassessment order without making any additions on account of LTCG derived from sale of CCL Ltd. Shares despite reopening the assessment on such ground. Thus, the Revenue itself, in other case, broadly accepted the view point canvassed. 8.4 On the substratum of the company financials, the assessee has also demonstrated that CCL Ltd. is engaged in substantial business with significant turnover and fixed assets base. 8.5 In such backdrop, we are of the view that the addition is not justified based on conjecture and surmise and the assessee is discharged primary onus which lay upon it. The Revenue, on the other hand, could not dislodge the perception that apparent is not real. 8.6 In the light of factual matrix and case laws available on record, we see potency in the plea of the assessee that such capital gains arising on sale of shares cannot be regarded as sham profit and consequently, additions under s. 69A of the Act is not justified. The Assessing Officer has not provided anything on record to justify additions under section 69C of the Act either. The modus operandi spelt by itself is not a adequate ground to impeach the transactions. The judgment in Udit Kalra relied upon by revenue was rendered in the facts of that case and is quite distinguishable. In that case, the financial resources of the company [Kappac Pharma Ltd.] was quite meager and incurring consistent losses as opposed to the facts of the present case. Also, there was specific information that assessee was beneficiary of accommodation entry. Such facts led to adverse conclusion in that case in the setting of facts of that case. 8.7 In the light of delineations, we set aside the order of CIT(A) and direct the AO to delete the additions in question.
In the result, appeal of assessee is allowed.”
The Co-ordinate Bench of the Tribunal in the case of Gaurav Goel vs ITO in vide order dated 03.04.2024 has also dealt with the issue of long terms capital gains from the sale of shares of M/s. CCL International Ltd. wherein the AO held the same as bogus penny script however, the Co-ordinate Bench has considered all the aspects and deleted the additions made by observing as under:- 3.5. We find that the ld. AO had only doubted the veracity of receipt of money in the form of sale consideration of shares of CCL International Ltd by making an addition u/s 69 of the Act. In our considered opinion, the provisions of section 69 of the Act per se could not be made applicable to the facts of the instant case as it talks about „Unexplained Investments‟ made by an assessee.
3.6. The ld. AO did not heed to the aforesaid contentions of the assessee and the documentary evidences placed on record by the assessee and proceeded to deny the claim of exemption u/s 10(38) of the Act by classifying the scrip of CCL International Ltd as a penny scrip not capable of justification of the price rise in the market. The ld. AO accordingly added the sale consideration received on sale of shares of CCL International Ltd as income of the assessee u/s 69 of the Act. In this regard, the ld. AR before us placed on record the annual report of CCL International Ltd in page 96 of the Paper Book which stated that the said company was established in the year 1995 , is fastest growing infra-technology focused Mid Size Contracting Company in Highways Sector, fully equipped with latest German and American Road Infra Machineries with offices in Guwahati, Shillong, Tura, Aizawl and other seven sister states. The said company serves complete 360 degree requirements of Geo Survey, Soil Analysis, Engineering, Procurement & Construction need of our valuable clients and end users. The ld. AR also placed on record the Certificate of Accreditation of New / Alternative Materials / techniques technologies / equipments for adoption in the Highway Sector namely “Evocrete ST” issued to the said company by Indian Roads Congress vide letter dated 12.4.2016. The ld. AR also placed on record an award given by CSIR department, Government of India to CCL International Ltd. This goes to prove that the said company i.e CCL International Ltd is duly recognised by the Government of India. The ld. AR also placed on record the scrutiny assessment orders of CCL International Ltd of various assessment years as under:-
Asst Year Income Income Order u/s Date of Order Page No. of PB Returned Assessed 2011-12 247270/- 289526/- 143(3) 28.2.2014 86 & 87 2012-13 7115100/- 7115100/- 143(3) 4.3.2015 88 & 89 2013-14 15775370/-15846584/- 143(3) 22.2.2016 90 & 91 2014-15 9101530/- 9243927/- 143(3) 21.12.2016 92 & 92A 2015-16 9533430/- 9913390/- 143(3) 16.5.2017 93 to 95 3.7. The aforesaid scrutiny income tax assessment orders clearly go to prove that the said company i.e. CCL International Ltd cannot be construed as a shell company or a penny stock company as alleged by the lower authorities. On the contrary, the said company is regularly carrying on its business deriving income thereon regularly from both Government and Private Sector. Hence the entire allegations leveled by the revenue qua this company falls flat. We find that the ld. AO had not found any material against this company CCL International Ltd. There is no allegation / statement of any party regarding the said company giving any adverse remarks on the ground that the said company‟s share prices were artificially manipulated in the stock market. No action has been taken by Securities Exchange Board of India (SEBI). Instead the ld. AO had merely adopted the cut paste modus operandi of some other scrips and had made vague allegations of some investigation by department and SEBI which are totally unconnected to the assessee and the scrip dealt by the assessee herein. In our considered opinion, the entire issue has been looked into by the ld. AO from the angle of suspicion by ignoring the aforesaid factual details placed on record proving the credentials of CCL International Ltd. It is trite law that suspicion howsoever strong cannot partake the character of a legal evidence. This is a classic case of the revenue ignoring their own officers scrutiny assessment orders framed on the said company CCL International Ltd duly accepting the fact that the said company is engaged in various businesses and had reported huge incomes year after year. Hence it cannot be classified as a penny stock company at all. Once it is held that this company is not a penny stock, none of the allegations leveled by the ld. AO and upheld by the ld. CIT(A) in their orders would be applicable to the said company. The ld. AR also stated that the said company is still listed in the stock exchange and is priced at Rs 30 approximately per share. Further we find that the coordinate bench of Delhi Tribunal in the case of Reeshu Goel vs ITO in for Asst Year 2013-14 dated 7.10.2019 had categorically given a finding that the said company CCL International Ltd cannot be held to be a paper entity. 3.8. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we hold that the capital gains earned by the assessee on sale of shares of CCL International Ltd is genuine and accordingly the assessee would be entitled for exemption u/s 10(38) of the Act thereon. Hence the addition made u/s 69 of the Act by the ld. AO is hereby deleted. The Ground Nos. 2 to 4 raised by the assessee are allowed.
Hon’ble High Court in the case of Rishu Goel (supra) has confirmed the order of the Tribunal wherein the Co-ordinate Bech had deleted the additions by holding the LTCG from the sale of shares of M/s. CCL International Ltd. as genuine.
In view of the above discussion and by respectfully following the judgement of Hon’ble High Court and also of the Co-ordinate Bench as stated above, we find that AO has made a serious error of holding the transaction of purchase and sale of shares of M/s. CCL International Ltd. as bogus transaction and denied the claim of exemption u/s 10(38) of the Act. We have already held that no addition could be made with respect to the purchase consideration of the shares sold which was not doubted by the Revenue in the year when the same was paid therefore, entire sale consideration including the purchase cost could not be held as unexplained money in the hands of the assessee u/s 68 of the Act. Accordingly, we directed the AO to delete the addition made towards the purchase cost of the shares sold during the year and further direct to allow the assessee of the benefit of exemption u/s 10(38) of the Act on LTCG earned by the assessee from the sale of shares of M/s. CCL International Ltd. Accordingly, Ground of appeal No.4 raised by the assessee is allowed.
Ground of appeal No.6 of the assessee is with regard to the addition of INR 6,73,818/- upheld by ld. CIT(A) out of the total additions made by AO of INR 1,01,62,735/-.
From the perusal of the order of Ld.CIT(A), we find that Ld.CIT(A) has deleted the majority of the additions made after considering the submissions and invoices and evidences filed by the assessee. However, since the three parties to whom payments were made, had denied the transaction with the assessee therefore, the genuineness of the transaction with respect to these expenses remained unexplained and therefore, we find no infirmity in the order of Ld.CIT(A) whose observations were not controverted by Ld. AR of the assessee before us. Thus, Ground of appeal No.-6 raised by the assessee is hereby, dismissed.
In Ground of appeal No.7, the assessee has challenged the addition of INR 5.00 Lakhs made on account of loan given to M/s. Tirupati Mining Company.
Heard the contentions of both the parties and perused the material available on record. The assessee had given advances of INR 30 Lakhs on 06.06.2015 to Tirupati Mining Company who had returned Rs. 35.00 lacs on 17.06.2015. As the assessee has failed to file copy of return of income of M/s Tirupati Mining Company to establish its creditworthiness, therefore, the AO had made the addition of Rs. 5.00 lacs u/s 68 of the Act. Ld. AR claimed that the assessee filed confirmation, bank statement etc. of Tirupati Mining Company and also filed the assessment particulars by filing the PAN of the said company therefore, no addition should be made of the loan taken from the said company as the Ao could have made enquiries at hos end which has not been done. From the perusal of the details, we find that assessee had filed copy of bank statement wherein entries of receipt of loan from the assessee of INR 30.00 Lakhs and repayment of the said loan alongwith additional sum of INR 5 Lakhs are duly appearing. It is further seen that there were sufficient funds available in the bank account of the lender at the time of returning the amount therefore, merely for the reasons that the assessee has not filed ITR of the said company, no addition could be made when the assessee has discharged the onus by establishing the identity and creditworthiness and genuineness of the lender party. Accordingly, we direct the AO to delete the addition of INR 5 Lakhs. The Ground of appeal No.7 raised by the assessee is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 22.08.2025.