SAROJ BAID,KOLKATA vs. ITO, WARD 36(3), KOLKATA, KOLKATA

Per Dr. Manish Borad, Accountant Member:- The captioned appeal bearing ITA 558/KOL/2018 at the instance

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid Ltd. on which L.T.C.G. of Rs. 68,87,029/- has been earned . The whole transactions of purchase and sale of shares giving rise to long term capital gain has been duly explained by your appellant step by step and supported by adequate and reliable evidences. But without any rebuttal of evidences produced and filed, Ld. I.T.O. has made assessment on the basis of suspicious or surmise, Ld. I.T.O. has not brought any material on record to support his finding that there has been collusion / connivance between the broker and your appellant for introduction of unaccounted money . (7) Ld. Income Tax Officer has failed to appreciate the fact that it is well settled law that assessment cannot be made on the basis of suspicious. The suspicious of Ld. I.T.O cannot clinch the transaction against assessee. (8)That the decision of Hon’ble Delhi I T A T "B” Bench in the case of Win chadha vs CIT (International Taxation) in ITA no. 3088 & 3107/Del/2005 and Sumati Dayal us CIT (1995) 8U Taxman 89 of Hon’ble Supreme Court are not applicable in the present case of your appellant. (9) Ld.CIT (Appeals) has erred is denying exemption of Long Term Capital gain u/s 10(38) of I.T. Act, 1961 using the circumstantial evidence and completely ignoring the documentary evidence produced by your appellant in regard to earning of long term capital gain without rebuttal of the same. (10) Ld. CIT (Appeals) has erred in drawing the conclusion that reliance of materials placed by your appellant in A.O. record are in the nature of contention challenging criminal on civil liabilities in a court of law and have no relevance while dealing with process of adjudication of assessee tax liability i.e. assessment under Income Tax Act, 1961. (11) Ld. CIT (Appeals) has erred in drawing conclusion that is a sensitive matter like his, ever a single clue or revelation can be of great importance. To reverse the order of the A.O. are this technical plea will amount to talking a lopsided view of the proceedings. The assesses contention and objectives in this behalf that the material available on record was not admissible as evidence and it cannot be relied on by the A.O. are devoid of any merit and are rejected outright.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid (12) Ld C.I.T (Appeals) has failed to appreciate the judgment of Hon’ble I T.A T. ‘C’ Bench Kolkata in the case of (i) DCIT C.C.I Vs Sunita Khemka ITA no.714 to 718/kol/2011 (ii) Hon’ble I.T.A.T. ‘D; bench Kolkata in the case of Shri Dolarrai vs ITO Wd. 34(3) Kolkata, ITA no 19/kol/2014 dtd. 02.12.2016. (iii) Hon’ble ITAT ‘A’ Bench Kolkata in the case of Surya Prakash Toshniwal (HUF) Ward 41(3) Kolkata. The above judgement is squarely effaceable in the present case of your appellant. (13) Ld I.T O. has erred in law as well as in fact in addition a sum of Rs. 34,695/- for unexplained expenditure towards commission changed by the operators for L.T.C.G. without furnishing any material or evidence. (14) Ld. I.T.O. has erred in law as well as in fact in disallowing under section 14A read with Rule 8D entire expenses claimed Rs. 1,32,294/- incurred for earring taxable income. (15) Ld. I.T.O. has erred in law as well as in fact in adding back interest received Rs. 10,782/- from Indusind Bank as income from undisclosed source. Whereas your appellant has shown bank interest of Rs, 5,962/- in her Profit & Loss accounts for the year ending 31st March 2013. However Ld. C.I.T.(Appeals) has erred in totally denying the request of your appellant to restrict the addition for interest income to Rs. 4,820/- in place of Rs 10,782/- (16) That Ld. I.T.O. has erred in law as well as in fact in charging interest u/s.234B and 234C of I T. Act. 1961.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid (LTCG) on sale those shares under section 10(38) of I.T. Act, 1961. (3) That Ld. C.I.T.(A) erred in confirming the order of A.O. who merely relied on the information from Directorate of Investigation, Kolkata without applying his own mind and without placing on record any adverse material /finding on the evidences/ explanations placed by your appellant before A.O.. (4) That Ld. C.I.T. (A) erred in law as well as in fact in confirming the disallowance made by Ld. A.O. in denying the benefit of Long Term Capital Gain under section 10(38) of I.T. Act,1961. (5) That Ld. C.I.T.(A) erred in law as well as in fact in holding the long term capital gain on sale of shares as bogus. (6)That Ld. C.I.T.(A) erred in law and failed to appreciate the different legal decisions of Hon'ble I.T.A.T. Kolkata, which are squarely applicable in the present case of your appellant. (7) That Ld. C.I.T. (A) erred in law in disallowing the claim of your appellant on the basis of human probability and surrounding circumstances and fully ignoring the documentary evidences produced by your appellant at the time of hearing before him as well as before Ld. A.O. in support of his claim of exemption u/s,10(38) of I.T.Act,1961. (8) Whether on the facts and circumstances of the case, the Ld C.LT(A) was justified in upholding the action of the Ld A.O. in treating the transactions in share of NCL Research & Financial Services Ltd. resulting in Long Term Capital Gain as bogus and thereupon making addition on the presumption that commission @ 5% was paid for arranging the aforesaid bogus Long Term Capital Gain. (9) Whether on the facts and circumstances of the case Ld. C.I.T.(A) was justified in upholding the disallowance made by the Ld AO u/s. 14A read with rule 8D of the Act.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid 3. The facts in brief for A.Y. 2013-14 are that the assessee is an individual, who filed her return of income on 27.07.2013 declaring income of Rs.7,50,440/-. In the said return, the assessee has claimed exemption under section 10(38) of the Act for long-term capital gain of Rs.69,42,776/- from sale of equity shares of NCL Research and Financial Services Limited. The case selected for scrutiny through CASS in AST module by valid serving of notices under section 143(2) and 142(1) of the Act. During the course of assessment proceedings, the ld. Assessing Officer observed that during F.Y. 2008-09 the assessee purchased 33800 equity shares of NCL Research and Financial Services Limited @ Rs.2/- per share and total purchase price was at Rs.67,600/-. During the year under consideration, the assessee sold 26,000 shares of NCL Research and Financial Services Limited for a consideration of Rs.69,39,029/- thereby earning long-term capital gain of Rs.68,87,029/-. Price increase was almost 13700%. The ld. Assessing Officer called for the details of financial statements of NCL Research and Financial Services Limited which indicated poor results not commensurate to the steep increase in price of equity shares. He also observed that name of this company appears in the list of 84 penny stock companies listed with Bombay Stock Exchange, which the Investigation Wing has found to be managed by unscrupulous brokers, entry operators and money launderers involved in providing bogus accommodation entries of long-term capital gain and short-term capital loss. The ld. Assessing Officer was of the considered view that the assessee has dealt with penny stock

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid company, the financial statement of which truly states that increase in the price of equity shares were not commensurate to the business activities being carried out and has thus LTCG claimed is bogus not eligible for exemption under section 10(38) of the Act and alleged receipt of sale consideration is liable to be added as unexplained cash credit under section 68 of the Act.

5. During the course of hearing, only a staff of the assessee represented. In the past, almost more than 25 dates of hearing have been fixed but the case fixed for hearing was adjourned for one reason or another. These appeals were filed during 2017 and 2018 and are almost six years old. The staff person on behalf of 7 (A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid the assessee failed to submit any written submission on behalf of the assessee. We, however, notice that written submissions were filed on 11.03.2019 and 06.04.2021 and the same have been considered for the purpose of adjudication of the issues in appeals before us.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid 8. It is also pertinent to observe that recently Hon’ble Jurisdictional High Court has examined the issue of bogus capital gain claim made by a large number of assessees in Kolkata. This issue has been examined in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022. A large number of assessees have claimed long-term capital gain/loss. The Income Tax Department has carried out search/survey upon different entities, which unearthed that certain companies and professionals were providing such claim in the shape of accommodation by manipulating the stocks of certain shell companies. The Hon’ble Court has made a detailed analysis of the material found during the course of search and survey on the premises of third entities and set aside the orders of the ITAT in a group of appeals by holding that such claim by the assessees for long-term capital gain was a bogus claim.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid f) It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. [para 73] g) The assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time. [para 75] h) The exercise that was required to be done by the Tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the 'players' can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the Tribunal which exercise has not been done. [para 99] i) The assessee had opportunity to prove that there was no manipulation at the other end and whatever gains the assessee has reaped was not tainted. This has not been proved or established by any of the assessee. [para 99] j) The tribunal being the last fact finding authority was required to go deeper into the issue as the matter have manifested large scale scam. Thus, the orders of the tribunal are not only perfunctory but perverse as well. The exercise that was required to be done by the tribunal is to consider the totality of the circumstances because the transactions are shown to be very complex, the meeting of minds of the "players" can never be established by direct evidence and therefore the surrounding circumstances was required to be taken note of by the tribunal which exercise has not been done. [para 99] k) In such factual scenario, the Assessing Officers as well as the Commissioner (Appeals) have adopted an inferential process which is found to be a process which would be followed by a reasonable and prudent person. The Assessing Officers and the Commissioner (Appeals) have culled out proximate facts in each of the cases, took into consideration the surrounding circumstances which came to light after the investigation, assessed the conduct of the assessee, took note of the proximity of the time between the buy and sale operations and also the sudden 12 (A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid and steep rise of the price of the shares of the companies when the general market trend was admittedly recessive and thereafter arrived at a conclusion which is a proper conclusion. [para 99] l) For all the above reasons, we hold that the Tribunal committed a serious error in setting aside the orders of the CIT(A) who had affirmed the orders of the Assessing Officer. [para 101] m) In the result, these appeals are allowed and the substantial questions of law framed/suggested are answered in favour of the revenue and against the assessee restoring the orders passed by the respective Assessing Orders as affirmed by the CIT(A). [para 102] 6. In the context of factual matrix of the present appeals before us narrated above, the position of law as enunciated by the Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj (supra) carrying force of binding nature on the issue under consideration for us, was confronted to the respective ld. Counsels of the assessee who appeared before us. Ld. Counsels were fair enough to state that issue involved in these appeals is squarely covered against the assessee by the said decision as the fact involved are identical to that which were before the Hon’ble High Court. For cases where none appeared before us on behalf of the assessee, the relevant factual matrix was captured with the assistance of Ld. Sr. DR / CIT DR (already narrated above). Since the matter is squarely covered by the decision of Hon’ble jurisdictional High Court of Calcutta in the case of Swati Bajaj & others (supra), we have taken up these also for adjudication ex parte, qua the assessee.

7. After hearing both the sides and taking into consideration the factual matrix of the cases before us vis-à-vis the decision of Hon’ble jurisdictional High Court of Calcutta in Swati Bajaj & others (supra), we respectfully following the said decision carrying the force of binding nature, being the jurisdictional High Court, dismiss the appeals of the assessee and restore the order of the respective ld. AO as affirmed by the respective ld. CIT(A)”.

(A.Y. 2013-2014) & (A.Y. 2014-2015) Saroj Baid (supra) find no infirmity in the orders of the ld. CIT(Appeals) and, therefore, dismiss all the grounds raised by the assessee for A.Y. 2013-14 and A.Y. 2014-15.