DEEPAK KUMAR AGARWAL, HUF,JAIPUR vs. ITO, WARD-2(3), JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘B’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 223/JP/2020 fu/kZkj.k o"kZ@Assessment Year :2014-15 cuke Nilesh Agarwal HUF The Income Tax Officer, Vs. 39-40-41 Gyan Vihar, Nirman Ward 2(3), Jaipur Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAFHN7625H vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 222/JP/2020 fu/kZkj.k o"kZ@Assessment Year :2014-15 cuke Deepak Kumar Agarwal HUF, The Income Tax Officer, Vs. 47, Ajmer Road Nirman Nagar Ward 2(3), Jaipur AB Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAGHD6715F vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri B. P. Mundra (CA) jktLo dh vksj ls@ Revenue by : Smt. Runi Pal (Addl. CIT) lquokbZ dh rkjh[k@ Date of Hearing : 10/12/2020 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 09/02/2021 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M.

These are two appeals filed by the aforesaid assessees against the respective orders of ld. CIT(A)-1, Jaipur dated 16.01.2020 & 07.01.2020

2 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur for A.Y 2014-15 respectively. Since the common issues are involved, both these appeals were heard together and are being disposed off by this consolidated order.

“1. The ld. CIT(A) has erred on facts and in law confirming addition u/s 68 of the I.T. Act, 1961 of Rs. 23,70,660/- as accommodation entries.

2. The ld. CIT(A) has erred on facts and in law confirming addition u/s 69C of the I.T. Act, 1961 of Rs. 47,413/- as commission was provided for sale of shares as accommodation entries.”

Kailash Auto Finance Ltd. were allotted to the assessee in lieu of the shares of M/s. Careful Projects Advisory Ltd. The ld CIT(A) however sustained the addition made by the AO. Aggrieved by the order of ld. CIT (A), the assessee is in appeal before us.

4. During the course of hearing, the ld. A/R has submitted that the assessee has established the genuineness of the transaction by producing all the relevant evidences including the purchase of 4,80,000 shares of M/s. Careful Projects Advisory Ltd. against the payment of Rs. 4,80,000/- through banking channel. He has referred to the bank account statement at pages 34-36 of the paper book and submitted that the payment is reflected in the bank statement. The ld. A/R has then referred to the demat account at page 33 of the paper book and submitted that the 5 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur shares of M/s. Careful Projects Advisory Ltd were dematerialized and credited in the demat account. Subsequently the said company merged with M/s. Kailash Auto Finance Ltd. as per the judgment of Hon'ble Allahabad High Court dated 09.05.2013. The assessee was allotted 4,80,000 shares of M/s. Kailash Auto Finance Ltd. in lieu of the shares of M/s. Careful Projects Advisory Ltd. which were also credited in the demat account of the assessee on 22.07.2013. Thus the genuineness of the purchase of shares is established by producing all the relevant evidences.

The sale of the shares is also not in dispute as these were sold in the Stock Exchange on which STT was paid through M/s. JSEL Ltd., a registered share broker of SEBI. The ld. A/R has referred to the ledger account of the assessee in the books of M/s. JSEL Ltd. at page 1 of the paper book and the Contract Notes for sale of shares at pages 2 to 31 of the paper book. He has also referred to the SBBJ bank statement showing the sale consideration received in the bank account of the assessee. Thus when the assessee was holding 4,80,000 shares since 24.11.2011 and sold only 66,500 shares between 16.01.2014 to 21.01.2014 then holding period of these shares is more than 2 years and it is still holding rest all shares. Hence, the ld. A/R has submitted that when the assessee has purchased the shares of M/s. Careful Projects Advisory Ltd., then the statement of Shri Sunil Dokania recorded by the Income Tax Department,

6 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur Kolkata cannot be a relevant material to hold the transaction of purchase as bogus more so where such statement was not made available to the assessee inspite of specific request made during the assessment proceedings. Further, even on perusal of the said statement as reproduced in the assessment order, the AO has not mentioned the name of the assessee or the company from whom the assessee purchased the shares. Therefore, a general statement made by Shri Sunil Dokania cannot be used against the assessee. It was submitted that the assessee has submitted all the relevant facts and evidences before the AO and the ld CIT(A) and no adverse finding has been recording disproving such material evidences placed on record. It was submitted that the AO in the entire assessment order has not made reference to any single documentary evidence which can be said to be incriminating material against the assessee to show that the assessee has availed any accommodation entry of bogus LTCG. It was submitted that mere suspicion cannot be a ground for treating the transaction as bogus in absence of any evidence or material on record. The ld. A/R has relied upon the following decisions:-

• CIT vs. Smt. Pooja Agarwal (DB Appeal No. 385/2011 dated 11.09.2017)

7 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur • PCIT vs Pramod Jain & others (DB Appeal No. 209/2018 dated 24.07.2018) • Manish Kumar Baid vs. ACIT (1236/KOL/2017 dated 18.08.2017) • Meghraj Singh Shekhawat vs. DCIT (ITA No. 444/JP/17 dated 07.03.2018) • DCIT vs. Saurabh Mittal (ITA No. 16/JP/2018 dated 29.08.2018) • ITO vs Lalit Kumar Biyani (ITA No. 1153/JP/2019 dated 03.02.2020)

Kailash Auto Finance Ltd. through the broker houses. It was submitted that the assessee has shown huge capital gains earned from purchase and sale of the shares of M/s. Kailash Auto Finance Ltd. within a very short period of time. Thus it is a case of investment in penny stock of a company whose shares were used for the purpose of providing accommodation entries by the persons involved in such activity. The ld. D/R has referred to the assessment order and submitted that the AO has discussed the modus operandi of such transactions of accommodation entries in the script of paper/bogus companies and thus the unaccounted money of the beneficiary is routed back in the shape of Long Term Capital Gain claimed as exempt under section 10(38) of the IT Act. Though the 8 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur assessee has purported to have received the sale consideration on sale of shares, however, in reality it was his own cash which he received back through some clandestine deals. The AO has referred to the report of the SIT as well as the statement of Shri Sunil Dokania recorded by the Investigation Wing Kolkata which proved the transaction as sham/bogus and the AO in the assessment proceedings is not required to establish the finding through full-proof documentary evidence but the income tax liability is ascertained only on the basis of material available on record, surrounding circumstances, human conduct and preponderance of probabilities. All these criteria have been satisfied by the AO while passing the assessment order as there were material available with the AO, the circumstances clearly indicated the non-genuineness of the transaction and, therefore when the strict rule of evidence as per Evidence Act is not applicable in the matter of taxation, then the material as brought on record by the AO is sufficient to hold that the assessee has availed the benefit of accommodation entry by creating bogus Long Term Capital Gain against the payment of his own unaccounted income. She has accordingly relied upon the order of the lower authorities. She has relied upon the judgment of Hon’ble Supreme Court in case of Sumati Dayal vs. CIT (supra) as well as in case of Durga Prasad More (supra). The ld. D/R has also relied upon the decision of Hon’ble Delhi High Court in case of 9 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur Suman Poddar vs. ITO, 112 taxmann.com 329 (Delhi). The ld. D/R has submitted that the Hon’ble High Court has confirmed the decision of the Tribunal whereby the Long Term Capital Gains claimed by the assessee in respect of purchase and sale of penny stock were treated as bogus transactions being accommodation entries. She has also pointed out that the SLP filed by the assessee against the judgment of the Hon’ble Delhi High Court has been dismissed by the Hon’ble Supreme Court reported in 112 taxmann.com 330 (SC).

6. In his rejoinder, the ld. A/R submitted that the decision relied upon by the ld. D/R in case of Suman Poddar vs. ITO (supra) is not applicable in the facts of the assessee’s case as in the said case it was a finding of fact by the Tribunal holding that the assessee has failed to produce any evidence of actual sale except the Contract Notes issued by the share broker whereas in the case of the assessee, the assessee produced all the documentary evidences right from purchase of share holding in Demat account, payment of purchase consideration as well as receipt of the sale consideration through banking channel, thus the said decision cannot be applied in the present case. On the other hand, the decisions of the Hon’ble Jurisdictional High Court in case of CIT vs. Smt. Pooja Agarwal

10 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur (supra) as well as PCIT vs. Shri Pramod Jain & Others (supra) are binding precedents on this issue.

Careful Projects Advisory Ltd. of face value of Re. 1/- each for a total consideration of Rs. 4,80,000/-. The payment was reflected in the bank account maintained with State Bank of Bikaner and Jaipur of Rs. 4,80,000/- vide cheque no. 751680 which was cleared on 16.12.2011.

Thus the payment of purchase consideration through banking channel is proved from the record which can be verified independently and assessee has no role to manipulate the bank account with State Bank of Bikaner and Jaipur. Thus it is clearly established that the assessee has purchased the shares of M/s. Careful Projects Advisory Ltd on 24.11.2011. These shares were thereafter dematerialized as reflected in the Demat account statement of the assessee as on 29.09.2012. The holding of these shares of M/s. Careful Projects Advisory Ltd by the assessee as credited in the 11 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur demat account of the assessee cannot be disputed as the demat account is also an evidence which can be verified independently. It is also not in dispute that the said company M/s. Careful Projects Advisory Ltd was subsequently merged with M/s. Kailash Auto Finance Ltd. and the scheme of the merger/amalgamation was approved by Hon'ble Allahabad High Court vide Judgment dated 9th May, 2013 with effect from 01.04.2012. In pursuance to the scheme of merger of M/s. Careful Projects Advisory Ltd. with M/s. Kailash Auto Finance Ltd., the assessee was allotted 4,80,000 shares of M/s. Kailash Auto Finance Ltd. in lieu of the equal number of shares of M/s. Careful Projects Advisory Ltd. These shares were also credited to the demat account of the assessee on 22.07.2013 as reflected in the demat account of the assessee. Therefore, the purchase of shares by the assessee of M/s. Careful Projects Advisory Ltd cannot be disputed due to the reason that certain persons were indulged in providing accommodation entries in the shares of M/s. Kailash Auto Finance Ltd. It is not the case of purchase of shares of M/s. Kailash Auto Finance Ltd. but the assessee was allotted the shares of the said company by virtue of merger and in lieu of the shares of M/s. Careful Projects Advisory Ltd. Further, the AO has given much emphasis to the statement of Shri Sunil Dokania recorded by the Investigation Wing Kolkata on 06.03.2013 and 12.06.2015 whereas the shares of M/s. Careful Projects Advisory Ltd.

12 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur were purchased on 24.11.2011. Therefore, even if Shri Sunil Dokania has accepted the activity of providing accommodation entries in the shares of M/s. Kailash Auto Finance Ltd., but when the assessee has not purchased the shares of the said company, then the transaction of the assessee cannot be doubted on the basis of the said statement. Even otherwise, when the assessee has produced documentary evidence which is neither found to be bogus or the correctness of the same is doubted by the AO, the said documentary evidence is otherwise not assessee's own record but it is the record of Bank, Depository Services and third party documents being bills, ledger account etc. The AO has not even whispered or doubted the correctness of these documents filed by the assessee. Once the assessee has produced the documentary evidence which established the fact of purchase of shares of M/s. Careful Projects Advisory Ltd and thereafter the dematerialization of shares in the demat account of the assessee and subsequently allotment of the shares of M/s.

Kailash Auto Finance Ltd. due to the merger as approved by the Hon'ble Allahabad High Court which were also credited to the demat account of the assessee, then the documentary evidence cannot be ignored or brushed aside merely on the basis of the statement of some third person recorded by the Investigation Wing, Kolkata, that too, without confronting the assessee by providing a copy of such statement.

13 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

8. In case of Manish Kumar Baid vs. ACIT (supra), the Kolkata Benches of the Tribunal while considering an identical issue of Long Term Capital Gain on sale of shares of M/s. Kailash Auto Finance Ltd. has held in para 6 as under :-

"6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the ld AR that the ld AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC

Industries Ltd. (supra) for this proposition. The various facets of the arguments of the ld AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the ld AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon'ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme

14 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur approved by the Hon'ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross -examination. Moroever, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI's interim order supra. We find that the SEBI's orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock

Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee

15 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in order to have a good return on his investment. We find that the assessee and / or the broker

Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI's order.

We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd's name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI's order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially.

Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the 16 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon'ble Jurisdictional High

Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld

AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee."

Further, when the assessee furnished all evidences in the form of bill, contract note, demat statement, bank account statement to prove the genuineness of the transaction, then in the absence of any finding by the AO to show that these documents are either bogus or fabricated, the claim of the assessee cannot be treated as bogus.

“6. We have heard the rival submissions as well the relevant material on record. The assessee stated to have purchased three lacs shares of Careful Projects Advisory Ltd. for a consideration of Rs. 3.00 lacs vide invoice dated 12/3/2012. We find that M/s

Sanskriti Vincom Pvt. Ltd. has issued the invoice dated 12/3/2012 for the purchase made by the assessee of three lacs shares of Careful Projects Advisory Ltd.. The payments of the consideration of Rs. 3.00 lacs was made by the assessee through his bank account with ICICI bank and the statement of bank account reflected said payment of Rs. 3.00 lacs on n14/3/2012. Thus, the payment of 18 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur consideration through bank account for purchase of shares is not in dispute as the same has been proved by the evidence which can be verified independently without even any scope of manipulation or control by the assessee. Similarly, the purchase transaction of four lacs shares of M/s Panchshul Marketing Ltd. vide invoice dated

12/7/2012 issued by M/s Sanskriti Vincom Pvt. Ltd. is also established to the extent that the assessee made payment of purchase consideration of Rs. 4.00 lacs through his bank account with ICICI bank and the payment is duly reflected in the bank account statement. Therefore, the payment of purchase consideration has been established beyond any doubt. The only question which can be raised for this transaction of purchase of shares of these two companies is the suppression of purchase price so as to create an artificial capital gain of maximum amount.

However, the Assessing Officer has not given any finding that the purchase price was artificial suppressed by the parties with intention to maximize the capital gain through the modus operandi of bringing the assessee unaccounted income in the shape of long term capital gain exempt U/s 10(38) of the Act. The Assessing

Officer has given much emphasis on the report of DDIT(inv.),

Kolkata and some statements were recorded during the 19 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur investigation proceedings by Kolkata wing wherein three persons who were brokers namely Shri Anil Khemka, Shri Devesh Upadhyay and Shri Pankaj Agarwal were examined by the DDIT(Inv.), Kolkata and in their statements recorded U/s 131(1) and 133A of the Act, they admitted their indulgence in providing accommodation entries of bogus capital gain in some of the scripts including the scripts of M/s Kailash Auto Finance Ltd. However, we find that in the entire report of investigation Wing of which the relevant part is reproduced by the Assessing Officer as well as the statements of these persons, there is no mention either of the assessee or M/s

Sanskriti Vincom Pvt. Ltd. through whom the assessee purchased these shares. Thus, even if three persons are considered to have indulged in the transaction of providing accommodation entries, it would not automatically lead to the conclusion that each and every transaction in purchase and sale of shares of those companies are bogus transactions, which were between the some other parties not connected with those operators. Even otherwise in the case in hand, the assessee did not purchase the shares of M/s Kailash Auto

Finance Ltd. but the assessee purchased the shares of Careful

Projects Advisory Ltd. and M/s Panchshul Marketing Ltd.. These two companies were subsequently amalgamated with M/s Kailash Auto

20 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

Finance Ltd. in pursuant to the scheme of amalgamation approved by the Hon’ble Allahabad High Court as well as the Hon’ble Bombay High Court vide their respective decisions dated 09th & 10th May,

2013. Consequently, the assessee was allotted equal number of shares of the amalgamated entries of M/s Kailash Auto Finance

Limited in lieu of the shares held by the assessee in erstwhile two companies namely Careful Projects Advisory Ltd. and Panchshul

Marketing Ltd.. The allotment of these shares are duly reflected in the record through the correspondence of the allotment and the same company M/s Kailash Auto Finance Ltd. is a listed company in the stock exchange, therefore, the allotment of shares by the said company is verifiable transaction from an independent record. The assessee has also produced DEMAT account showing the shares held in the dematerialized form and therefore, the holding of the shares by the assessee after the dematerialization cannot be questioned from any angle. During the financial year relevant to the assessment year under consideration, the assessee sold these shares through stock exchange and from his DEMAT account. The sale transaction of shares through stock exchange is not in doubt and the shares were sold from the DEMAT account of the assessee is also cannot be doubted. The sale price as on the date of 21 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur transaction is also the prevailing price in the stock exchange. Hence it is not a case of the Assessing Officer that the assessee has shown an inflated sale price which is not as per the prevailing market price of the shares of M/s Kailash Auto Finance Ltd.. It is pertinent to note that the shares of M/s Kailash Auto Finance Ltd. were issued to the assessee only in lieu of the shares of erstwhile two companies M/s Careful Projects Advisory Ltd. and M/s Panchshul

Marketing Ltd. and it is not a transaction of acquiring the shares of M/s Kailash Auto Finance Ltd against the consideration. Thus, the allotment of shares by M/s Kailash Auto Finance Ltd. in pursuant to the scheme of amalgamation established the fact that the assessee was already holding the equal number of shares in the erstwhile companies namely M/s Careful Projects Advisory Ltd. and M/s

Panchshul Marketing Ltd. Thus the holding of shares by the assessee and allotment of shares of M/s Kailash Auto Finance Ltd. are the material facts emerging from the records, which cannot be disputed. The allotment of shares of M/s Kailash Auto Finance Ltd. itself is a proof of holding of shares by the assessee in the erstwhile companies which got amalgamated into new entity. Hence, all these facts go to prove beyond any doubt that the assessee was holding the shares in question and the payment of consideration

22 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur was duly made through banking channel, which is also not in dispute. The Assessing Officer has treated the transaction as bogus only on the basis of the statements recorded by the Investigation

Wing, Kolkata, however, even if those statements are considered and taken into account, it cannot lead to the conclusion or establish the fact that the assessee was part of the said racket of providing accommodation entries of bogus capital gain.”

We further note that this Tribunal has also considered the similar issue in the case of Shri Pramod Jain Vs DCIT (supra) and Shri

Meghraj Singh Shekhawat Vs DCIT (Supra). In the case of Shri

Meghraj Singh Shekhawat Vs DCIT (supra), the Tribunal vide order dated 07/3/2018 has held in para 5 and 6 as under:-

“5. We have considered the rival submissions as well as relevant material on record. The assessee has produced record of allotment of 3,50,000 equity shares of M/s Rutron International Ltd. under preferential issue at par of face value of Rs. 10/- each vide allotment letter dated 08.03.2012. The Assessing Officer has not disputed the genuineness of the letter of allotment issued by the company to the assessee wherein it has been communicated that the assessee has been allotted 3,50,000 equity shares vide allotment letter dated 08.03.2012 against the application of the assessee at par of face value of Rs. 10/- each without any premium. The assessee has also produced the bank statement showing the payment of consideration of the acquisition of shares on 29.02.2012. It appears that the said payment was made by the assessee at the time of 23 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur applying for allotment of shares and subsequently the shares were allotted by the company on 01.03.2012. Thus, it is clear that the shares acquired by the assessee is not a trading transaction but these were allotted directly by the company under the preferential issue and hence, the role of intermediate is ruled out. Once, the shares were directly allotted by the company M/s Rutron International Ltd. against the consideration paid by the assessee through cheque. Then the role of any intermediately particular of Shri Anil Agrawal is said allotment does not appear from any of the record. Even as per the statement as reproduced by the Assessing Officer in the assessment order Shri Anil Agrawal has stated that he is having business nexus with the companies including M/s Rutron International Ltd. The department put a question about the association with as many as 13 companies and in response to that he has accepted that he is having business nexus with these companies including M/s Rutron International Ltd. The nature of service was also explained by Shri Anil Agrawal as the consultancy services. For ready reference we quote question No. 4 and 5 and answer, thereto in the statement of Shri Anil Agarwal as reproduced as under:- Q 4. Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the following companies or have ever had any business transactions with the companies as mentioned below:

24 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

12. SRK Industries Ltd.

13. Dhenu Buildcon Infra ltd.

Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction 1. First Financial Services Ltd. Brokerage and Consultancy Services 2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services 3. Fact Enterprises Ltd Broking as well as share holding 4. Rutron International Ltd. Consultancy Services 5. D.B. (International) Stock Consultancy Services Brokers Ltd.

6. Unisys Software & Holding Broking Services Industries ltd.

Apart from the above mentioned companies neither I nor M/s Comfort Securities Ltd. has any business nexus with the companies mentioned supra. Q5. Do you know the promoters and directors of the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the promoters and directors of the above said companies or have ever had any business transactions with the promoters and directors of the above said companies.

Ans. Sir, I know some of the directors of the First Financial Services Limited, Splash Media & Infra Services Ltd, Rutron International Limited and FACT enterprise Ltd. Regarding other companies I am not aware who are the directors of these companies.”

Thus, it is clear from the relevant part of statement of Shri Anil Agrawal as reproduced by the AO that he has stated having business nexus with these companies and nature of business being consultancy services. Hence, he has not stated anything about providing bogus long term capital gain in respect of the equity shares of M/s Rutron International Ltd. A business nexus with any company will not automatically lead to the conclusion that the shares allotted by the other company is bogus

25 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur transaction. As per question no. 5 and answer thereto it is clear that Shri Anil Agrawal was not the Director of M/s Rutron International Ltd. but he has stated to know some of the directors of these companies including M/s Rutron International Ltd. Hence, from this relevant part of the statement of Shri Anil Agrawal it cannot be inferred that he has provided the bogus long term capital gain from purchase and shares of equity shares of M/s Rutron International Ltd. much less the specific transaction of preferential issue allotment of shares by the company itself to the assessee. Further, though he has explained the modus oprendi of providing bogus long term capital gain entries in the equity shares however, when the transaction was not routed through Shri Anil Agrawal and the shares were allotted directly by the company to the assessee at par on face value then the same cannot be considered as a penny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D-mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general

26 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. Further, Shir Anil Agrawal was not a director of M/s Rutron International Ltd. as perceived by the AO and therefore, the entire finding of the AO is without any corroborative evidence or tangible material.

6. The assessee has specifically demanded the cross examined to Shri Anil Agrawal which was denied by the AO as under :-

“(ii) The assessee’s pleas that effective opportunity may be provided to cross examination. In this regard, it is pointed out that the Hon’ble Supreme Court in the case of C.Vasantlal & Co. v/s CIT 45 ITR 206 (SC) (3 Judge Bench) has observed that “the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by Private enquiry.”

Thus, in view of the decision of Hon’ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) the assessment based on statement without giving an opportunity is not sustainable in law. We further note that the assessee produced copy of affidavit of Shri Anil Agrawal who has retracted his statement before the Investigation Wing, Kolkata however, without going into controversy of the retraction of the statement we find that the statement cannot be used by the AO without giving an opportunity to cross examination of Shri Anil Agrawal. The Coordinate Bench of this Tribunal in case of Pramod Jain and Others vs. DCIT (supra) whole dealing with an identical issue as held in para 6 to 8 as under:- “6. We have considered the rival submissions as well as relevant material on record. The assessee purchases 800 equity shares M/s Gravity Barter Ltd. for a consideration of Rs. 4 lacs the assessee has produced the purchase bill of the shares purchase from M/s Winall Vinimay Pvt. Ltd. which shows that the assessee purchase 800 equity shares having face value of Rs. 10/- each M/s Gravity Barter Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of 27 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon’ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon’ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be doubted because of the reasons that the shares of M/s Oasis Cine Communication Ltd. could be allotted only in exchange of shares of M/s Gravity Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment of shares M/s Oasis Cine Communication Ltd. are directly interconnected. In the absence of holding of shares M/s Gravity Barter Ltd. the shares of the M/s Oasis Cine Communication Ltd. could not be issued or allotted to the assessee. Therefore, holding of the shares by the assessee at least at time of amalgamation took place and shares of the M/s Oasis Cine Communication Ltd. on 04.02.2012 cannot be doubted. Moreover, these shares were dematerialized by the assessee in the Demat account, therefore, on the date of allotment of share of M/s Oasis Cine Communication Ltd the 28 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur assessee was holding these shares and prior to that the assessee was holding the shares of M/s Gravity Barter Ltd. on exchange of the same the shares of M/s Oasis Cine Communication Ltd. were issued to the assessee. The Assessing Officer has doubted the genuineness of the transactions however, once the holding of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee.

7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share

29 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot be treated as a bogus transaction. Nobody can have the shares in his own name in demant account without acquiring or allotment through due process hence, except the purchase consideration paid by the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon’ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee.

“3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before

30 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards.

It is manifest from the assessee’s reply to show cause notice that the assessee had specifically demanded the cross examination of Shri Deepak Patwari however, the Assessing Officer did not offer the opportunity to the assessee to cross examine Shri Deepak Patwari. Further, the AO asked the assessee to produce the Principal Officers of the M/s Gravity Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the Assessing Officer wanted to examine the principal Officers of those companies he was having the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon’ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:

“5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue.

31 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the 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 17.03.2005 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.

8. 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.”

32 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:-

“46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee- company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to 33 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee.”

Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:-

“12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:-

"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed.

Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie

34 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA- 385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant."

In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be 35 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur held as bogus. Accordingly we delete the addition made by the AO on this account.”

Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon’ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon’ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. We find that the ld. CIT(A) has also referred to SEBI enquiry against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding financial irregularities and use of fund belonging to the clients for the purpose other than, the purchase of shares on behalf of the clients. Therefore, the subject matter of the enquiry

36 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur has no connection with the transaction of bogus long term capital gain. The decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account.

Therefore, on analyzing of the facts as well as the evidence produced by the assessee, we find that the Assessing Officer has not brought any material on record to controvert the fact duly established by the supporting evidence of purchase bills, payment of consideration through bank, dematerialization of shares in the DEMAT account, allotment of the shares amalgamated new entity in lieu of the earlier two companies of equal number of shares. Sale of shares from the DEMAT account through stock exchange and at the prevailing price as on the date of sale and further payment of STT on the transaction of sale has been duly established. In absence of any contrary fact, the mere reliance by the Assessing Officer on the report of Investigation Wing, Kolkata is not sufficient to establish the fact that the transaction is bogus. The finding of the Assessing Officer is based merely on the suspicion and surmises without any tangible material to show that the assessee has introduced his own unaccounted income in the share of long term capital gain even otherwise the reliance of the statements recorded by the Investigation Wing, Kolkata wherein without giving an opportunity of cross examination is a complete violation of principles of natural justice as held by the Hon'ble Supreme Court in the case of CCE Vs Andaman Timber Industries

37 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

(Supra). The Coordinate Bench has also followed the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs. Pooja Agarwal order dated 11/09/2017 wherein the Hon'ble High Court has duly considered the fact that the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account. Therefore, in absence of any evidence, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Accordingly, in view of above facts and circumstances, we do not find any error or illegality in the order of the ld. CIT(A) qua this issue. Hence, this ground of revenue’s appeal is dismissed.”

38 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur wherein the Hon'ble High Court has also upheld the finding of the ld. CIT (A) and this Tribunal when the assessee produced all the relevant details and evidence in support of the transaction of purchase and sale of shares.

The ratio and findings of the aforesaid decision squarely applies in the instant case where the assessee produced all the relevant details and evidence in support of the transaction of purchase and sale of shares and where the said statement of a third person relied upon by the AO was not provided to the assessee inspite of specific request and the assessee came to know of the contents of the said statement only on receipt of the assessment order which is a complete violation of principal of natural justice.

“5. We have considered the rival submissions as well as the relevant material on record. The AO has doubted the transactions of purchase and sale of shares by the assessee of M/s. PSIT Infra based on the investigation carried out by the DDIT Kolkata and Delhi wherein certain

39 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur persons were found indulged in providing accommodation entries, inter- alia bogus Long Term Capital Gains which is claimed as exempt under section 10(38) of the IT Act by the beneficiaries in order to facilitate the beneficiaries to convert their black money into white without paying

Income-tax. The AO has narrated the modus operandi of various entry providers which is a general statement so far as the indulgence of certain persons in providing the accommodation entry of bogus long term capital gains as well as other transactions. However, in the said narration of modus operandi there is nothing against the particular transaction of purchase and sale of shares by the assessee. The AO has specifically mentioned that during the course of enquiry in certain cases it has come to light that large scale manipulation has been done in the market price of shares of certain companies listed on Stock Exchange by a group of persons working as a syndicate for the purpose of providing entry of tax exempt bogus long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observation of the AO in the assessment order cannot constitute any tangible material or evidence to show that the transaction of the assessee is bogus being an accommodation entry. The AO in the show cause notice though referred various names, who has operated as entry providers/brokers, however, neither any documentary reference is made in the show cause notice or any such reference is made in the finding of the AO while holding the 40 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur transaction as bogus by availing the accommodation entry of long term capital gain. The AO has either discussed the modus operandi of entry providers or the judgments on the issue but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing the accommodation entry of bogus long term capital gain. There is no dispute that once the assessee has claimed the long term capital gain from purchase and sale of shares which is exempt under section 10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that in the case in hand this is not an isolated transaction of purchase and sale of shares by the assessee of M/s. PSIT Infra but the assessee has been regularly purchasing and selling of the shares as it is evident from the details of purchase and sale of shares by the assessee. The assessee has even annexed the details of the holding of various shares to the financial statements as on 31st March, 2014 as under:-

Thus as on 31st March, 2014 the assessee was holding the shares of about 40 companies which include M/s. PSIT Infrastructure and Services of 6,500 shares. We find that the assessee has duly reflected all these shares in the Balance Sheet of the assessee as on 31st March, 2014 and the return of income for the assessment year 2014-15 was also filed in time before the date of sale of the shares in the month of December,

41 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

2014. Thus it is clear that 6,500 shares acquired by the assessee on 08.08.2013 were reflected in the Balance Sheet as on 31st March, 2014.

We further note that the assessee produced the copy of purchase bill of these shares along with the bank statement showing the purchase consideration paid by the assessee through cheque. The bank account of the assessee has reflected the payment of Rs. 2,60,000/- for purchase of shares. The AO has not disputed that subsequently there were events of amalgamation of the company with M/s. Parag Shilpa Investments Ltd. and thereafter the shares were split from 1 share of Rs. 10/- each to 10 shares of Rs. 1/- each and consequently the assessee was allotted

65,000 shares as against 6,500 shares originally acquired. The shares acquired by the assessee are duly reflected in the Demat account of the assessee. Once the shares are dematerialized and credited in the Demat account of the assessee, the holding of the shares by the assessee cannot be disputed. It is also not in dispute that out of 65,000 shares held in the Demat account of the assessee, only 38,300 shares were sold during the year under consideration in 3 lots i.e. 1st lot of 5300 shares were sold on 1st December, 2014, 2nd lot of 27,000 shares were sold on 5th December, 2014 and 3rd lot of 6000 shares were sold on 19th March,

2015. Therefore, the assessee is still holding 26,700 shares of M/s. PSIT

Infra in his Demat account. The AO has treated the transaction of sale of 38,300 shares as bogus being accommodation entry but has not doubted

42 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur the holding of the shares by the assessee to the tune of 26,700 shares in the Demat account of the assessee. Once the assessee has produced all the supporting evidences which include purchase bill, bank statement showing the payment of purchase consideration, Demat account, holding of shares in the Demat account, sale of the shares through Stock

Exchange which are also reflected in the Demat account of the assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account, statement of the assessee, then in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. The ld. D/R has relied upon the decision of Hon’ble Delhi High Court in case of Suman Poddar vs. ITO (supra) wherein the Hon’ble High Court has confirmed the finding of the Tribunal and finally observed in para 8 as under :-

43 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur

“ 8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in fact identified by the Bombay Stock Exchange as a penny stock being used for obtaining bogus Long Term Capital Gain. No evidence of actual sale except the contract notes issued by the share broker were produced by the assessee. No question of law, therefore arises in the present case and the consistent finding of fact returned against the Appellant are based on evidence on record.”

Thus it is clear that in the said case the Tribunal’s finding is based on the fact that no evidence of actual sale except the contract notes issued by the share broker was produced by the assessee. In those facts, the Hon’ble High Court has held that no question of law arises in the said case. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise independently verifiable being the documents in the shape of bank statement, Demat account, books of account and bills for which the assessee has no control or say, therefore, the said evidence cannot be 44 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur manipulated by the assessee. Once the evidence produced by the assessee is not prepared or beyond the scope of any manipulation by the assessee, then the assessee has discharged his onus to prove the transaction of purchase and sale of shares and consequential capital gain. As we have already mentioned that this is not an isolated transaction of purchase and sale of shares in single scrip, but the assessee has been holding the shares of 40 companies out of which the AO has doubted only one scrip. Thus the decision of Hon’ble Delhi High

Court will not help the case of the department.”

45 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain.

Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record. Accordingly, in view of the facts and circumstances as discussed above, when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. Therefore, all these facts established the genuineness of the transaction. Hence we do not find any error in assessee’s claim of exemption of long term capital gains and the addition made by the AO under section 68 of the IT Act by treating the Long Term Capital Gain on sale of shares as unexplained cash credit is hereby directed to be deleted. The matter is accordingly decided in favour of the 46 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur assessee and against the Revenue. In the result, the ground no.1 is allowed.

47 ITA 223 & 222/JP/2020_ Nilesh Agarwal HUF, Jaipur Vs ITO, Jaipur contentions raised therein may be considered. Therefore, considering the admitted position that there are no changes in the facts and circumstances, our findings and directions contained in shall apply mutatis mutandis to this appeal matter and the appeal of the assessee is allowed.

Order pronounced in the open Court on 09/02/2021