DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3, JAIPUR vs. SHRI GHANSHYAM AGRAWAL, JAIPUR

PER VIJAY PAL RAO, J.M. This appeal by the revenue is directed against the order dated 4th January, 2019 of ld. CIT (Appeals), Kota for the assessment year 2014-15. The revenue has raised the following grounds of appeal :-

“ 1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT (A) was justified in deleting the addition made by the AO completely ignoring the facts brought on record by the Investigation Wing of the department wherein it is revealed that through a well thought out planning of the entry providers undeclared income of the assessee has been routed in books of accounts through a set-of colorable action giving the color of the genuineness of bogus transaction ?

The appellant craves the right to amend alter or add to any of the grounds of appeal given above. “

therefore, the ground no. 2 of the revenue’s appeal is irrelevant and non est and,

therefore, the same is dismissed as not arising from the facts of the present case

and impugned order.

Ground No. 1 is regarding the addition made by the AO in respect of long term capital gain declared by the assessee on sale of shares of M/s.

Trinity Tradelink Limited treating the same as bogus transaction which was deleted by the ld. CIT (Appeals).

declaring total income of Rs. 21,09,000/-. The assessee has also declared long term

capital gain of Rs. 1,48,50,672/- on sale of shares of M/s. Trinity Tradelink Ltd and claimed the same as exempt under section 10(38) of the IT Act. During the scrutiny

assessment, the AO issued a show cause notice to the assessee as to why in view of search and seizure action carried out by the department in cases of different entities which has resulted unearthing of huge long term capital gain scam involving

syndicate of operators providing bogus accommodation entries, the capital gains

declared by the assessee shall not be treated as bogus transaction. The AO has also made reference to the statement of one Shri Vikrant Kayan recorded under section 133A on 09.06.2014 by the Investigation Wing, Kolkata and pointed out that Shri

Vikrant Kayan has admitted his involvement in providing accommodation entries to different parties through various entities and shares of various companies including

M/s. Trinity Tradelink Ltd. The assessee contested the show cause notice and submitted before the AO that it has purchased the shares of M/s. Trinity Tradelink

Ltd. prior to its merger with M/s. Omnitech Petroleum Ltd. formerly known as Sharp

Trading & Finance Ltd. which was a listed company and, therefore, the shares of M/s. Trinity Tradelink Ltd. purchased by the assessee were prior to the listing of the said company in the said name. The assessee produced the relevant record in support of the claim that the assessee has purchased the shares against the consideration through the Brokers Note/Bill and also produced the Demat Account to show that the shares were dematerialized in the Demat Account of the assessee and sold from the Demat Account. Thus on the basis of various documents the assessee

contended that the transaction of purchase and sale of shares are genuine. The AO

did not accept the contention of the assessee and treated the transaction as bogus

and consequently made the addition of Rs. 1,48,50,672/- under section 68 as unexplained cash credit. The AO has also made the addition of notional commission

@ 6% of the said amount which comes to Rs. 9,00,340/-. The assessee challenged

the action of the AO before the ld. CIT (A) that the assessee has produced all relevant supporting evidences to show that the purchase and sale transaction is genuine. The purchase consideration was paid as acknowledged by the broker and the transaction also suffered STT, therefore, the assessee discharged the initial

burden of prove by producing the document which was not found to be false or fabricated by the AO. The assessee also relied on a series of decisions on this point.

The ld. CIT (A) accepted the claim of the assessee and deleted the addition made by the AO.

2014 for a total consideration of Rs. 1,50,05,672/- resulting long term capital gain of Rs. 1,48,50,672/-. Thus there is an unbelievable spurt in the sale price within a short period of one year which clearly shows that it is not a normal genuine

transaction of purchase and sale of shares but the assessee has availed the bogus

entries of long term capital gain from the persons who were involved in providing

these bogus entries against cash. Therefore, the assessee’s own unaccounted

income has been routed back in the form of exempt income under section 10(38) of the Act. The ld. D/R has referred to the assessment order and submitted that the AO has referred the statement of one Shri Vikrant Kayan recorded by the department at Kolkata during the survey conducted on 09.06.2014. In his statement

Shri Vikrant Kayan clearly explained the modus operandi of providing the accommodation entries of bogus bill, share capital, long term capital gain etc. He

has also given the names of various concerns which were managed and the accommodation entries in the shares of those concerns were being provided. Thus

M/s. Trinity Tradelink Ltd. is one of the entities as admitted by Shri Vikrant Kayan, shares of which the assessee has claimed to have purchased and sold. The ld. D/R

has also referred to the price chart of the shares of M/s. Trinity Tradelink Ltd. as reproduced by the AO and submitted that how the assessee can purchase a share at the price of Rs. 10/- each when the same was sold around about Rs. 1,000/- each

within a short period of one year. Therefore, having regard to the surrounding

circumstances as well as outcome of the investigation conducted by the department

at different places, the AO has established the fact that the transaction of purchase

and sale of shares by the assessee of M/s. Trinity Tradelink Ltd. is a bogus

transaction being accommodation entry of long term capital gain which is claimed as exempt. Thus the assessee’s own unaccounted income has been routed back in the shape of long term capital gain which is exempt. He has relied upon the order of the AO. The ld. D/R has also relied upon the decision of Hon’ble Delhi High Court dated 8th March, 2019 in case of Udit Kalra vs. ITO in ITA No. 220/2019 & CM No.

10774/2019 wherein the Hon’ble High Court has dismissed the appeal filed by the assessee against the decision of the Tribunal holding that the claim of long term

capital gain in shares of M/s. Kappac Pharma Ltd. is found to be bogus. The ld. D/R has also relied upon the decision of Hon’ble Bombay High Court dated 10th April,

2017 in case of Sanjay Bimalchand Jain vs. PCIT in ITA No. 18/2017. Thus the ld.

D/R has submitted that in both the cases the finding of the Tribunal has been upheld

by the Hon’ble High Courts which shows that the claim of long term capital gain

exempt under section 10(38) was not found to be genuine.

investing in the shares of various companies as evident from the Demat Account of the assessee. He has pointed out that the assessee purchased the shares of M/s.

Trinity Tradelink Ltd. from M/s. Amarkantak Procon Pvt. Ltd. @ Rs. 10/- per share

against the purchase consideration paid vide account payee cheque no. 788408 on 31st October, 2012. The ld. A/R has referred to the share certificate transferred in the name of the assessee as well as the application for Demat. He has referred the Demat account of the assessee and submitted that the shares were reflected in the Demat account and sold through Stock Exchange from the Demat account of the assessee after paying STT. Therefore, the holding of the shares in the Demat

Account of the assessee cannot be disputed. Similarly, the sale of shares from Demat Account through Stock Exchange is also not in dispute. The AO has doubted

the transaction only on the basis of the information received from the Investigation

Wing Kolkata. However, there is nothing in the said report against the assessee.

Thus the finding of the AO is based only on suspicion without bringing any evidence

to show that the assessee’s own unaccounted income has been routed back in the shape of long term capital gain. The ld. A/R has further submitted that the company

M/s. Trinity Tradelink Ltd was earlier a private limited company and subsequently it was converted into a public limited company. After the shares purchased by the assessee, the said company was amalgamated with one M/s. Omnitech Petroleum

Ltd. (formerly known as Sharp Trading & Finance Ltd.) vide approval of amalgamation by the Hon’ble Bombay High Court dated 10th January, 2014 with effect from 01.04.2012. The ld. A/R has referred to the decision of Hon’ble High

Court and submitted that the transferor company was incorporated as private limited company with the name M/s. Trinity Tradelink on 1st May, 2007. Thereafter the said

company was converted into public limited company and accordingly the name of the company was changed to M/s. Trinity Tradelink Ltd. with effect from 23rd December, 2011. The transferee company was incorporated as M/s. Sharp Trading & Finance Ltd. on 30th March, 1985 as a public limited company. Thereafter, the name

of the company was changed from M/s. Sharp Trading & Finance Ltd. to M/s. Omnitech Petroleum Ltd. on 19th April, 2011. On amalgamation of M/s. Trinity

Tradelink Ltd. with M/s. Omnitech Petroleum Ltd. the shares of transferee company

were issued in the ratio of 1:1 to the shareholders of transferor company. Thus the assessee received the equal number of shares of M/s. Omnitech Petroleum Ltd. in lieu of the shares of M/s. Trinity Tradelink Ltd. by virtue of amalgamation. The ld.

A/R then pointed out that the name of M/s. Omnitech Petroleum Ltd. was again

changed to M/s. Trinity Tradelink Ltd. Thus the company M/s. Trinity Tradelink Ltd.

whose shares were purchased by the assessee is a different company than a company M/s. Omnitech Petroleum Ltd. changed its name to M/s. Trinity Tradelink

Ltd. He has referred the ISIN Number of these two companies which are different

and, therefore, the AO has considered share price of M/s. Trinity Tradelink Ltd. post

amalgamation and not the pre-amalgamation company whose shares were purchased by the assessee. After the amalgamation and change of name, the entire

records on Stock Exchange as well as ISIN Database is showing the name of one

company, therefore, the share price referred by the AO in the assessment order was in respect of M/s. Sharp Trading & Finance Ltd. name of which was changed to M/s.

Omnitech Petroleum Ltd. but after amalgamation the name was again changed to M/s. Trinity Tradelink Ltd. Therefore, the database in the stock exchange as well as ISIN are available only in the name of M/s. Trinity Tradelink Ltd. Once the assessee The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable

factors in his side. Thus in the absence of any material or direct evidence brought

on record by the AO to show that the assessee introduced his own unaccounted

income by way of bogus long term capital gain, the treatment of long term capital

gain as bogus is not sustainable in law. He has also relied upon the decision of Hon’ble Jurisdictional High Court dated 11.09.2017 in case of CIT vs. Pooja Agarwal

in DB IT Appeal No.385/2011. He has also relied upon the order of this Tribunal dated 31st January, 2018 in case of Shri Pramod Jain vs. DCIT in ITA No.

368/JP/2017. The ld. A/R has referred a series of decisions of this Tribunal as well

as Coordinate Benches of the Tribunal wherein the long term capital gain treated as bogus accommodation transaction by the AO has been held as genuine transaction

as the assessee has produced all the supporting evidences.

10/- each for a total consideration of Rs. 2,00,000/-. The assessee has produced the share certificate of the shares whereby the shares were initially issued in the name of M/s. Amarkantak Procon Pvt. Ltd. and were transferred in the name of the assessee vide endorsement dated 31st October, 2012. As per the sale bill dated

in the bank account of the assessee and, therefore, the said evidence which can be independently verified cannot be disputed in the absence of any material brought on record to show that the payment was not in respect of purchase of shares but for some other transaction. The assessee has produced the sale bill, certificate of transfer of shares in the name of the assessee. These documents along with the bank statement of the assessee clearly established the fact that the assessee has made the payment of purchase consideration through banking channel on 31st

October, 2012. Once the payment of consideration is not in dispute and shares

were transferred in the name of the assessee as reflected in the Demat Account of the assessee, then the assessee has established the purchase of the shares and holding in the Demat Account since 31st October, 2012. The assessee is having

Demat Account with IDBI Bank and on perusal of the Demat Account it revealed that the assessee has been a regular trader/investor in the shares of various companies

including various public sector undertakings. Thus it is not an isolated transaction

but it is one of the hundreds of transactions in the Demat Account of the assessee.

Out of these 20,000 shares, the assessee has sold 15,500 shares after one year

whereas the balance 4500 shares were sold prior to one year and offered short term

capital gain to tax which has not been disputed by the AO. Thus out of a lot of 20,000 shares of M/s. Trinity Tradelink Ltd., the shares sold by the assessee prior to one year were not disputed by the AO as the short term capital gain was offered to tax by the assessee. The AO has disputed the transaction of purchase and sale only

to the extent of the shares which were sold after one year and thereby the assessee

claimed long term capital gain as exempt under section 10(38) of the IT Act. We

further note that the AO has given the details of the prevailing price of shares of M/s. Trinity Tradelink Ltd. at Stock Exchange in the years 2012, 2013 and 2014. However, it is pertinent to note that the assessee purchased the shares of M/s.

Trinity Tradelink Ltd. which was not listed in the Stock Exchange in the year 2012

but only after amalgamation of the said company with M/s. Omnitech Petroleum Ltd.

(formerly known as Sharp Trading & Finance Ltd.) as per the approval of amalgamation by the Hon’ble Bombay High Court vide decision dated 10th January,

2014, the amalgamated company shares got listed by virtue of amalgamation. At the time of amalgamation, M/s. Trinity Tradelink Ltd. amalgamated in M/s. Omnitech

Petroleum Ltd. but subsequently the said company also changed its name to M/s.

Trinity Tradelink Ltd. which has resulted this confusion of prevailing share price in the Stock Exchange in the years 2012 to 2014. Thus we find that the said

comparison of the AO of the prevailing price in the year 2012 with the price of the shares of amalgamated company in the year 2014 is misconceived. The AO has not conducted any independent enquiry or investigation to verify the genuineness of the transaction but has referred the investigation conducted by the department and a report received by the AO. It is pertinent to note that the said report as referred by the AO and reproduced in the assessment order is nothing but a narration of modus

operandi of the various entry operators involved in providing the bogus accommodation entries of long term capital gain, etc. The statement as referred by the AO of Shri Vikrant Kayan recorded under section 133A on 09.06.2014 is subsequent to the sale of shares by the assessee and, therefore the said statement

does not refer to the transaction of shares of M/s. Trinity Tradelink Ltd. prior to its amalgamation and listing. The said statement at the most can relate to the transaction after the amalgamation of the unlisted company with M/s. Omnitech

Petroleum Ltd. and subsequently changing the same to M/s. Trinity Tradelink Ltd. as a listed company. Therefore, the transaction of alleged accommodation entry stated

by Shri Vikrant Kayan prima facie relates to the company after the amalgamation

and change of name which is a listed company whereas the assessee has purchased

the shares of an unlisted company, namely M/s. Trinity Tradelink Ltd. Further, the question no. 8 was very specific and in answer to the said question, Shri Vikrant

Kayan has stated as reproduced by the AO at page 8 of the assessment order as under :-

“ Q.

Ans. Sir, I have provided accommodation entry in the form of bogus billing to many companies, some of them are Binani Cement Ltd., Binani Zinc Ltd., Merit Plaza Pvt. Ltd., Vansudhara Infra Developers Pvt. Ltd., Swis Mercantile Pvt. Ltd., Consumer Marketing India Pvt. Ltd., PAESS Industrial Engineers Ltd., Darashaw & Co. Pvt. Ltd. and Voltas Ltd.”

Thus in response to the question to tell the names of the parties to whom he

provided bogus billing, he replied the names of various parties and, therefore, there

is no allegation against the assessee or the assessee’s partnership firm by Shri

Vikrant Kayan. The AO based on the report of investigation and the statement has treated the transaction as bogus whereas the assessee produced all the relevant

direct evidences to establish the purchase of shares by paying the purchase

consideration through banking channel. The evidence produced by the assessee is independently verifiable as the bank account wherein the payment is reflected

cannot be manipulated by the assessee. Further the shares were dematerialized and holding of the shares in the Demat Account is also independently verifiable and cannot be disputed in the absence of any contrary material to show that the Demat

Account produced by the assessee itself is bogus. We further note that this is not a case of purchase of penny stock of a company and within a short period there is an unprecedented hike in the sale price of the shares, but in case the assessee

purchased the shares of unlisted company which was subsequently amalgamated

with a listed company and, therefore, the value of the amalgamated entity is certainly very higher than the value of share of unlisted company though there can

be a question about the sweep ratio of the shares. However, the same has not been doubted by any authority and the scheme of amalgamation was duly approved by the Hon’ble High Court. Thus there is an extraordinary event in this case of amalgamation of unlisted company with a listed company and consequently there is a sudden increase in the price of the shares of amalgamated entity. The ld. D/R has relied upon the decisions of Hon’ble Delhi High Court as well as Hon’ble Bombay

High Court. In case of Udit Kalra vs. ITO (supra), the shares of one M/s. Kappac

Pharma Ltd. were purchased by the assessee at Rs. 12/- per share which was sold

subsequently at Rs. 720/-. In the said case there was no extraordinary event of amalgamation and it was a transaction in the shares of a company which has no connection with the shares of company in hand. As regards the decision of Hon’ble Bombay High Court in case of Sanjay Bimalchand Jain vs. PCIT (supra), the Tribunal

has confirmed the orders of the authorities below on the basis of specific facts that the purchase consideration was claimed to have been paid in cash for purchase of penny stock @ Rs. 5.50 per share and Rs. 4/- per share of two companies and subsequently those shares were sold @ 486.55 and Rs. 485.65 per share of each

company. Therefore, when the transactions were found dubious and not proved by any tangible evidence, then the said decision will not help the case of the revenue.

On the contrary, we note that this Tribunal as well as the Hon’ble Jurisdictional High

Court has considered this issue in various decisions. In case of Shri Pramod Jain vs.

DCIT (supra), the Tribunal has considered an identical issue 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 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