MANORAMA DEVI SHARMA,INDORE vs. ITO-3(1), INDORE

& 25.01.2019 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 22.12.2016, framed by ACIT-3(1) & ACIT-4(1), Indore.

Following grounds of appeal in ITANo.39/Ind/2019(Manorama Devi Sharma):-

“1. That the order passed by Ld. CIT(A) is arbitrary, bad in law and on facts.

3. That the ld. CIT(A) has erred in considering the script from which the assessee has earned Long Term Capital Gain as “Penny Stock”, a term nowhere define under the Income Tax Act as any other law for the time being in force, which is quite unjust, illegal and against the facts of the case. 2

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019,

4. That the ld. CIT(A) has erred in confirming the disallowance of claim of assessee of exempted LTCG based on information/statement gathered by investigation wing of the department, without any opportunity to cross examine such persons and without providing such documents for assessee’s comments, which is quite unjust, illegal and against the facts of the case.

5. That the ld. CIT(A) has erred in confirming the disallowing of claim of exempted income based on wrong analysis of the financial and prices of the shares, which is quite unjust illegal and against the facts of the case. 6. That the ld. CIT(A) has erred in in mentioning the fact that Ld. AO has tried to conduct inquires during assessment proceedings, in confirming disallowance, whereas no such inquiries have been carried out, which is quite unjust illegal and against the facts of the case. 7. That the Ld. CIT(A) has erred in mentioning the fact without any evidence that the assessee has collusion with brokers to earn LTCG, which is quite unjust illegal and against the facts of the case. 8. That the Ld. CIT(A) has erred in concluding that the purchases have been made in cash which is quite unjust illegal and against the facts of the case. 9. The Ld. CIT(A) has erred in mentioning that the company, in shares of which the assessee has dealt, has not business or turnover, which is quite unjust illegal and against the facts of the case. 10. The Ld. CIT(A) has erred in ignoring the fact that the 2 companies were merged by the order of the Hon'ble Bombay High Court by considering the company as bogus, which is quite unjust illegal and against the facts of the case. 11. The ld. CIT(A) has erred by ignoring the various judgments quoted by the assessee, which is quite unjust illegal and against the facts of the case. 12. The Ld. CIT(A) has erred in confirming the addition of Rs.89,230/- under section 69C, without any evidence against the assessee which is quite unjust illegal and against the facts of the case. 13. Appellant craves to leave, add, amend, alter or modify of any grounds before final date of hearing.

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, Following grounds of appeal in ITANo.489/Ind/2019 (Shri Pratap Bajaj):-

1. That the Ld. CIT(A) has erred in confirming the addition made by Ld. AO by treating Long Term Capital Gain as bogus only on the basis of presumptions and doubts which quite just illegal and against the facts of the case.

2. That the Ld. CIT(A) has erred in confirming the addition made by Ld. AO by relying on the reports of some department authorities, which are not even mentioning the name of the appellant and not even confronted with the appellant which is quite unjust illegal against the facts of the case. 3. That the Ld. CIT(A) has erred in confirming the addition made by Ld. AO without appreciating the relevant documents which were produced before the ld. AO in support of genuine Long Term Capital Gain. 4. That the Ld. CIT(A) has erred in confirming the addition made by Ld. AO considering the same as Sham Transaction without any evidence against the appellant, which quite just illegal and against the facts of the case. 5. That the Ld. CIT(A) has erred in confirming the addition made by Ld. AO even when the transactions are done through proper banking channel and recognized stock exchange which quite just illegal and against the facts of the case. 6. Appellant craves to leave, add, amend, alter or modify of any ground before final date of hearing. 2. At the outset, Ld. Counsel for the assessee submitted that the common issue raised in the instant two appeals is against the finding of Ld. CIT(A) confirming the action of Ld. Assessing Officer denying the benefit of exemption u/s 10(38) of the Act for the Long Term Capital Gain earned by the assessee from sale of equity shares of listed company. Ld. Counsel for the assessee further

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, submitted that in the case of Pratap Bajaj, Long Term Capital Gain of Rs. 28,92,830/- and in the case of Manorama Devi Sharma of Rs. 28,24,342/-arose from sale of equity shares of Sunrise Asian Limited ( in short ‘SAL’). He also submitted that originally the assessee(s) purchased the shares of M/s.Conart Traders Ltd. but subsequently, M/s.Conart Traders Ltd. was merged with Sunrise Asian Limited (SAL), pursuant to order of Hon’ble Bombay High Court.Both the assessee(s) held the shares for more than 12 months and sold them during the year under appeal through recognized stock exchange and claimed the exemption u/s 10(38) of the Act.

Ld. AO further referring to some investigation carried out at Kolkata in the case of some brokers and other related persons alleged SAL as a penny stock company and observed that the assessee managed to take accommodation entry in the form of LTCG in order to claim

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, the benefit of exemption u/s 10(38) of the Act and avoid tax liabliity. Ld. Assessing Officer thus denied the exemption and made the addition of the alleged amount to the income of the respective assessee(s).

7. We have heard the rival contentions and perused the records placed before us and carefully gone through the submissions made by both sides. Common issue challenged in the instant two appeals is the denial of claim of exemption u/s 10(38) of the Act of the Long Term Capital Gain from sale of equity share of listed company namely M/s. Sunrise Asian Limited.

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019,

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, into accounted money in the form of bogus LTCG. Ld. A.O also took statement of the assessee and came to the conclusion that the assessee had no knowledge about the company. He concluded the assessment observing that M/s SAL is a penny stock company and the alleged transaction of earning LTCG is bogus and sham and the alleged LTCG is liable to be added as unaccounted cash credit u/s 68 of the Act and accordingly he added Rs.28,47,833/- and denied the benefit of exemption u/s 10(38) of the Act at Rs.28,47,833/- and also made addition for estimated brokerage expenses of Rs.89,935/- for arranging bogus LTCG. Income assessed at Rs.45,17,920/-

8. Aggrieved assessee preferred appeal before Ld. CIT(A) against the addition made u/s 68 of the Act at Rs.28,47,833/-and addition of brokerage expenses at Rs.89,935/-. Again complete details of purchase and sales were filed along with the Demat account and bank statement. However, Ld. CIT(A) was not satisfied and he confirmed the view taken by Ld. A.O observing that the assessee is indulged in arranging bogus LTCG, the appellant had made investment through the derecognised broker and have earned excessive return within a short span of time which is extremely unfair. Placing reliance on the decisions Ld. CIT(A) held that the transactions of sale of equity shares giving rise to the alleged LTCG at Rs.28,47,833/- are sham which could not stand the test of human probability.

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, period of holding, observation of the Ld. Assessing Officer and even the finding of ld. CIT(A). We further observe that this tribunal in the case of Shivnarayan Sharma & Ors (supra), while dealing with the issue of genuineness of Long Term Capital Gain from sale of shares of M/s. SAL decided the issue by placing reliance on the decision of Coordinate Bench Mumbai in the case of Dipesh Ramesh Vardhan vs. DCIT(supra) order dated 11.08.2020, decision of Coordinate Bench of Jaipur in the case of Ashok Agrawal vs. ACIT in ITANo.124/JP/2020 dated 18.11.2020 and also dealt with the decision of Hon’ble High Court of Delhi in the case of Suman Poddar(Supra) relied by the Ld. Sr. DR by relying on the latest judgment of Hon’ble High Court Delhi in the case of Pr. CIT vs. Krishna Devi & Others ITANo.125/2020 dated 15.01.2021 wherein Hon’ble High Court of Delhi has considered the judgment of Suman Poddar (supra).

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019,

Dipesh Ramesh Vardhan (supra) while dealing with the same issue of Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited claimed to be exempt u/s 10(38) of the Act and decided in favour of the assessee observing as follows:- “23. In the aforesaid decision, it has been held that it is SEBI who monitors and regulates the stock exchanges & stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper & legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the Id. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. However, we note that the said enquiry was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction undertaken by the assessee or for that matter, the price and realization on sale of shares so undertaken by the assessee through the stock exchange. Further, it has been held in the aforesaid case that the findings of investigation & modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee's involvement or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc and for making the addition, it is necessary to bring on record evidence to establish ingenuity in transactions or any connection of the assessee or its transaction with any of the alleged parties. In the instant case, as we have discussed earlier, there is no finding which proves assessee's connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities,' human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not has been discussed at length. And referring to legal proposition laid down by the Hon'ble Supreme Court that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and 11

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below.

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019,

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, appellant during assessment proceedings and merely extracted copies of their statement in the assessment order only. The Ld. AO has not confronted any material to the assessee nor provided any adequate opportunity to the assessee to defend her case. Since the statements were not confronted to the assessee, she was deprived of her right to cross examine the witnesses. Also whatever they have stated in their statement is no gospel truth and cannot be applied blindly to all the persons who have brought the scrips in the entire country. Thus, under these circumstances, atleast some inquiry should have done from these persons, whether they have provided any entry to the assessee, if the request for cross examination was not possible at that stage. Cross examination of a person in whose basis any adverse inference is drawn, then it cannot be primary evidence or material to nail the assessee and simply based on the statement no addition can be made. This has been held so by various courts, and also by Hon'ble Apex Court in the case of M/s Andaman Tiimber Industries vs. CCE (SC) reported in 127 DTR 241 has held as follows:

"According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what 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 14

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, 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. 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 We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 16

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019,

12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above- stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.

13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed.

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended. The assessee also deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that “not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected”.

24. We accordingly in view of our above discussions, facts and circumstances of the case and respectfully following judicial precedents and the decisions of Co-ordinate benches squarely applicable on the instant cases, are of the considered view that in the case of the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF), the claim of exempt income u/s 10(38) of the Act of Long Term Capital Gain from sale of equity shares deserves to be allowed and no addition is called for the estimated brokerage expenses made in the hands of the assessee(s). Thus finding of Ld. CIT(A) is set aside and the Grounds raised by the assessee(s) in 474/Ind/2019, 206/Ind/2019, 60/Ind/2019, 61/Ind/2019 and 987/Ind/2019 are allowed.

11. From perusal of the above finding we find that the decision of this Tribunal in the case of Shivnarayan Sharma & others (Supra) is squarely applicable on the common issues raised in the instant appeals and thus taking consistent view and respectfully following decisions and judgments referred hereinabove, we set aside the finding of Ld. CIT(A) and direct the Ld. Assessing Officer to allow

Smt. Manorama Devi Sharma & Shri Prakash Bajaj & 489/Ind/2019, claim of the exemption of u/s 10(38) of the Act for Long Term Capital Gain earned from sale of listed equity shares of Sunrise Asian Ltd. which have been effected through recognized stock exchange, after making payment of Security Transaction Tax (STT) and holding the equity shares for more than 12 months. Thus, the addition of Rs. 28,24,342/- in the case of Smt. Manorama Devi Sharma and Rs.28,92,830/- in the case of Shri Pratap Bajaj stands deleted. All the effective grounds of appeal raised by both the assessee(s) are allowed.

12. In the result, appeals of the assessee(s) namely Smt. Manorama Devi Sharma & Shri Prakash Bajaj vide ITANos.39/Ind/2019, & 489/Ind/2019 are allowed.

The order pronounced as per Rule 34 of ITAT Rules, 1963 on 20.07.2021.