SUNITA SARDA,NEW DELHI vs. ACIT CIRCLE 71(1), NEW DELHI

3. Assessing Officer further asked for details and documentary evidences regarding LTCG vide notice u/s 142(1) dated 26.10.2018. In response, the assessee has submitted various details of sale and purchase of the shares of the aforesaid company and from these submissions, the Assessing Officer observed that the assessee has purchased 25000 shares of Global Capital Markets Ltd. on 23.03.2009 and the offline purchases were made through broker, M/s. Consortium Securities (P) Ltd. Assessing Officer observed that subsequently, assessee sold 5000 shares out of 25000 shares through M/s. Consortium Securities (P) Ltd. @ Rs.68.86 per share and balance shares i.e. 20000 shares were sold @ Rs.68.83 per share through Nirmal Bang Securities Ltd.. Assessing Officer noticed that on the basis of information available, Global Capital Markets Ltd. is a penny stock company and the Balance Sheet and P&L account of the said company does not have financial credentials to support the issue of bonus, the logic reason of splitting the shares or the movement of the price of its share. He further observed that the assessee made a gain of almost 411% in a span of around 15 months.

4. During assessment proceedings, the AO observed that assessee has earned capital gain amounting to Rs.17,25,000/- from sale of shares of M/s. Global Capital Markets Ltd. and observed that the same is found to be bogus in nature and actually it was done to claim bogus STCL/LTCG. The AO explained the modus operandi behind the same in assessment order at paras 6 to 9. Accordingly, in the conclusion, the Assessing Officer observed that assessee had a windfall LTCG of Rs.17,25,000/- by way of sale of share of the company, Global Capital Markets Ltd. which has no financial credentials to justify such increase in price of shares in a short period of time.

as well as filed detailed submissions. After considering the detailed submissions, ld. CIT (A) sustained the addition made by the AO.

7. Aggrieved, assessee is in appeal before us raising following grounds of appeal :-

1. That on the facts and circumstances of the case and in law, the impugned order passed by the Assessing Officer (" AO") u/ s 143(3) r.w.s 147 of the Income Tax Act, 1961 ("the Act") and upheld by the Ld. National Faceless Appeal Centre Delhi ("NFAC") determining the assessed income at Rs.21,77,000/- is arbitrary, bad in law and liable to be quashed.

2. That on the facts and circumstances of the case and in law, the AO has solely relied upon the information received from the DDIT(Inv.), Unit-6(3), New Delhi without any independent application of mind resulting in borrowed satisfaction contrary to settled law and therefore rendering the impugned proceedings u/ s 147 r.w.s 143(3) of the Act null and void on account of patent jurisdictional error.

4. That on the facts and circumstances of the case and in law, the AO/NFAC failed to provide the investigation report that formed the basis for initiating the impugned proceedings, rendering the impugned proceedings void-ab-initio. 5. That on the facts and circumstances of the case and in law, the AO /NF AC erred in failing to consider that the necessary conditions under Section 68 of the Act are not satisfied in the present matter, rendering the impugned addition of Rs.17,25,000/- bad in law and liable to be quashed. 6. That on the facts and circumstances of the case and in law, the AO/NFAC erred by failing to consider the necessary documentary evidences qua purchase and sale of the impugned shares, which duly establish bona-fide nature of the said transaction rendering the impugned addition arbitrary in nature and liable to be quashed. 7. That on the facts and circumstances of the case and in law, the AO/ NF AC erred in failing to appreciate that the necessary conditions for claiming Long Term Capital gain exemption on sale of listed share u/ s 10(38) of the Act stand duly satisfied in the present matter. 8. That on the facts and circumstances of the case and in law, the AO failed to establish any "Live Link" /I/Nexus" to support its contention that the Appellant was a part of a scheme hatched by various players to obtain/provide accommodation entries of bogus LTCG/STCL aimed at tax evasion which makes the impugned addition legally unwarranted. 9. That on the facts and circumstances of the case and in law, the Assessing Officer/NFAC failed to consider that the Appellant as an investor is not mandated to justify the increase/ decrease in prices of GCML, consequently the impugned addition made is legally unwarranted.

12. That on the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings u/s 271(1)(c) r.w.s 274 of the Act despite non-satisfaction of mandatory statutory ingredients and the legal unsustainability of the impugned addition.” 8 At the time of hearing, ld. AR for the assessee submitted detailed written submissions, which is reproduced below for the sake of brevity :- “A. Statutory ingredients of Section 68 not satisfied- Absence of jurisdictional facts; 10. It is submitted to lawfully impose the impugned addition u/s. 68 of the Act, the statutory ingredients thereunder must be satisfied, provided as follows: "Cash credits.

12. That the Ld. AO could not have held the purchase and sale of shares to be an exercise in generating bogus L TCG by way of accommodation entries as none of the required ingredients for such allegation are present vide Pro CIT-12 v. Karuna Garg, ITA 477/2022, (Delhi High Court) dated 23.11.2022 [while relying on Principal Commissioner of Income Tax v. Smt. Krishna Devi (Infra)], as there is no material placed on record apart from uncorroborated excerpts of Report by the Investigation wing, blanket reliance on which is non-est and perverse vide Signature Hotels (P.) v. ITO [2012] 20 taxmann.com 797 (Delhi) .

15. Additionally, there is also no material placed on record by the Ld. AO vide the impugned Assessment order dated 13.12.2018 that the Appellant had given cash for conversion via accommodation entries into bogus LTCG as alleged in Para 6.1 of the said order.

B. No Vicarious Liability against Appellant qua allegations against third parties unless statutorily provided for in law : 18. It is submitted that the impugned order and the subject addition is based on unproven and unsubstantiated allegations against third parties. That the impugned order makes no reference, nor cites any cogent material to show to establish any link of the Appellant with the aforesaid allegations.

3. Therefore we find nothing perverse in the order of the Tribunal." (Emphasis Supplied)

Similarly, decision has also been held by the Hon'ble Delhi ITAT in favour of the Assessee in the case of Meenu Gael v. ITO [ITA No. 6235/Del/2017] as under: "All the transaction were made through account payee cheque / banking channel and assessee had purchased share in financial year 2009-10 and sold the same in the financial year 2013-14 resulting in Long Term Capital Gain. The assessee has submitted various documentary evidences to prove the genuineness of the transaction of sale and purchase of shares which includes a copy of purchase bill dated 22.02.2010; a copy of share transfer form in the favour of the assessee; Copy of bank statement highlighting the payment made against the share purchased; Transaction statement of. the stock broker i.e. Pace Stock Braking Services (P) Ltd., account; copy of bank statement in which sale proceed from the sale of shares received; copy of calculation of long term capital gain, which was not faulted by the AO. However, the lower authorities have not considered the aforesaid documents and rejected all the claims made by the assessee by relying on the report of the Investigation Wing and thereby made the addition, which is not sustainable in the eyes of law." (Emphasis Supplied) 23. The Hon'ble Delhi High Court has taken a similar view in the case of PCIT v. Laxman Industrial Resources Ltd [2017] 397 ITR 106 (DEL) whereby it has been held that all documentary evidences submitted by the Assessee establishing genuineness of transactions cannot be ignored by the Ld. AO: "This Court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN details, assessment particulars, mode of payment for share application money, i.e. through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with ROC particulars. The AO strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an AO's duties in the remand proceedings which the Revenue seeks to inflict upon the assessee in this case. No substantial question of law arises. The appeal is dismissed." (Emphasis Supplied) E. Addition cannot be• made on mere suspicion, impugned order passed on mere conjecture and guesswork.

9 On the other hand, ld. DR for the Revenue vehemently argued that the issue involved in this case is penny stock and lower authorities have given elaborate findings, however, assessee could not explain why the assessee has made the investment in this company which has no financial capacity and not justified with enough material to make investment in this company. Ld. DR prayed that addition may be sustained on the basis of detailed findings of lower authorities. In this regard, ld. DR also filed written submissions which are placed on record. 10 Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from other party, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the Revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without there being any material against the assessee.

11 Hon’ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - “11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the 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.

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 ITA 125/2020 and connected matters Page 10 of 10 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.

12 Similar view was expressed by the Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022. 13 Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the grounds raised by the assessee. Accordingly the grounds raised by the assessee are allowed.

14. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 14th day of May, 2025.