ACIT-19(3), MUMBAI, MUMBAI vs. RAJESH SUMERMAL BAFNA, MUMBAI

All the grounds raised by the Revenue, Ground Nos. 1 to 6, are interrelated and interconnected and relates to challenging the order of the Ld. CIT(A) in deleting the addition of Rs. 94,49,502/- made towards unexplained investment and further deleting a sum of Rs. 47,248/- on account of unexplained commission expenditure under Section 69C of the Act. Therefore, we have decided to adjudicate these grounds through the present consolidated order.

In this regard, the Ld. DR, while relying upon the order of the AO, submitted that the assessee had earned LTCG on account of sale of shares of the scrip Sunrise Asian Ltd. and that the said LTCG transaction was a manipulated transaction undertaken to evade taxes on unaccounted income. The Investigation Report suggested that the said company was a penny stock company. In support of his contention, the Ld. DR relied upon the decisions of the Coordinate Bench of the ITAT in the cases of Chintan Shailesh Shah vs. ITO in ITA No. 2469/Mumbai/2024 and Rupal Jalan vs. ITO in ITA No. 209/JP/2020.

It was argued that the Ld. CIT(A) erred in deleting the additions made on account of penny stock transactions without appreciating the fact that, on similar issues of LTCG, the Kolkata Bench of the ITAT in the case of Manoj Jain HUF in ITA No. 1782/Kol/2018 treated the penny stock transaction as income from other sources instead of LTCG, and the same was upheld by the Hon'ble Calcutta High Court.

It was further submitted that the scrip Sunrise Asian Ltd. was a penny stock company and that the said stock had been manipulated to generate entries of bogus LTCG, facilitating tax evasion by a large number of persons. It was further submitted that the entire findings of the AO were based on the analysis of information received from the Investigation Wing and that the assessee had entered into penny stock transactions which were arranged transactions involving a series of preconceived steps, lacking commercial substance, and artificially structured with the sole intent to evade tax.

Whereas, the Ld. AR reiterated the same arguments as were raised before the Revenue Authorities and also relied upon the written submissions filed before us.

We have heard counsel for both the parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities.

From the records, we noticed that the assessee filed its return of income and claimed LTCG from the sale of shares of M/s Sunrise Asian Ltd. amounting to Rs. 94,49,502/-. However, the claim was denied by the AO holding that the claimed LTCG transaction was a manipulated transaction undertaken to evade taxes on unaccounted income. The AO treated the LTCG as unexplained income and further added commission thereon, making a total addition of Rs. 94,96,750/-. On the contrary, in order to prove that the transaction of purchase and sale of shares of M/s Sunrise Asian Ltd. was genuine, the assessee placed on record the Demat account statement, copy of share certificates, Demat statement showing dematerialization, copy of the order of the Hon'ble Bombay High Court dated 22.03.2013 granting approval to the scheme of amalgamation, bank statements reflecting payment for purchase and receipt of sale consideration, relevant contract notes, and detailed submissions proving the genuineness of the transactions, all of which form part of the Paper Book.

Considering the entire facts, the Ld. CIT(A) deleted the said additions. The operative portion of the same is reproduced herein below:

After evaluating the present case and considering the submissions of both sides, we noticed that the assessee had placed on record all the necessary documents in order to prove that the transactions entered into by the assessee in shares of M/s Sunrise Asian Ltd. were genuine transactions.

Moreover, we noticed from the records that the assessee dematerialized the shares and got them credited to his Demat account. We also notice that the initial investment was made by the assessee in equity shares of Santoshi Maa Trading Ltd., and the assessee had paid the full consideration through account payee cheques. Such payments were made through proper banking channels. After the purchase of the shares, the same were dematerialized and credited to the assessee's Demat account.

However, Santoshi Maa Trading Ltd. was subsequently amalgamated with M/s Sunrise Asian Ltd. pursuant to a scheme of amalgamation filed under Sections 391 to 394 of the Companies Act, 1956, and the said amalgamation was approved by the Hon'ble Bombay High Court vide order dated 22.03.2013.

As per the scheme, the assessee received shares of M/s Sunrise Asian Ltd. in the ratio of 1:1, i.e., one share of Sunrise Asian Ltd. against one share of Santoshi Maa Trading Ltd., and the shares were credited to his Demat account in June 2013 as a corporate action.

M/s Sunrise Asian Ltd. was a public listed company listed on the BSE and was classified under Group 'A' on the stock exchange based on the liquidity and volume of its shares. This Group 'A' category signifies that the shares of the company are highly traded and enjoy a higher degree of liquidity, thereby attracting investor confidence and enabling investors to enter and exit easily.

The assessee thereafter sold the shares through his share broker after holding them for about 22 months on the online platform provided by a recognized stock exchange and delivered the shares in Demat form through the recognized stock exchange. The assessee received the sale consideration during the Financial Year 2013-14 relevant to Assessment Year 2014-15.

The shares were sold through BM Gandhi Securities Pvt. Ltd., a registered share broker with the BSE. Copies of the sale bills issued by the said broker form part of the Paper Book and are placed at Pages 43 to 55. The sale consideration was received through proper banking channels and is reflected at Pages 88 to 90 of the Paper Book.

On the contrary, the AO could not bring on record any evidence to show that the assessee had ever paid cash to any entry operator.

The assessee had also placed on record a copy of the Demat account wherein the inward and outward movement of the shares was clearly reflected in the transaction statement issued by the broker. Since all the shares were sold through a recognized stock exchange on which the assessee had paid STT and other statutory levies, the transactions stood duly substantiated.

It is a well-known fact that when shares are sold on the online platform of a recognized stock exchange, the seller does not know to whom the shares are being sold. The shares are transferred in Demat form through the stock exchange clearing house, and the seller receives the sale consideration through the registered broker. Therefore, neither does the seller know the purchaser nor does the purchaser know the seller. In the absence of any corroborative evidence showing that the seller and purchaser indulged in any clandestine transaction, there does not seem to be a remote possibility of manipulation.

We also noticed that during the assessment proceedings, the assessee had placed on record all the relevant documents as mentioned above. Therefore, considering the totality of facts and circumstances, the holding period of the shares, and the documentary evidence placed on record, we can safely conclude that the transactions entered into by the assessee were genuine.

We further notice that Coordinate Benches of the ITAT have already dealt with cases involving the sale of shares of the same scrip, i.e., M/s Sunrise Asian Ltd., wherein, after evaluating the facts of each case, the additions were deleted, which are as under:

On the contrary, we find that the decisions relied upon by the Ld. DR are not applicable to the facts of the present case. The decision in the case of Chintan Shailesh Shah (supra) is an ex parte order, whereas the decision in the case of Rupal Jalan (supra) was rendered by the SMC Bench and, therefore, does not have binding effect on a Division Bench of the ITAT.

Even otherwise, no new facts, circumstances, or documents have been brought on record by the Ld. DR in order to controvert or rebut the findings recorded by the Ld. CIT(A). Therefore, we see no reason to interfere with or deviate from the findings recorded by the Ld. CIT(A). Accordingly, we dismiss the grounds raised by the Revenue and uphold the order of the Ld. CIT(A) deleting the additions.

In the result appeal filed by the Revenue stands dismissed.