INCOME TAX OFFICER-27(3)(1) MUMBAI, VASHI vs. SACHIN VELJI SHAH, MUMBAI

Ground: 2ii) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the order passed by the AO u/s. 143(3) of the Income-tax Act, 1961, without appreciating the fact that the AO had carried out investigation u/s. 133(6) of the Act regarding the purchasers of the shares/exit providers sold by the assessee and no response was received from the purchasers/exit providers, and had also recorded statement of the bankers, who had detailed the modus operandi of giving accommodation entries in the statement recorded u/s. 132(4) of the Act.

Ground :3 iii) Whether on the facts and in the circumstances of the 0 case and in law, the Ld. CIT(A) has failed to appreciate that the addition of Rs. 1,07,32,858/-made by the A.O. under section 68 being sale proceeds of shares on the basis of report of Investigation Wing Kolkata that the scrip of Surabhi Chemicals and Investments Limited was suspicious penny stock and the price of this share was rigged artificially to provide bogus entries of long term capital gain to the beneficiaries and the assessee being one of the beneficiaries of the same?

Ground :4 iv) Whether on the facts and in the circumstances of the 0 case and in law, the Ld. CIT(A) was justified in deleting the order passed by the AO u/s.143(3) of the Income-tax Act, 1961, without appreciating the fact that the SEBI has suspended the scrip of M/s. Surabhi Chemicals and Investments Limited on 01.01.2015. 5. Ground:5 v) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the addition of Rs.6,13,671/- made by the A.O. under section 69C of the Act, being 6% of commission paid to broker for arranging capital gain to various parties without appreciating the fact that without looking into the fact noted by the CIT(A) that the assessee had to give commission to the brokers to rig and to provide the accommodation”

The assessee is an individual and filed the return of income for AY 2014-15 declaring Nil income on 31.07.2014. The case was selected for scrutiny and the statutory notices were duly served on the assessee. During the course of assessment the AO noticed that the assessee has declared Long Term Capital Gain (LTCG) on sale of share of the scrip M/s Surabhi Chemicals and Investments Ltd.

2 The learned AO has treated share dealing made by the appellant as bogus and thereby added back exempted capital gain to taxable income. The learned AO also added back the commission as well. 6.3 The appellant had purchased shares of Surbhi Chemicals and claimed exempted long term capital gain of Rs. 1,07,32,858/- on sale of such shares the same was disallowed by learned AO along with notional commission of Rs.6,13,671/-.

4 The learned AO alleged it to be penny stock and he claimed that the trading in such stock was controlled by few operators and rise in prices of this stock was artificially created. He also gave finding that he re-opened the case based on information received from Director of Income Tax (Inv). He

5 The appellant claimed the transaction to be genuine and filed following documents before learned AO at the time of assessment: Broker note for sale and purchase of shares

6 The learned AO has made the adjustment by forming opinion on search conducted by some other assessee. He has not performed due diligence in specific to the appellant's case.

8 The learned AO alleged that the appellant could not prove why there was surge in volume of stock. Whereas the trading was done through software based platform wherein the trader does not have visibility on counter party buying/ selling.

The revenue is in appeal against the order of the CIT(A).

The ld. DR argued that the CIT(A) has not given a detailed finding with regard to the various reasons given by the AO for making the addition. The ld. DR further argued that the CIT(A) has merely relied on the various details submitted by the assessee stating that the AO has not recorded any adverse findings with regard to the document filed by the assessee. The ld. DR also submitted that the CIT(A) has not considered the fact that the broker through whom the assessee has acquired the shares is found to be bogus entity and the Inspector's report in this regard is ignored by the CIT(A). The ld. DR submitted that existence of all the documentary evidences will not take away the fact that the scrip of M/s Surabhi Chemicals and Investments Ltd. is a penny stock and that the SEBI has given a finding in this regard. The ld. DR relied on the decision of the Hon'ble Calcutta High Court in the case of Swati Bajaj [[2022] 139 taxmann.com 352 (Calcutta)] to submit that the Hon'ble High Court in the decision has specifically given finding with regard to M/s Surabhi Chemicals and Investments Ltd. and that the CIT(A) without taking cognizance of these facts has deleted the addition which is not tenable.

The ld. AR on the other hand submitted that the CIT(A) has given relief based on the documentary evidences submitted by the assessee and has considered the fact that the assessee has discharged the onus of proving the genuineness of the transaction. The ld. AR further submitted that the assessee has converted the shares

We heard the parties and perused the material on record. During the year under consideration the assessee has sold shares of M/s Surabhi Chemicals and Investments Ltd. and earned a capital gain which is claimed as exempt under section 10(38). The details with regard to the impugned transactions are as tabulated below:

It is the contention of the revenue that based on the findings of the Kolkata Investigation Directorate the impugned shares are found to be penny stock and hence the LTCG claimed as exempt by the assessee is non-genuine. We notice in this regard that the assessee during the course of assessment has furnished documentary evidences with regard to purchases through banking channel, shares certificate, Demat Statements, contract note for sale, broker statement etc. It is relevant to mention here that the AO did not record any adverse finding with regard to the various documentary evidences furnished by the assessee. It is relevant to take note of the following findings of the AO with regard to the conclusion that the impugned transactions are non-genuine.

From the above findings we notice that various findings as reasons for making the addition is that the assessee unable to substantiate the price movement in the share market, failed to prove assessee's knowledge about the company etc. We further notice that the other findings of the AO are general pertaining to the scrip of M/s Surabhi Chemicals. In our view, the above findings cannot be considered as valid reason for treating the impugned transactions as bogus in the hands of the assessee unless the AO is able establish assessee's involvement in the price movement. From the perusal of the SEBI report relied on by the AO we notice that though the SEBI has recorded that the price of the scrip of M/s Surabhi Chemicals and Investments Ltd. has been manipulated, the period of manipulation

We notice from the statement recorded by the AO from the assessee u/s 131 of the Act that the assessee herein is a Chartered Accountant. In the statement, the assessee has specifically stated that he is a long term investor, meaning thereby, he would not be watching the share price movements on day to day basis. Hence, we are unable to understand as to how that AO could observe that the assessee herein was ignorant of stock market operations. We also notice that the assessee has (a) purchased these shares by paying consideration through banking channels (b) dematerialized the shares and kept the same in the Demat account.

We may now refer to certain decisions rendered by Hon’ble Bombay High Court on identical issue. In the case of Shyam Pawar (supra), the Hon’ble Bombay High Court has observed as under:-

Mr.Gopal, learned Counsel appearing on behalf of the Assessee in each of these Appeals, invites our attention to the finding of the Tribunal. He submits that if this was nothing but an accommodation of cash or conversion of unaccounted money into accounted one, then, the evidence should have been complete. Change of circumstances ought to have, after the result of the investigation, connected the Assessee in some way or either with these brokers and the persons floating the two companies. It is only, after the Assessee who is supposed to dealing in shares and producing all the details including the DMAT account, the Exchange at Calcutta confirming the transaction, that the Appeal of the Assessee has been rightly allowed. The Tribunal has not merely interfered with the concurrent orders because another view was possible. It interfered because it was required to interfere with them as the Commissioner and the Assessing Officer failed to note some relevant and germane material. In these circumstances, he

We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.

It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in 12 ITA 1938/Mum/2023 Sachin Velji Shah Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.

As a result of the above discussion, we do not find any substance in the contention of Mr.Suresh kumar that the Tribunal mi irected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.

Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.”

We may now refer to the decision rendered by Hon’ble Juri ictional High of 2017 dated 4th March, 2022) and relevant discussions made by Hon’ble Bombay High Court are extracted below:-

Therefore we find nothing perverse in the order of the Tribunal.

Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different.

In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.

In the case of PCIT vs. Smt Krishna Devi (supra), the Hon’ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon’ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains.

Accordingly, in the facts and circumstances of the case, we are of the view that the decisions rendered by the juri ictional Hon’ble Bombay High Court in the cases cited above shall apply to the present case, since the AO has not established that the assessee was involved in price rigging and further the AO did not find fault with any of the documents furnished by the assessee.

We noticed earlier that the AO has assessed the Sale consideration of shares as unexplained cash credit u/s 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the revenue. The sale of shares has taken place in the online platform of the Stock exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of sec. 68 of the Act.

Since we have held that the sale transactions of shares cannot be doubted with, the addition made by the AO with regard to estimated commission expenses is also liable to be deleted.

In view of the foregoing discussions, we hold that the sale consideration received on sale of shares cannot be assessed as unexplained cash credit u/s 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the impugned additions made by him.”

Considering the facts and circumstances of the case as elaborated hereinabove we are of the view that the ratio laid down in the above decisions of the Co-ordinate Bench is applicable to assessee's case also and accordingly we hold that there is no infirmity in the order of the CIT(A) in deleting the addition made by the AO without establishing the fact that the assessee in any way is connected with the price manipulation or exit providers.

In result, appeal of the revenue is dismissed.