Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, A BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI PRABHASH SHANKAR
PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order dt. 20.12.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act'), by the National Faceless Appeal Centre, Delhi / CIT(A), for the A.Y 2017-18. 1. The Ld CIT(A) erred in making addition of Rs.60,69,427/- disallowing the exemption claimed under section 10(38) for Long Term Capital Gain from sale of shares and securities of M/s. Greencrest Financial Services Limited treated the same as bogus transaction thereafter making the addition under section 69A treating the same as unexplained money and added the same to the income of the assessee.
The Ld CIT(A) erred in making addition of Rs.30,347/- under section 69 as unexplained investment being commission charged @ 50 Paise on Rs.60,69,427/- being paid to the broker through whom trading was done treating the transactions as bogus transaction.
The Ld CIT(A) erred in initiating penalty proceedings u/s 271AAC of the income tax act.
The Ld CIT(A) erred in charging interest 234A,234B and 234C of the act.
Ground No. 1 & 2 are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in upholding the additions made by AO u/s 69A / 69 of the Act. Therefore we have decided to take up both the grounds together and to adjudicate the same through the present consolidated order.
Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the revenue authorities and further relied upon his written submissions which are reproduced herein below:
BRIEF FACTS OF THE CASE
The assessee is an individual deriving income from Capital gains and income from other sources.
The assessee has filed her return of income for A.Y. 2017-18 on 18/01/2018 declaring total Income ofRs.11,71,990/-.
The return of income was duly processed under section 143(1) of the Income Tax Act, 1961 (the act ).
The assessee was issued a notice under section 142(1) of the act on 29/09/2020 and 08/03/2021 to which the assessee filed a response along with all the requisite details / documents / information.
The case has been brought under scrutiny assessment on mere information which was received from DDIT (Inv.) Unit Kolkata in respect of bogus LTCG claimed by the assessee on sale of penny stock script.
The assessee had submitted to Ld. AO all documents pertaining to sale and purchase of shares of M/s Greencrest Financial Services Pvt. Ltd. (previously known as M/s Marigold Glass Industries Limited )like demat account statement, Allotment letter,demat statement, copy of bank statement reflecting payment and receipt of shares purchased and sold and relevant contract notes with detailed submission to prove the genuineness of the transaction.
The Ld AO stating that the transaction of LTCG is a manipulated transaction done by the assessee in connivance with the operators to evade taxes on his unaccounted income and relying on statement made by operators treated the LTCG according to him of Rs.60,69,427/- as unexplained income and further added commission of Rs.30,347/- on the same and made a total addition of Rs.60,99,774/- under section 69 of the act without considering the documentary evidences submitted by assessee during the assessment proceedings and passed order dated 19/08/2021. 8. The Ld. AO did not do analysis of facts and he only relied on information, without appreciating evidences. Ld. A.O. did not apply his mind and made addition without checking figure with collaborative evidences.
BY HON’BLE NATIONAL FACELESS APPEAL CENTRE, DELHI The assessee had preferred appeal before CIT(A) 52, Mumbai vide Appeal No. NFAC/2016-17/10088658and contested the additions made by the Ld. AO of Rs.60,99,774/-. The appeal was heard by NFAC and vide order no. ITBA/APL/S/250/2024-25/1071428267(1) dated 20/12/2024 the appeal was dismissed.
Being aggrieved by the aforesaid deletion, the assessee has now filed this appeal before your honor. Our Grounds of Appeal
The Ld CIT(A) erred in making addition of Rs.60,69,427/- disallowing the exemption claimed under section 10(38) for Long Term Capital Gain from sale of shares and securities of M/s. Greencrest Financial Services Limited treated the same as bogus transaction thereafter making the addition under section 69A treating the same as unexplained money and added the same to the income of the assessee.
The Ld CIT(A) erred in making addition of Rs.30,347/- under section 69 as unexplained investment being commission charged @ 50 Paise on Rs.60,69,427/- being paid to the broker through whom trading was done treating the transactions as bogus transaction.
The Ld CIT(A) erred in initiating penalty proceedings u/s 271AAC of the income tax act.
The Ld CIT(A) erred in charging interest 234A,234B and 234C of the act. A. WHY AO MADE ADDITION i. The Ld AO on the basis of scrutiny assessment in the case u/s 143(2) and by issuing notice u/s 142(1) dated 29/09/2020 based on some information received from DDIT(Inv.), Kolkata that during investigation carried out in connection with bogus LTCG claimed on penny stocks, it was found that the assessee had also obtained such accommodation entries in the form of bogus LTCG of Rs.60,69,427/- during the FY 2015-16 relevant to AY 2016-17 and for availing such accommodation entries, the assessee had paid cash commission of Rs.30,347/- forming part of the unaccounted income of the assessee. ii. The Ld. AO on the basis of irrelevant materials and statements of operator of M/s Greencast Financial Services Pvt. Ltd. wherein he has admitted of being a bogus entry provider and has provided bogus LTCG entry. The LTCG shown by the assessee from share transactions is treated as bogus and added as unexplained cash credit of Rs.60,69,427/- and commission charges of Rs.30,347/-, totaling to Rs.60,99,774/-. B. WHY ADDITION MADE BY AO. IS NOT SUSTAINABLE In Assessment year i.e. AY 2017-18, the assessee sold shares and booked the Long Term Capital Gain. Summary is given as under. The brief facts of transaction are as under: Particulars Amount / Value / Dates Date of Sale 12/05/2016 to 02/08/2016 Sale Consideration Rs.61,88,587/- Cost of Purchase Rs.1,19,160/- Long Term Capital Gain exempt under section 10(38) of theAct Rs.60,69,427/- Share Demat A/c was at LKP Securities Limited. No broker was involved. STT was paid. The entire assessment is based on the statements and oath of the operators who are nowhere related to the Company in which the assessee has invested. The Ld. Assessing Officer has vaguely mentioned operating who are nowhere related to the assessee’s case. The Ld. Assessing Officer has not been able to provide any evidence that both the mutual connivance of the assessee and the operators. We observe that the basis of assessment itself are unclear and the Ld. Assessing Officer is uncertain about the proofs that are relied upon. If the basis of the Assessment Order itself are not true or baseless the addition and the rejection of exemption are bad in law. As addition do not stand then there shall not be any demand. SUMMARY The revenue relied on the findings of the Directorate of Investigation of Mumbai and Kolkata and transaction details of the shares done by assessee from stock exchange and on responses of companies who were exit providers to beneficiaries in the scrip of M/s Greencrest Financial Services Limited which established that M/s Greencrest Financial Services Limited is a mere bogus company / paper company and individuals named above are the operator of the Company, their statementswere recorded. It was noticed that these companies were engaged in issuing bogus bills for providing long term capital gain, speculation loss/profit etc. It was noticed by the Ld. AO that the assessee has purchased shares of M/s Greencrest Financial Services Limited. c) On this basis the assessee's case was brought under assessment without any tangible material on record and on basis of information and statement of third party. THE SUMMARY DETAILS, FACTS AND EXPLANATIONS IN THE CHRONOLOGICAL ORDER OF THE TRANSACTIONS OF LONG TERM CAPITAL GAIN TO ESTABLISH THE GENUINENESS OF THE TRANSACTION EXEMPT UNDER SECTION 10(38) ARE AS UNDER: i. The assessee is ainvestor in securities. ii. The assessee received a letter from M/s. Marigold Glass Industries Ltd. (now known as Greencrest Financial Services Limited)to Mrs. Alka Vanigota informingabout their Preferential Equity Shares issue on 1.11.2012. (Pg No. 2-3 of Paper Book) iii. The said issue of Preferential Equity Shares have been approved by the SEBI. iv. On 29.12.2012, the assessee received a letter of approval from M/s. Marigold Glass Industries Ltd. for the proposed allotment of Preferential Equity Shares alongwith bank details for making payment on or before 12th February 2013. (Pg No. 4-5 of Paper Book) v. The assessee has paid the full consideration on 05.02.2013 by account payee cheque and as the payment was made through proper banking channel. (Pg No. 6 of Paper Book) vi. The assessee received a copy of allotment letter dated 12.02.2013 confirming allotment of 150000 shares. The shares were issued with a lock-in period of one year form the date of issue. The assessee has to compulsorily hold the Preferential Equity Shares from 11.02.2013 to 10.02.2014. (Pg No. 10 of Paper Book) vii. The M/s. Marigold Glass Industries Ltd. held an Extra Ordinary General Meeting on 18.02.2013 for allotment of Preferential Equity Shares. The minutes of the said meeting were uploaded on the BSE India website (http://www.bseindia.com) along with the list of Preferential Equity Share Holders to whom the shares were allotted. The name of Mrs. Alka Vanigota appears at Sr. No. 72 on the said list. (Pg No. 8-10 of Paper Book) viii. On 02.05.2014, the Company M/s. Marigold Glass Industries Ltd. changed to M/s. Greencrest Financial Services Limited ix. M/s. Greencrest Financial Services Limited announced a split issue of shares. The face value of its shares were split from Rs 10 to Rs 1 each in June 2014. X. The said sales consideration duly came in Banking Channel and reflected in Bank Statement. (Pg No.26 of Paper Book) xi. There are no evidences that assessee given cash to any entry operators. xii. The Ld. AO is silent on the Shares DEMAT Account and has not considered important evidences. xiii. The shares were sold through recognised stock exchange on which the respondent has paid Security Transaction Tax (STT) and other statutory taxes. The same were paid through proper banking channel. It is well known that when the shares are sold at online platform the stock exchange, the seller of the shares does not know as to whom the shares are being sold. The shares are transferred in DMAT form to the stock exchange clearing house and the seller only receives sales consideration from the stock exchange through the share broker. Therefore, neither the seller knew the purchasers, nor the purchasers knew the seller. In absence of any corroborative evidence that both Seller and Purchaser have indulged into some clandestine transactions, there is not even a remote possibility of hobnobbing. Therefore, the assessee cannot be said to be a part of the group indulging into rigging of share prices of the script as alleged by the Ld AO. xiv. During the course of assessment proceedings the assessee submitted following documents to substantiate her claim of long term capital gain which is exempted under section 10(38) of the Act:- • Copy of share allotment • Copies of sale bills • Copy of bank statement • Copy of demat account • Copy of contract notes Xv. At the Bombay Stock Exchange, the price of the shares of M/s Greencrest Financial Services Limited had continuously been in the range of Rs.9 - 248 per share from January 2012 to January 2015 a period of more than 3 year.(Pg No. 29-31 of Paper Book) xvi. However, one point to be noted that the finding of the Ld. AO is wrong and shows that the Ld. AO has no knowledge about the share transactions.The Ld.AO has relied on mere information by Investigation Directorate wing. xvii. It is pertinent to mention that the assessee sold the shares during the month of May 2016 to August 2016 in the FY. 2016-17 from a price range of Rs.60/- to 65/- per share and the price of the shares were in the same range for next 38 month even after the shares were sold by the assessee xviii. The assessee has purchased the shares directly from the Company under Private Placement and sold at Bombay Stock Exchange through its share brokers. The shares were received directly from the company and then dematerialized and on sale, the demat shares were delivered to the clearing corporation of BSE through its share broker. xix. The Ld. AO denied the claim of long-term capital gain on sale of shares under section 10(38) and made addition of LTCG under section 68. The shares had been directly allotted by the company and the payment had been made through account payee cheques duly disclosed by assessee in the earlier year and said purchase of shares was evidenced not only from the bank statement but also by the allotment of shares. Thus, possession of the shares was not in doubt at all because same was also reflected in Demat account. xx. Not only that, the sale of shares was also evidenced from transaction undertaken through registered stock at a specific trade time in BSE and after the sale of shares, the net receipts had been credited to the assessee's bank account. Hence, the nature of the transaction was clearly purchase and sale of shares and the source of the credit, from the material facts on record were quite evident that it was from the sale of shares. As there was no tangible material brought on record to convert these transactions then it is very difficult to treat the sale proceeds of the shares as unexplained cash credit to be added under deeming provisions of section 68. There was no evidence or any whisper that some unaccounted money had been routed and hence, sale proceeds should not be added. RELIANCE IS PLACED ON CASES INVOLVING GREENCREST FINANCIAL SERVICES LIMITED CITATION OBSERVATION IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH Years: 2015-16 Para 11 I find that in the case at hand before me, relevant evidence were produced to suggest that the transactions (purchase and sale of shares) were undertaken andthereafter the same was reflected in the Demat Account; and the transactions havetaken place through banking channel and through registered broker of StockExchange; and there is no evidence to disprove these relevant documents whichsupport the claim of assessee (LTCG). Therefore, the claim of LTCG on the scripunder question cannot be disallowed based on general enquiry conducted bydepartment unless the involvement of assessee is shown in the illegal activities,without which, the impugned action to disallow the claim of assessee cannot besustained.
Therefore, in view of the decisions of the juri ictional High Court and otherdecisions Tribunal, and in the factual back ground discussed (supra), I find thatthe addition of Rs.24,66,000/- under section 68 of the Act made by the AO isunsustainable and therefore direct the AO to delete the same and allow the LTCGincome of Rs.24,58,602/- as exempt under section 10(38) of the Act. Assessee gets relief as afore-stated. And consequently the brokerage charge added of Rs12,730/- is also deleted. Ground nos.1is allowed.
In the result, the appeal of the assessee is partly allowed. BEFORE THE INCOME TAX TRIBUNAL, 'H' BENCH MUMBAI Shri Yogesh Thakkar Asst Year 2015-16 - Assessee Appeal Para 11. We have heard the rival submissions and perused the materials available on record. The findings given by us hereinabove for the A.Y. 2014-15 in the case of the assessee shall apply mutatis mutandis to A.Y. 2015-16 also save that during the A.Y. 2015-16, there was no interim order passed by SEBI on both the scrips ; that there was only final order passed by SEBI dated 05/06/2020 wherein the name of the assessee or his registered share broker was not reflected as defaulters or persons involved in artificial price rigging of shares. Hence the observations and findings recorded by us for A.Y. 2014-15 together with reliance placed on various case laws thereon shall apply for Α.Υ.2015-16 also. Accordingly, the Ground Nos.1 & 2 raised by the assessee are allowed. Shri Yogesh P Thakkar
The Ground No. 3 raised by the assessee is challenging the levy of interest u/s 234B and 234C of the Act, which would be consequential in nature and does not require any specific adjudication.
The Ground No. 4 raised by the assessee is challenging the initiation of penalty proceedings u/s 271(1) (c ) of the Act, which would be premature for adjudication at this stage. Hence dismissed.
In the result, the appeal of the assessee Shri Yogesh Popatlal Thakkar in ITA No. 1612/Mum/2021 for A.Y. 2015-16 is partly allowed . BEFORE THE INCOME TAX APPELLATE TRIBUNAL, 'H' BENCH MUMBAI Smt Nisha Yogesh Thakkar ITA No. 1607/Mum/2021 Asst Year 2015-16 - Assessee Appeal Para 16. We have heard the rival submissions and perused the materials available on record. The findings given by us hereinabove for the A.Y. 2015-16 in the case of Shri Yogesh Thakkar shall apply mutatis mutandis to assessee herein for A.Y. 2015-16 also. Accordingly, the Ground Nos.1 & 2 raised by the assessee are allowed.
The Ground No. 3 raised by the assessee is challenging the levy of interest u/s 234B and 234C of the Act, which would be consequential in nature and does not require any specific adjudication.
The Ground No. 4 raised by the assessee is challenging the initiation of penalty proceedings u/s 271(1) (c ) of the Act, which would be premature for adjudication at this stage. Hence dismissed. Shri Yogesh P Thakkar
In the result, the appeal of the assesseeSmt Nisha Yogesh Thakkar in ITA No. 1607/Mum/2021 for A.Y. 2015-16 is partly allowed . Before The INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI DCIT, Circle-7(1)(1) Vs.NishaShantaramPokle Ι.Τ.Α. No.2546/Mum/2023
Assessment Year: 2015- 16 Department Appeal
The concurrent findings of fact has been recorded by the first appellate authority and the ITAT. Thus, no substantial question of law is involved in the present appeal. The matter is concluded by findings of fact."
For the various reasons discussed in the foregoing and following the judgments cited above, more particularly of the binding juri ictional High Court in the cases of ShyamPawar (supra), Ziauddin A Siddique (supra), Mukesh R Marolia (supra) &Jamna Devi Agarwal (supra), we uphold the impugned action of Ld. CIT(A) in deleting the addition of Rs.5,96,25,721/- and also the addition of Rs.35,77,543/- on account of commission. And we direct the AO to verify and allow the correct LTCG/exemption claimed by assessee u/s 10(38) of the Act on sale of shares of M/s Marigold/Greencest as noted by us {ACIT 26(3), ВКC, Mumbai} ..Para 15. Considered the rival submissions and material placed on “F” 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 directly from the company on preferential allotment, subsequently, D-mated the scrips and sold the same in the stock exchange. It clearly raises several doubt on the purchase and sales transactions recorded in this case. 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. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this 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 their being any material against the assessee. Para 18. 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. 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 ground raised by the assessee. Accordingly the Ground No.1 raised by the assessee is allowed. SN CITATION OBSERVATION 1. [2015] 54 taxmann.com 108 (Bombay) HIGH COURT OF BOMBAY Commissioner of Income- tax-13 υ. Shyam R. Pawar* DECEMBER 10, 2014 Section 68 of the Income-tax Act, 1961 - Cash credit (Share dealings) -
Assessment years 2003-04 to 2006- 07 - Assesse declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assesse to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted Held, yes [Para 7] [In favor of assesse] 2. [2014] 41 taxmann.com 118 (Hyderabad - Trib.) IN THE ITAT HYDERABAD BENCH 'A' Income-tax Officer, Ward 2, Nizamabad v. Smt. Aarti Mittal* NOVEMBER 6, 2013 Section 10(38) of the Income-tax Act, 1961 - Capital gains - Exemption of, on transfer of securities [Genuineness of transactions] Assessment year 2006- 07 - Assesse filed its return declaring long term capital gains on shares traded in Calcutta Stock Exchange - Since sale transactions took place through authorized stock exchange and securities transaction tax was paid, assesse claimed entire sale proceeds arising out of transaction as long term capital gain exempt from tax under section 10(38) - Assessing Officer did not believe transactions in question as genuine and treated entire sale proceeds as 'Income from Other Sources' Commissioner (Appeals) opined that in absence of any positive evidence, merely on basis of suspicion, transactions could not be held to be not genuine Commissioner (Appeals) thus set aside addition made by Assessing Officer - It was noted that even though enquiry with Chennai Stock Exchange (CSE) revealed that no purchase had taken place through it, since transactions were in physical form and done through off market, question of same being routed through floor of a recognized stock exchange did not arise It was also apparent that assesse having purchased shares in question, converted them in D-mat form and thereupon sale of those shares was carried out through CSE after paying Securities Transaction Tax - Whether on facts, transactions of purchase and sale of shares were to be regarded as genuine in nature and, therefore, assesses claim was rightly allowed - Held, yes [Para 23] [In favor of assesse] 3. [2017] 77 taxmann.com 260 (Ahmedabad - Trib.) IN THE ITAT AHMEDABAD BENCH 'B' Pratik Suryakant Shah ν. Income-tax Officer, Ward- 10 (3), Ahmedabad* OCTOBER 21, 2016 Section 10(38), read with section 147, of the Income-tax Act, 1961 - Capital gains - Income arising from transfer of long-term securities (Bogus transactions) AY 2006-07 Assesse purchased 3000 shares of company 'T' through a stock broker These shares were transferred to assesses demat account However, said stock broker submitted before authorities that he was providing accommodation entries for taking profit or loss by showing purchase or sales of shares and securities commission from beneficiary parties and that assesse was one of beneficiary of such accommodation entries Assessing authorities reopened assessment of assesse Whether since shares of said company was listed in BSE/NSE and these were also transferred to demat account of assesse, assesses claim of exemptions of long-term capital gain on sale of shares could not be denied on basis of submission of said broker Held, yes [Paras 17 and 18] [In favor of assesse]
No. 1442/Ahd/2013 & CO No. 209/Ahd/2013
Assessment Year: 2005- 06 Bogus capital gains from penny stocks: The fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market No.1213/Kol/2016
Assessment Year:2005- 06 Bogus capital gains from penny stocks: Long-term capital gains claimed exempt u/s 10(38) cannot be treated as bogus S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross- examination is a fatal flaw which renders the assessment order a nullity
Smt. Sunita Jain, V/s. Income Tax Officer, Ward10 (3), Ahmedabad ITA. Nos: 501 & 502/AHD/2016
Assessment Year: 2008- 09 The claim of the assesse cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account
ITO-24(3)(1) V/s M/s Arvind Kumar Jain HUF ITA No. 4862/MUM/2014
Assessment Year: 2005- 06 Where assesses broker share transaction was bone fide in all respect, merely because share broker was tainted violating SEBI regulations, would not make assesses share transactions bogus.
Kamla Devi S. Doshi V/s. The Income Tax Officer Ward 16(3)(1), I.T.A. No.1957/Mum/2015
Assessment Year: 2006- 07 Bogus penny stocks capital gain: The s. 131 statement implicating the assesse is not sufficient to draw an adverse inference against the assesse when the documentary evidence in the form of contract notes, bank statements, STT payments etc prove genuine purchase and sale of the penny stock. Failure to provide cross-examination is a fatal error
Shri Sunil Prakash V/s. ACIT -15(2) I.T.A./6494/Mum/2014,
Assessment Year: 2005- 06 S. 68 bogus gains from penny stocks: If the AO relies upon the statement of a third party to make the addition, he is duty bound to provide a copy of the statement to the assesse and afford the opportunity of cross-examination. Failure to do SO vitiates the assessment proceedings. A transaction evidenced by payment/receipt of share transaction S. 10(38) Bogus long-term gains from penny stocks: The transaction cannot be treated as bogus until and unless a finding is given that the shares were acquired by the assesse from the person other than the broker claimed by the assesse. The enquiry conducted by the Investigation Indore is not a conclusive finding of fact in view of the fact that the shares were duly materialized & held in the d-mat account. Merely supplying of Bogus Capital Gains From Penny Stocks: In order to treat the capital gains from penny stocks as bogus, the Dept has to show that there is a scam and that the assesse is part of the scam. The chain of events and the live link of assesses action giving her involvement in the scam should be established. The Dept cannot rely on alleged modus operandi & Bogus capital gains from penny stocks: The fact that the Stock Exchanges disclaimed the transaction is irrelevant because purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market Bogus Capital gains from penny stocks: Capital gains from penny stocks cannot be assessed as unexplained cash credit u/s 68 if the assesse has produced documentary evidence to prove the source, identity and genuineness of the transaction and the AO has not found any fault with it. The fact that the investigation dept has alleged that there is a modus operandi of bogus LTCG scheme is not relevant if the same is not substantiated Reliance is also placed on following case laws where such purchase and sale were allowed.
C.I.T Vs. Mukesh Marolia ITA 456 of 2007-Bombay HC
Muksh R Morolia V/s Add CIT(2006)6 SOT 247
ITO V/s. Mrs. Rasila N Gala ITA No.1773/Mum/2010
CIT V/s Kan Singh Rathore ITA 192of 2014 (Rajasthan HC)
M/s SBD Estate Private Limited V/s. ITO 584/Mum/2015
Ms Farrah Marker V/s ITO ITA No.3801/Mum/2015 order dated 27/04/2016
Mr.ArvindAsmal Mehta V/s ITO ITA No.2799/Mum/2015 order dated 29/02/2016
Smt Jyoti D Shah V/s ITO ITA No.1843/Mum/2012
ITO V/s Deep Darshan Properties Pvt Ltd.2117 & 2118/Mum/2014
CIT-13 V/s ShyamR.Pawar (2015) -54 Taxmaan.com108-
Kamla Devi S. Doshi ITA No. 1957/Mum/2015
Pratik Suryakant Shah (2017)-77 Taxmann.com 260 Ahemdabad Tribunal
Aarti Mittal (2014) 41 Taxmann.com 118(Hyderabad Tribunal)
CIT Appeal order in case of Umang D Soni
C.I.T Mumbai Vs. Mukesh RatilalMarolia Supreme Court - 2015 (9) TMI 854 - SUPREME COURT
The Commissioner of Income Tax-16. Vs. Mrs. Kesar A. Gada 2015 (1) ТМІ 1220 - BOMBAY HIGH COURT
Ramprasad Agarwal VS ITO2(3)(2), Mumbai[2018] 100 taxmann.com 172 (Mumbai - Trib.)
Shri Amar Nath Goenka Vs. The ACIT, Circle-20(1), New Delhi. ITA.No.5882/Del./2018
AJAY GOEL vs .I.T.O, WARD 39(5)ITA No. 4481/DEL/2018
Principal Commissioner of Income-tax,(Central), Ludhiana v. Prem Pal Gandhi (P&H HC)
CIT VS Bhagwati Prasad Agarwal ITA No.22/Kol/2009 Calcutta High Court
Mr. Shyam R Pawar vs DCIT Central Circle 24 & 26 ITAT Mumbai (ITA No.5585/M/11, 5620,5621 & 5622/M/11)
CIT (Jamshedpur) vs Arun Kumar Agarwal (HUF) Jharkhand HC
PCIT (Ludhiana) vs Sh. Hitesh Gandhi P &H HC
ACIT Central Circle-II, Jalandhar vs Hitesh Gandhi ITAT Amritsar [I.T.A. No.129(Asr)/2014]
Manish Kumar Baid and Mahendra Kumar Baid vs ACIT,Cir-35, ITA No.1236,1237/Kol/2017[ Kolkata-Tribunal]
Shri Jignesh Desai VS Income Tax Officer 35(2), ITA No.1263/Kol/2017) [Kolkata-Tribunal]
Navneet Agarwal, Legal Heir of Late Kiran Agarwal vs ITO, Ward- 35(3) ITA No.2281/Kol/2017 [Kolkata-Tribunal]
Kiran Kothari HUF VS ITO Ward 35(3), Kolkata ITA No.443/Kol/2017
Shri Gautam Kumar Pincha vs ITO 34(4), Kolkata (ITA No.569/Kol/2017)
Ketulkumar D Jaiswal vs ITO S.K. ward-4 Modasa (ITA No. 546/Ahd/2015 ) [Ahemdabad-Tribunal]
CIT-I Jaipur vs Smt Pooja Agarwal Shri Jitendra 2017 Rajasthan High Court
Shri Pramod Jain, Shri Ankit Jain, Shri Sunil Jian, Naina Jain and Smt.Nisha Jain vs DCIT & ITO Wd 3(2) Jaipur [Jaipur Tribunal]
Shri Vivek Agarwal vs ITO Wd 1(2), Jaipur [Jaipur –Tribunal]
MrVimalchandGulabchand,Mr Praveen Chand, Mr.Gatraj Jain & Sons (HUF), MrMahendra Kumar Bhandari vs ITO Chennai, ITA No. 2003,1721,2293,2748/CHNY/2017 [Chennai –Tribunal]
Anand Paul vs ACIT Circle-50 ITA No.165/Kol/2015 [Kolkata tribunal]
M/s Bhoruka Engineering Industries Ltd vs DCIT Bangalore,
M/s Amit Rastogi HUF, Shilpa Rstogi, Sadhana Rastogi, Ajay Kumar Rastogi vs ITO wd1(1) wd-2(3), Meerut ITA No.2128/2129/2131/2132/Del/2018 [Delhi-Tribunal]
Smt Shikha Dhawan vs ITO, Wd-4(2) ITA No.3035/Del/2018 [Delhi-Tribunal]
Shamim Imtiaz Hingora, Parvez Hingora, Shabeena Irfan Hingora, Arif Abdul RazakHingora vs ITO Wd-I Jalna, ITA No.1875,1876,1877,1878/Pun/2018 [Pune-Tribunal]
CIT (A)-45, MUMBAI order in case of Parul Hemant Patel
Mukesh B Sharma Vs ITO 11(3)(2) ITA No.6249/Mum/2018
Deepak Nagar Vs The ACIT-17 ITA No. 3212/Del/2019
Kaushalya Agarwal Vs ITO 35(3) ITA No.194/Kol/2018
Vijayrattan Balkrrishan Mittal Vs DCIT ITA No. 3427, 3428, 3429/Mum/2019
Amit Mafatlal Shah vs ACIT ITA No. 5793/MUM/2019
Dipesh Ramesh Vardhan and others vs DCIT CC 2(2) ITA No.7648, 7662, 7651, 7650 and 7649/MUM/2019
Nishant Kantilal Patel and Others vs. ITO ITA No 05,06,07 and 10/SRT/2019
We are also of the view that AO has been very imprecise about the statements provided by the operators basis which the scrutiny assessment has been conducted. Since assessee has mentioned name of the operators in the Assessment Order, but none of those are related to the Company in which the assessee has invested. This goes to show that the AO was unclear about the statements of the operators which is the key evidences on which AO has relied and based on which the entire assessment is conducted. Since there was no clarity about the key evidences, therefore the assessment order should is not sustainable. We have gone to the extent of appreciating the fact that additions made on the basis of third party statement have also been deleted and in this regard, we rely upon the decision in the case of Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (SC), wherein it was held that no addition can be made on the basis of surmises, suspicion and conjectures, the Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence and Hon'ble Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows:
At the end we conclude that AO has placed nothing on record to suggest that Traded Shares (Scrips) were not listed on stock exchange. Traded Shares (Scrips) are of bogus companies. Demat /Bank account not in the name of assesse or do not exist. Enquiry with Depository Participant ie N L/CDSL As share is purchased and sold through Stock Exchange.
Therefore we are of the view that assessment in the present case was made on suspicion, whims, assumption and surmises without providing the copy of material relied upon. Therefore in our view the additions were made in violation of the principles of natural justice and in this regard we placed reliance upon the decision of SN Case Citation Observation/ Held
M/S ANDAMAN TIMBER INDUSTRIES V/s CCE CIVIL APPEAL NO. 4228 OF 2006 Not allowing the assesse 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 assesse was adversely affected
Lalchand Bhagat AmbicaDav V/s CIT (37 ITR 28)(SC) Assessment made without disclosing to the assesse the information supplied by the department and without giving any opportunity to the assesse to rebut the information is violation of fundamental rules of justice.
DHAKESWARI COTTON MILLS LTD. v. CIT [1954] 26 ITR 777 An assessment so made without disclosing to the assesse the information supplied by the departmental representative and without giving any opportunity to the assesse to rebut the information so supplied and declining to take into consideration all materials which the assesse wanted to produce in support of case constituted a violation of the fundamental rules of justice and called for interference on our part.
SETH GURUMUKH SINGH v. CIT [1944] 12 ITR 393 The Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assesse what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the assesse to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assesse wanted to produce in support of its case. The result was that the assesse had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the ITO and the Tribunal, was based on surmises, suspicions and conjectures.
Jai Karan Sharma v/s DCIT [2012] 23 taxmann.com 300 (Delhi) It is a fundamental principle of natural justice that no material should be relied upon against a party without giving him an opportunity of explaining the same
Hamish Engineering Industries (P.) Ltd. V/s DCIT [2009] 120 ITD 166 (MUM. Trib.) Whether since statements recorded from three parties on which Assessing Officer relied for purpose of assessment, had not been provided to assesse, order of Assessing Officer was bad in law to that extent - Held, yes
KishinchandChellaram v/s CIT [1980] 4 Тахтап 29 (SC)- ITO, on the basis of letters from bank manager, not shown to assesse, treated amount so remitted as income from undisclosed sources—Tribunal, relying on letters of bank manager, upheld ITO's action-Whether tribunal justified-Held, on facts, no.
C Vasantlal& Co. vs. CIT [1962] 45 ITR 206 (SC) It was open to an income tax officer to collect materials to facilitate assessment even by private enquiry. But if he desires to use materials so collected, the assesse must be informed of the materials and must be given an adequate opportunity of explaining it.
We have further noticed that the name of the company is mentioned at Noticee-12 in the SEBI adjudication. The same has been disposed in the SEBI adjudication order without imposing any penalty and the relevant portion has been reproduced herein below: “Para 59. In view of the aforesaid facts and circumstances of the case, I, hereby, dispose of the SCN dated December 20, 2017 in respect of Notices по. 12, 13, 14 and 15 without imposition of penalty.”
That at the end another important aspect was brought to our notice that the Coordinate Bench of ITAT had already dealt with in detail with regard to the “same script” and have allowed the appeals of the respective No. 1093/Mum/2020, wherein relevant portion of said order reproduced herein below:
“11. I find that in the case at hand before me, relevant evidence were produced to suggest that the transactions (purchase and sale of shares) were undertaken and thereafter the same was reflected in the Demat Account; and the transactions have taken place through banking channel and through registered broker of Stock Exchange; and there is no evidence to disprove these relevant documents which support the claim of assessee (LTCG). Therefore, the claim of LTCG on the scrip under question cannot be disallowed based on general enquiry conducted by department unless the involvement of assessee is shown in the illegal activities, without which, the impugned action to disallow the claim of assessee cannot be sustained.
Therefore, in view of the decisions of the juri ictional High Court and other decisions of Tribunal, and in the factual back ground discussed (supra), I find that the addition of Rs.24,66,000/- under section 68 of the Act made by the AO is unsustainable and therefore direct the AO to delete the same and allow the LTCG income of Rs.24,58,602/- as exempt under section 10(38) of the Act. Assessee gets relief as afore-stated. And consequently the brokerage charge added of Rs 12,730/- is also deleted. Ground nos.lis allowed.
In the result, the appeal of the assessee is partly allowed.
Therefore taking into considered the entire facts and circumstances of the present case, keeping in view the decision of juri ictional High Court decision and the decision of Coordinate Bench of Tribunal while dealing with the "same script” and ad-hearing to the principles of judicial consistency and discipline we find that additions made u/s 69A of the Act by the AO are unsustainable and therefore AO is directed to delete the same and allow the long term capital gain income earned by the assessee as exempt u/s 10(38) of the Act. Since the assessee got relief as aforesaid consequently the brokerage charges added u/s 69 of the Act also stands quashed. Consequently both the grounds raised by the assessee are allowed. 20 Since ground No. 1 & 2 have already been allowed and therefore other grounds No. 3 & 4 re consequential and thus become infructuous in view of finding on main issue.
In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open court on 13.05.2025. (PRABHASH SHANKAR) ACCOUNTANT MEMBER Mumbai, Dated 13/05/2025 KRK, PS (SANDEEP GOSAIN) JUDICIAL MEMBER आदेश की प्रतिलिपि अग्रेषित/