USHA HITESH SANGHVI,GIRGAON S.O, MUMBAI vs. ITO-19(3)(5), MUMBAI, LAL BAUG, MUMBAI

Facts in brief are that the assessee, an individual taxpayer filed return of income declaring therein taxable income of Rs. 5,04,840/- inter alia inclusive of Long Term Capital Gains(LTCG) of Rs.62,60,150/- on sale of listed equity shares of Shreenath Commercial and Finance Ltd.(henceforth ‘SCFL’) claiming it to be exempt u/s 10(38) of the Act. Based on certain inputs from the Directorate of Income Tax (Inv.), Kolkata in respect of ‘Penny stock’ companies, the assessment was reopened by issue of notice u/s. 148 of the Act. In the course of assessment proceedings, the assessee claimed that the above LTCG related to the sale of equity shares of SCFL which were purchased as well as sold through SEBI registered stock brokers on recognized stock exchange, at the prevailing quoted trade rates duly subjected to collection of STT, after holding the same for more than a year. She submitted brokers purchase and sale contract notes which gave complete details as to order no., order time, trade number, trade time, quantity, sale rate, brokerage, service tax and Securities Transactions Tax, other charges and net proceeds. The entire amount was paid and received to and from the share broker pursuant to the purchase and sale trade through banking channels which the brokers paid and received through clearing mechanism of the Exchange. The A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai copies of purchase and sale broker notes, bank statements showing the payment and receipt of purchase and sale proceeds to and from broker, Demat statement showing delivery of shares purchased and sold were duly submitted to the AO. However, on the basis of the information received from the Investigation Directorate, he treated the LTCG as arranged transaction on penny stocks holding the sale proceeds thereof as unexplained cash credit u/s. 68 of the Act. Also, he estimated payment of commission at the rate 5 per cent to the alleged entry providers on the total sale proceeds of Rs. 76,13,000/- by working it out at Rs. 3,80,650/-and adding u/s 69C of the Act as unexplained expenditure.

In the subsequent appeal before the ld.CIT(A),the assessee repeated the above contentions arguing further that the AO merely based on the information and without making any independent verification or ascertaining the veracity of the same, treated the LTCG as arranged transaction and sale proceeds of the same as unexplained cash credit u/s 68, without providing the copy of information, evidences collected, statement of other persons and materials relied upon to make the addition in gross violation of principle of natural justice and also without bringing any adverse evidence on record. The assessee was never provided the opportunity of cross examination of person/witness A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai either by the ld. AO or the Investigation Directorate of Kolkata, whose statements had been used adversely, notwithstanding the fact that name of the assessee has not been mentioned specifically by any of them as beneficiary of their arranged/fabricated transactions. It is argued that merely gathering of certain material behind the back of the assessee is not sufficient to disprove the comprehensive evidences filed by her. Further, investment made in shares of SCFL and source thereof being paid through normal banking channels in the earlier year stands duly recorded and disclosed by the assessee in the said earlier assessment year which stand accepted by the Department without any dispute. The shares had been purchased through a registered share broker on the BSE namely Hornic Investments Pvt. Ltd. in Mumbai itself. Detailed chart showing name of scrip, no. of shares and rate of purchase, date of purchase, date of Demat, trade no. trade time, date of payment through normal banking channel, etc. forming part of paper book were filed alongwith Broker Contract Notes towards purchase of shares and receipt of shares of SCFL on purchase in her Demat Account. The ld. A.O has not brought any iota of evidence of any cash refunds received or paid by the assessee, without which the addition is not justified. In support of exempt LTCG claim of the assessee, which is genuine one and stands duly supported by the required documentary evidences as per law, the A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai assessee relied upon various judgements of the hon'ble High Courts and Tribunal in which similar disallowance made have been deleted.

Before us, the ld.DR has relied on the orders of authorities below while the ld.AR has reiterated the contentions as made before them which has already been narrated in the preceding paras. Further, Ld.AR of the assessee brought to our notice the decision of the Coordinate Bench in the case of Smt. Veena Chaturvedi v. DCIT [2023] 156 taxmann.com 457 (Mumbai - Trib) and submitted that on similar facts identical to the present case and also involving the similar scrip, the Coordinate Bench has decided the issue in favour by deleting the addition made by the Assessing Officer. For ready reference, the conclusion drawn by the ITAT is reproduced below: - "18 We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. It is an undisputed fact that assessee has purchased 4,97,500 shares of Shreenath Commercial and Finance Limited from 10/03/2011 to 11/03/2011 in the open market on the Online Trading Portal of the Stock Exchange through registered Broker, RBK Share Broking Limited. One important fact to be noted here that in so far as RBK Share Broking Ltd. is concerned, nothing adverse has been found nor there is an enquiry that the said broker has provided any kind of accommodation entry or was involved in any such dubious transaction. On 22/03/2011 bonus shares were issued at the ratio of 1:1 and accordingly, assessee had held that 9,95,000 shares were sold after almost 2 years from 16/01/2013 to 21/01/2013 for sums aggregating to Rs. 8,29,88,876/-, on which assessee had earned a long-term capital gain of Rs. 7,29,88,736/-which claimed as exempt. Apart from that, all the documentary evidences in the form of contract note for purchase and sale of shares; copy of Demat Account reflecting receipt and transfer of shares; ledger account of Share Broker in A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai assessee's books of accounts and bank statement reflecting payment on purchase and receipt of consideration on sale of shares were filed. We have already noted the various contentions raised by the Assessing Officer and his observations and the counter submissions made by the assessee before the authorities below as well as before us. From the perusal of the statement of Shri Rajendra Chaturvedi, husband of the assessee, it is noted that, he has stated that he had made investments in more than 50 scrips on behalf of himself and his family members and the investment in the shares of M/s. Shreenath Commercial & Finance Ltd. was made by him only on behalf his wife, the assessee. The average purchase rate of the shares was Rs.20/- per share and average sale rate was between Rs.79/- to Rs.86/- per share. He has also stated that the entire shares of purchases through stock exchange by online through registered broker and the shares were purchased when the financial condition of the said company was good and the profits were substantially increased including the turnover which was in several crores. He has also stated that the assessee nor any of the family member had any connection or business with the promoters of the company or any kind of alleged exit providers. Now in the case of her husband, Shri Rajendra Chaturvedi, the coordinate bench on exactly similar facts and reasoning of the AO and CIT (A) has deleted the said addition.

The AO has observed that the prices of the shares had reached upto 500/- per share to show assessee has gained multifold, however, assessee had sold the price changing price between Rs.79 to Rs.86/- per share which was quoted price in the Bombay Stock Exchange on which rate such shares were traded and had bought the shares at average price of Rs. 20/- per share. However, the main point which has been discussed at length by the ld. AO in his order that in the case of exit providers, there is the order of the SEBI dated 04/12/2014 in the case of Moryo Industries Ltd., who was one of the six exit providers of the impugned shares of Chaturvedi family. On this ground, the ld. AO has endeavored to depict nexus between the exit providers and Shreenath Commercial & Finance Ltd., and all the concerns have common promoter Shri Giriraj Kishore Agarwal. Therefore there was whole nexus which was found by the SEBI and these exit providers were banned by the order of the SEBI on 04/12/2014. As per the Interim order of the SEBI dated 04/12/2014, wherein primary investigation was undertaken on the dealings in the scrip of Moryo Industries Limited on noticing huge rise in the traded volumes and price of the said scrip on the Bombay Stock Exchange from 15/01/2013 to 31/08/2014. In the said interim order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees and they were temporarily restrained from buying, selling or dealing in the securities market. The said SEBI order is only in respect of scrip of Moryo Industries Ltd. and nowhere there is any whisper or mention about the scrip of M/s. Shreenath Commercial & Finance Ltd.; nor in the said list of 91 persons/entities, contain the name of either Shreenath A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai Commercial and Finance Limited or the assessee or family members. Thus, per se, the said interim SEBI order does not impinge upon the assessee or the transaction of the scrip of Shreenath Commercial and Finance Limited in the Bombay stock exchange. Moreover, one very important fact which was brought on record before the authorities below that SEBI vide final order dated 21/09/2017 had revoked the earlier interim order dated 04/12/2014 by categorically holding that there are no adverse findings against the said persons with respect to their role in the price manipulation in the scrip of Moryo Industries Limited. Thus, the entire basis and premise of the ld. AO to draw his adverse inference on the basis interim SEBI order dated 04/12/2014 has no legs to stand. One of the major contentions of the ld. AO was that in the case of exit providers, SEBI has given an adverse remark and all the observation on preliminary investigation by SEBI has been referred and relied upon the AO, therefore, the inference drawn by the ld. AO about the purchase of the scrips by these entities from the assessee, which has now been found by SEBI in its final order that there was no such manipulation by the these entities. In any case, firstly, the said SEBI order has nothing to do with the scrip of M/s. Shreenath Commercial & Finance Ltd. and secondly, the revocation of this order by the SEBI in its final order dated 21/09/2017 itself demolishes the entire foundation of the AO's inference.

Apart from that, no enquiry either by the SEBI or any Government agencies has been done in the case of M/s. Shreenath Commercial & Finance Ltd. or the broker from whom assessee has purchased online or the assessee or the family member. In so far as one of his observations that one Shri. Giriraj Kishore Agarwal was the promoter, Director of various entities including M/s. Shreenath Commercial & Finance Ltd., he became the Director of this company on 10/11/2016. i.e., after more than 3 ½ years, when the assessee had sold shares through Bombay Stock Exchange. In any case, the adverse inference of common link of Shri Giriraj Kishore Agarwal was discharged by the final SEBI order dated 29/11/2017. Therefore, tenuous connection made by the ld. AO to link M/s. Shreenath Commercial & Finance Ltd. with Moryo Industries Limited and other alleged exit providers through Shri Giriraj Kishore Agarwal does not hold any ground.

In so far as general observation in respect of share brokers on whom survey action was conducted by Directorate of Investigation Wing of Kolkata who had allegedly accepted the role in providing accommodation entry of bogus/ long term capital gain first of all such a reference is wholly out of context because assessee has not dealt with any of these brokers. Two statements of such brokers were also provided to the assessee by the ld. AO but no way they were connected to the assessee nor assessee has dealt with them nor is assessee's name figuring anywhere. The assessee had made transaction of purchase and sale of shares through RBK Share Broking Limited against which there is no such enquiry or information that this broking entity was A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai involved in any kind of accommodation entry. Although these brokers have given the list of various scrips in which they have done the trading in shares for providing accommodation entry and one of the scrip mentioned was M/s. Shreenath Commercial & Finance Ltd. As per the statement of Shri Ritesh Jain, it was also alleged that M/s. Manu Stock Broking is a broking house for some of the exit providers related to sale of shares by Chaturvedi Family, however, in his statement there is no mention about the scrip and M/s. Shreenath Commercial & Finance Ltd. The said statement is part of the assessment order and nowhere in the said statement there is any whisper about the said credit or assessee or her family. When his statement was confronted to Mr. Rajendra Chaturvedi, then also in his statement he has not admitted that he had any connection with any of the four alleged share brokers nor there any mention in the statement of Shri Ritesh Jain. In so far as notices u/s. 133(6) issued by the ld. AO to the exit providers and only few of them had replied. The only conclusion which has been drawn by the ld. AO that they had offered a very meager income and do not have any substance. However, in none of the replies which AO has noted, that they have stated that they had any transaction with the assessee. Further, ld. AO has not provided and how these entities were connected with scrip of M/s. Shreenath Commercial & Finance Ltd. and how they were involved in the alleged modus operandi adopted by the accommodation entry provider for bogus capital gain including the assessee, at least there has to be some prima facie or some mention about the assessee or about the scrip from such enquiry so as to draw some kind of adverse inference.

In so far as various reports of the ld. AO and ld. CIT (A) by and large are same and ld. AO has stated that nothing new has been brought on record. Though there are decisions cited by both the parties and also assessee had cited various decisions of the Hon'ble Bombay High Court as mentioned above wherein the Hon'ble Bombay High Court had held that where the transactions have been made both purchase and sales through online and there is no adverse material or information except with some brokers have stated in their statement that they have provided accommodation entry in various scrips in one such scrip involved, that does not lead to drawing any adverse inference to treat the share transactions as bogus done through stock exchange.

Be that as may be, we find that on exactly similar set of facts and identical finding, this Tribunal in the case of the assessee's husband Shri Rajendra Chaturvedi and Mrs. Pallavi Pandey supra, the Co-ordinate Bench has deleted the said addition after observing as under:- "We have heard the rival submissions of both the parties and perused the material on record including the various case laws referred by the rival parties during the course of hearing. The undisputed facts are that the assessee has purchased 28 lakhs of shares of M/s. Shrinath Commercial and Finance A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai Ltd. between 04.03.2011 to 15.03.2011 M/s. Shrinath Commercial and Finance Ltd thereafter Issued bonus shares in the ratio of 1:1 on 22.03.2011 and thus the assessee came to hold 56 lakh shares in the said company. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly, the bonus shares were also credited in the said D- mat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs 41,48,39,241/- and was received through banking channel thereby making a long term capital gain of Rs 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the D- mat account and the sale and purchase consideration reached through banking channels. The AO has also only relied on the Investigation carried out by the Investigation wing, Kolkata and Mumbai that assessee is a beneficiary of these bogus long term capital gain entries. Nowhere the AO has brought on record any other evidence than relying on the report of investigation wing that the assessee is beneficiary of this huge racket of taking bogus entries of long term capital gain. The 40 has disbelieved these documents by observing that these are sham and bogus documents without pointing out any specific defect or infirmity as these were issued as per the system of recognised stock exchange through registered brokers. Similarly, the Ld. CIT(A) has upheld the order of AO by holding that the assessee is beneficiary of a big racket whereby the prices of the shares were rigged and manipulated to yield bogus gain to various entities/individuals of which assessee was one. Thus, we find merit in the arguments of the Ld AR that assessee has furnished all the information. details, documentary evidences before the AO but the AO has not done any further verification to find out the truth or done anything to prove the money trail of the funds as has been alleged in the order. Under these circumstances, we are not in a position to sustain the order of Ld. CIT(A) upholding the order of AO wherein the long-term capital gain has been held to be non genuine and bogus."

Once on the same set of facts the Co-ordinate Bench have deleted the said addition, then in the case of the assessee, no different view can be taken. Respectfully following the same, addition made by the ld. AO is deleted including the addition of alleged commission made u/s.69C, which is deleted. Thus, on merits, appeal of the assessee is allowed."

As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected 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." • In the case of CIT Vs Sumitra Devi(supra), the Hon'ble Rajasthan High court has held that where the assessee has furnished all the documents comprising contract notes, brokers note, cash book extracts, copies of share certificates and D-Mat statements etc and the AO has fai;ed to show that the material documents placed on records by the assessee were false, fabricated or fictitious , then the transactions of purchase and sale of shares cannot be treated as non genuine.

We do not find merit in the argument of the Ld. D.R. as the decisions relied by the Ld. D.R. clearly are distinguishable on facts. In view of the above facts and the ratio laid down as discussed above, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition made under section 68 of the Act of Rs.41,48,39,241/-.

Since we have deleted the addition as made by the AO under section 68 of the Act by setting aside the order of Ld. CIT(A), the other addition of Rs.2,07,41,962/- as made by the AO towards commission paid on the accommodation entry is a consequential one and is also deleted." 7.2 In case under consideration here, the Assessing Officer and Ld.CIT(A) have also applied the concept of human probabilities and held the above said scrip to be a penny stock without bringing on record how the assessee is involved in any of the unscrupulous activities or directly linked to anyone involved in manipulation/rigging of share prices, be it entry operator or exit provider. The assessee is a regular investor in share market, made sales and purchases online through recognised brokers and banking channels. No adverse report of the SEBI or concerning the assessee has been brought on record by the revenue. Therefore, there is evidently no cogent material with the tax authorities to substantiate their findings that the impugned transaction is non- genuine. The additions have been made on the basis of a generalised investigation report without bringing on record any infringement on part of the assessee by the authorities concerned. Therefore, we allow A.Y. 2013-14 Usha Hitesh Sanghvi, Mumbai the ground raised by the assessee setting aside the appellate order and directing the ld.AO to delete the addition. Accordingly, the Ground Nos. 1 and 2 of the assessee are allowed.

With regard to Ground No. 3 relating to the estimated addition made on account of alleged commission paid on the impugned bogus share transactions, we find that the above ground is consequential to the ground nos. 1 and 2 above. Therefore, once the share transaction has been held by us to be genuine and explained, the addition is liable to be deleted. Accordingly, reversing the decision of the ld.CIT(A),we direct the ld.AO to delete the above addition made u/s 69C of the Act.

In the result, appeal filed by the assessee is allowed.