SHRI MANOJ YADAV,INDORE vs. ACIT5(1), INDORE

Appellant by Shri Girish Agrawal, Mis. Nisha Lahoti & Shri Vijay Bansal, ARs Revenue by Shri Harshit Bari, Sr. DR Date of Hearing: 13.04.2021 Date of Pronouncement: 25.05.2021 आदेश / O R D E R PER MANISH BORAD, A.M: The above captioned appeal filed at the instance of assessee pertaining to Assessment Year 2014-15 is directed against the order of Commissioner of Income Tax (Appeals)-II (in short ‘Ld.CIT’], Indore dated 26.12.2018 which is arising out of the order u/s Manoj Yadav 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 16.12.2016, framed by ACIT-5(1), Indore. 2. The assessee has raised following grounds of appeal: “1. That the order passed by Ld. CIT(A) is bad in law and on facts.

2. That the Ld. CIT(A) has erred in confirming the addition of Rs.97,49,239/- under section 68, which is quite unjust, illegal and against the facts of the case.

3. That the Ld. CIT(A) has erred in holding that the genuine income of Long Term Capital Gain exempted u/s 10(38) of Rs.97,49,239/- is a sham transaction, by applying test of human probability, without any evidence against the assessee, which is quite unjust, illegal and against the facts of the case.

4. That the Ld. CIT(A) has erred in holding the decision of Hon'ble Delhi Bench of I.T.A.T. in case of Shikha Dhawan (Appeal No.ITATNo.3035/Del/2018) wherein the similar transaction of Turbotech Engineering is considered as genuine, which is quite unjust, illegal and against the facts of the case.

5. That the Ld. CIT(A) has erred in wrong applying the decision of Hon'ble Supreme Court in case of the assessee wherein the facts of the case of the assessee is altogether different, which is quite unjust, illegal and against the facts of the case.

6. That the Ld. CIT(A) has erred in holding the script as “penny stock”, whereas no such word has been defined under the Income Tax Act or under any law for the time being in force, which is quite unjust, illegal and against the facts of the case.

7. That the Ld. CIT(A) has erred in holding that the capital gain earned by the assessee, based on some inquiries but not on the assessee, is bogus and/or managed affairs, which is quite unjust, illegal and against the facts of the case.

8. That the Ld. CIT(A) has erred in not providing the copy of the report of the investigation wing and further not providing any opportunity to cross examine the persons mentioned in the report, which is quite unjust, illegal and against the facts of the case.

9. Appellant craves to leave, add, amend, alter or modify of any ground before final date of hearing. “ Additional Ground: On the facts and in the circumstances of the case and in law, Ld. AO erred in the alternative treatment of the Long Term Capital Gain of Rs.99,78,000/- as adventure in the nature of trade.

Manoj Yadav

Manoj Yadav

6. The crux of the argument of the Ld. counsel for the assessee are that the additions made by the Ld. AO are vague and based merely on surmises and conjectures. No report or statement recorded under oath of the third party has been made available to the assessee which is gross violation of principles of natural justice. The term listed ‘penny stock’ has mentioned by the Ld. AO has not been defined under the law. No evidence has been brought on record to Manoj Yadav establish that the assessee is involved in rigging of the prices, having acquaintance with any ‘operator’ or any connection to promoter/director/key management of TEL. Further TEL is neither included in the list of shell companies nor has been struck down from the records of Registrar of Company. Documentary evidences filed by the assessee have not been found to be incorrect. Transaction of purchase of shares has been accepted and no doubt has been raised. The assessee is regularly dealing in equity shares. All the conditions provided in section 10(38) of the Act for claiming exemption of LTCG have been duly fulfilled and lastly it was submitted that provisions of section 68 of the Act are not applicable on the impugned transactions of sale of equity shares of TEL effected on a recognized stock exchange, as identity is not disputed, creditworthiness is proved and the transaction is genuine being effected through DEMAT account and registered broker.

through application dated 01.01.2021 submitting that the assessee is not engaged in the business of share, as the assessee is mainly engaged in the capacity of a director in the company and transactions of purchase and sale of equity shares are done occasionally. List of decisions relied are reproduced below:

1. Sona Builders – [2001] 119 Taxman 430 – dated 24.07.2001 (SC) 2. Krishna Devi – of 2020 dated 15.01.2021 (Delhi HC) 3. Uttamchand Jain – [2009] 182 taxman 243 – dated 02.07.2009 (Bombay HC)

4. Swati Luthra – [2020] 115 taxmann.com 167 – dated 28.06.2019 I.T.A.T., Delhi)

5. Lalchand Bhagat Ambica Ram [1959] 37 ITR 288 (SC) 5

Manoj Yadav

11. On the other hand, Revenue is contending that the alleged transaction is sham and assessee has managed bogus LTCG by way of accommodation entry. ‘TEL’ is a penny stock company and the abnormal rise in share prices is not supported by financial results that are controlled through operators and share brokers.

12. We note that the assessee purchased 22000 equity shares of ‘TEL’ from registered share broker namely Pragati Shares and Stock Services Limited Mumbai having SEBI REGN No. INB241426817 at cost of Rs.2,75,964/-. The source of investment is not in dispute as the assessee is having regular source of income from salary and income of Rs.20,35,020/- was disclosed in the return for A.Y. 2012- 13. These shares were held in the pool account of the broker which were subsequently transferred to the DEMAT Account in name of assessee maintained with Arihant Capital Markets Limited. After holding the shares for more than 12 months the assessee sold these

Manoj Yadav equity shares through the broker Arihand Capital Markets Limited having SEBI No. INB/INF230783938. The shares of ‘TEL’ are listed on Bombay Stock Exchange. During the F.Y. 2013-14, 22,000 shares were sold in parts and contract notes are placed at page 12 to 22 of the paper book. Gross sale value is Rs.99,78,000/-. The net long term capital gain comes to Rs.97,02,036/-. Source of sale consideration is not in dispute as it came through a registered broker directly in the bank account of assessee and sale effected on portal of Registered Stock Exchange where identity of Buyer and Seller is not disclosed.

13. We further note that both the lower authorities had not disputed any of the documents mentioned above i.e. a contract note at the time of purchase and sale, DEMAT account, financial ledger, share prices appearing on the portal of Bombay Stock Exchange as on the date of purchase/sale. Rather than disputing any of the documents Ld. AO made a general observation about searche u/s 132 and survey u/s 133A of the Act conducted by the department on various brokers of stock exchange and companies.

15. We also note that Ld. AO has not referred to any specific report of the investigation wing in which the name of assessee is appearing or any connection of the assessee with the broker/promoters of the company is established. No such report was made available to the assessee in order to provide opportunity to cross examine. The only common thing is the name of company ‘TEL’.

12.We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. We find that the transactions of the assessee of purchase of shares of M/s Esteem Bio and M/s Turbotech., holding of the shares for more than one year and the sale of shares through a registered share broker in a recognized Stock Exchange and payment of Securities Transaction Tax thereon, all were supported by documentary evidences which were placed before the lower authorities. The Revenue could not point out any specific defect with regards to the documents so submitted by assessee. In our considered view, effect of a transaction which is supported by documentary evidences cannot be brushed aside on suspicion or probabilities without pointing out any defect therein.

Manoj Yadav

"According to us, not allowing the assessee 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 assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is Manoj Yadav concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross- examine those dealers and what As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."

14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon'ble High Court of Delhi in the case of Udit Kalra vs ITO in ITA No. 220/2019. Relevant extracts of said judgment are extracted as below:

"The assessee is aggrieved by the concurrent findings of the tax authorities - including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs.13,33,956/- and Rs.14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs.12/- per share whereas the market price of the shares at the time of their sale, was Rs.720/-. It is contended that the assessee was not granted fair opportunity.

Manoj Yadav

Mr. Rajesh Mahna, learned counsel appearing for the assessee relied upon the orders of the co-ordinate Bench of the tribunal, in respect of the same company i.e. M/s Kappac Pharma Ltd., andpointed out that the tax authority's approach in this case was entirely erroneous and inconsistent.

The main thrust of the assessee's argument is that he was denied the right to cross-examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal. This court has considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent - A.O., CIT(A) and the ITAT have all consistently rendered adverse findings - what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.

This appeal is accordingly dismissed."

16. We further find that Ld. AO has also mentioned about some order of SEBI. This order also was never confronted to the appellant during assessment proceedings. Moreover, the said order seems to be passed in year 2015, whereas the appellant had purchased the shares in year 2011

Manoj Yadav and 2013 and sold them in year 2014. It was evident from this document only that no action has been taken by the SEBI against the company during the period when the appellant holds the shares. Thus, even otherwise, we find that the order of SEBI so relied by ld. AO and CIT (A) is not applicable for the transactions under consideration.

In any case as stated above, the SEBI in its subsequent decision has absolved most of the companies including the companies whose scrips are under suspicion, as they were nor found to be rigging the price. This fact alone vitiates the case of revenue.

17. We also find that the Ld. AO has raised objection regarding the cash purchase of shares and that shares were dematerialized few days back only from the date of sale. There is no law which prohibits the purchase of shares in cash, however in the present case, assessee had filed copies of bills of purchase, copy of share certificates and transfer forms etc. before Ld. AO and no adverse inference could be drawn only because the shares were purchased in cash. Regarding Demat of shares, we hold that it is the option of the buyer of shares to keep the shares either in Demat form or in paper form. Merely because the shares were dematted at a later stage, no adverse inference could be drawn. The Learned Counsel for the Assessee has taken us through various documents filed in the paper book as referred to above which specifically prove the purchase of shares made by assessee genuinely which were also sold genuinely. The transactions were carried through Demat account and banking channel on which STT has been paid by assessee. The report of the SEBI was not adverse in nature against the assessee because name of the assessee did not appear therein for conducting dubious transaction. The report of the Investigation Wing and other material was neither confronted to assessee nor there was any inquiry from where it transpired that assessee was beneficiary of any bogus long-term capital gain; therefore, the same cannot be read in evidence against the assessee. A specific material against the assessee should have been brought on record to put assessee under liability. However, in the present case, the entire documentary evidence on record has not been disputed by the authorities below and there is no rebuttal to the explanation of assessee. No other adverse materials have been brought on record against the assessee. Further, no proper enquiry has been conducted by the A.O. on the documentary evidences filed by assessee. Whatever statements have been referred to in the order was general in nature with whom assessee did not have any transaction. Considering the totality of the facts and circumstances of the case, we hold that assessee has entered into genuine transaction of sale and purchase of shares and therefore, satisfied the conditions of Section 10(38) of the I.T. Act. The assessee is entitled for exemption under the same provision. We

Manoj Yadav accordingly, set aside the orders of the authorities below and delete the addition of Rs. 41,85,762/-. Appeal of assessee is allowed.

19. In the result, the appeal of all the above four assessees, namely, Smt. Swati Luthra, Smt. Shruti Luthra, Smt. Namata Sehgal Luthra and Smt. Asha Luthra bearing ITA No. 6480 to 6483/Del/2017 are allowed.

Manoj Yadav

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.

Manoj Yadav 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 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.

14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.

15. Accordingly, the present appeals are dismissed.

18. We, therefore, respectfully following the ratio laid down by Hon'ble High Court of Delhi in the case of Krishna Devi (supra) and the decision of Coordinate Bench in the case of Swati Luthra (supra) which is squarely applicable on the facts and issues raised before us, are of the considered view that the claim of LTCG u/s 10(38) of the Act at Rs. 97,02,036/-from sale of equity shares of Terbotech Engineering Limited is genuine and the assessees is entitled to claim the benefit. Thus, no addition at Rs.99,78,000/- was called for u/s 68 of the Act for unexplained cash credit. We, further hold that the assessee is regularly dealing in equity shares as an investor

Manoj Yadav and as its main source of income salary and other from other sources and the frequency of transactions in purchase and sale of shares is less, it cannot be held to be carrying on business of purchase/sale of shares as an adventure in nature of trade.