KUMARI AYUSHI NYATI,INDORE vs. ITO-5(5), INDORE

PER BENCH

The above captioned appeals are at the instance of different assessee(s) and are directed against the respective orders of Ld. Commissioner of Income Tax(Appeals)-1& II, (in short ‘CIT(A)’), Indore dated 14.11.2018, 18.05.2019, 04.05.2018, 04.05.2019 & 31.01.2019.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

(ii) Grounds of appeal in ITA No.703/Ind/2018 - Smt. Vijaya Nyati 1.“That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 33,98,3871- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 33,98,387/- was rightly claimed as exempt u/s 10(38) and it is prayed that the exempt Long Term Capital Gain be accepted as such and the order of the Ld. CIT(A) be quashed. 2.That, the Ld. CIT(A) has grossly erred in disallowing Long Term Capital Gain on sale of shares of Rs. 33,98,387/- claimed exempt u/s 10(38) of the I.T. Act, 1961 and treating it as income from undisclosed sources by - (a) relying solely on the basis of statement of Shri Vipul Vidur Bhatt, recorded u/s 131 by A.D.I.T.(Inv)-4(3), Mumbai during the course of survey proceedings u/s 133A in the case of M/s Shipra Fabrics Pvt. Ltd., Mumbai. (b)using the statement of Shri Vipul Vidur Bhatt and not providing an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no 3

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3.That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. ”

(iii) Grounds of appeal in ITA No.704/Ind/2018 - Shri Vijay Kumar Radheshyam Nyati, HUF 1. “That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 35,01,004/- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 35,01,004/- was rightly claimed as exempt u/s 10(38) and it is prayed that the exempt Long Term Capital Gain be accepted as such and the order of the Ld. CIT(A) be quashed. 2. That, the Ld. CIT(A) has grossly erred in disallowing Long Term Capital Gain on sale of shares of Rs. 35,01,004/- claimed exempt u/s 10(38) of the I.T. Act, 1961 and treating it as income from undisclosed sources by - (a) relying solely on the basis of statement of Shri Vipul Vidur Bhatt, recorded u/s 131 by A.D.I.T.(Inv)-4(3), Mumbai during the course of survey proceedings u/s 133A in the case of M/s Shipra Fabrics Pvt. Ltd., Mumbai. (b)using the statement of Shri Vipul Vidur Bhatt and not providing an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. ”

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

(iv) Grounds of appeal in ITA No.705/Ind/2018 - Shri Manish Kumar Radheshyam Nyati, HUF

1.“That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 33,25,952/- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 33,25,952/- was rightly claimed as exempt u/s 10(38) and it is prayed that the exempt Long Term Capital Gain be accepted as such and the order of the Ld. CIT(A) be quashed. 2. That, the Ld. CIT(A) has grossly erred in disallowing Long Term Capital Gain on sale of shares of Rs. 33,25,952/- claimed exempt u/s 10(38) of the I.T. Act, 1961 and treating it as income from undisclosed sources by - (a) relying solely on the basis of statement of Shri Vipul Vidur Bhatt, recorded u/s 131 by A.D.I.T.(Inv)-4(3), Mumbai during the course of survey proceedings u/s 133A in the case of M/s Shipra Fabrics Pvt. Ltd., Mumbai. (b)using the statement of Shri Vipul Vidur Bhatt and not providing an opportunity of cross examination to the assessee which is against the principles of natural justice. (c) completely ignoring the well- established position of law that no addition can be made solely on the basis of statements recorded on oath during the course of survey proceedings u/s 133A having no evidentiary value. (d)simply on the basis of information received from A.D.I.T.(Inv), Mumbai, without making own independent enquiry and efforts. 3. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. ”

(v) Grounds of appeal in ITANo.488/Ind/2019 – Smt. Mamta Nyati 1.“That the Ld. CIT(A) erred in upholding the action of the Assessing Officer disallowing Long Term Capital Gain on sale of shares of Rs. 35,99,598/- claimed exempt u/s 10(38) of the Act, 1961 and treating it as income from undisclosed sources. That on the facts and in the circumstances of the case, the Long Term Capital Gain of Rs. 35,99,598/- was rightly claimed as exempt u/s 10(38) and it is prayed that the exempt Long Term Capital Gain be accepted as such and the order of the Ld.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

CIT(A) be quashed. 2. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/ or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises. ” 3. From perusal of the above grounds we find that following two

issues of each one is common in all the case and one relates to the

assessee Kumari Ayushi Nyati and the same are as follows:-

(i) Issue of genuineness of claim of exempt income u/s 10(38)

of the Act from Long Term Capital Gain ( In short ‘LTCG)

arising from sale of equity shares of M/s Sunrise Asian

Limited listed on recognized stock exchange and the

amount impugned before us are as under:-

S.No. Name Long Term Capital Gain 1 Ms. Ayushi Nyati Rs. 36,14,053/- 2 Smt. Vijaya Nyati Rs. 33,98,387/- 3 Shri Vijay Kumar Rs. 35,01,004/- Radheshyam Nyati HUF 4 Shri Manish Kumar Rs. 33,25,952/- Radheshyam Nyati HUF 5 Smt. Mamta Nyati Rs. 35,99,598/-

(ii) Addition for brokerage expenses of Rs.72,281/- deemed to

have been incurred by Miss Ayushi Nyati for arranging

accommodation entry of LTCG.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

parties we will take up the facts of Miss Ayushi Nyati for the

purpose of adjudication.

Assessment Year 2014-15 was e-filed on 29.7.2014 declaring

income of Rs.4,10,680/-. Case selected for scrutiny through CASS

followed by serving of statutory notices u/s 143(2) and 142(1) of the

Act. In the return of income Long Term Capital Gain of

Rs.36,14,053/- was claimed as exempt income u/s 10(38) of the

Act arising from sale of equity shares of M/s Sunrise Asian Limited

(In short ‘SAL’) listed at Bombay Stock Exchange. It was submitted

by the assessee that the equity shares were held for more than 12

months, sale took place on a recognized stock exchange and shares

were transferred from Demat account thus fulfilling all the

conditions provided u/s 10(38) of the Act. But Ld. A.O was not

convinced and he on the basis of information available with him

acquired from third source which mainly included the outcome of

Search & Survey actions at various brokers of stock exchange

across the country and the finding of Investigation Wing about

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

bogus entries and manipulation through penny stock companies,

concluded that M/s Sunrise Asian Limited is a penny stock

company and the Long Term Capital Gain claimed by the assessee

is merely an accommodation entry taken for converting

unaccounted money into exempt income. Ld. A.O accordingly

denied the benefit of exemption and added Rs.36,14,053/- to the

income of the assessee and addition also made for estimated

brokerage expense of Rs.72,281/- calculated @2% of the Long Term

Capital Gain and added to the income. Accordingly income

assessee at Rs.40,97,010/-.

made submissions in order to prove that the alleged transaction of

Long Term Capital Gain is a genuine transaction. It was submitted

that the purchase was originally made on 22.09.2011 for purchase

of 7500 equity shares of Conart Traders Ltd from Santoshima Lease

Finance & Investment (India) Ltd (name changed to Santoshima

Trade Link Ltd). Further pursuant to the order of Hon'ble Bombay

High Court dated 22.03.2013 there was a merger of Conart Traders

Ltd and Santoshima Trade Link Ltd with M/s Sunrise Asian Limited

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

and assessee received 7500 equity share of “SAL”. Sales of these

equity shares was effected through Bombay Stock Exchange and

therefore the Long Term Capital Gain is a genuine claim u/s 10(38)

of the Act.

reliance on decisions concluded that the alleged transactions is

sham which cannot stand the test of human probability and thus

the addition has rightly been made by the Ld. A.O.

the written submissions placed on record which are reproduced

below:-

Chronology of the Transaction:

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

The AO’s observations in the assessment order are devoid of merits for the following reasons: - a) The assessee purchased shares from M/s Santoshima Tradelinks Ltd. which was duly endorsed at the back of the share certificate. So, the question of contract notes does not arise as it was an off-market transaction and share certificate in physical form was issued which was duly endorsed in favour of the assessee when the assessee bought the shares.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

b) The cheque was issued in the name of M/s Santoshima Lease Finance & Investment (India) Ltd. whose name was subsequently changed to M/s Santoshima Tradelinks Ltd. The cheque was issued before the name change i.e. 17.09.2011 whereas the name of M/s Santoshima Lease Finance & Investment (India) Ltd. was changed to M/s Santoshima Tradelinks Ltd. just a day before and hence the assessee was unaware of the developments. The change of name in the bank account also takes some time as there is a process involved in the change of name. c) The purchase was made via an off-market transaction and payment was routed through Dena Bank. The share certificate allotting shares bears the date of last week of November 2011, the reason being that the change of name and other formalities were taking place and since the allotment was made in physical form some time gap is inevitable. d) The share certificate carries only the endorsement not the transfer of shares. The endorsed share certificate was received in second week of December, 2011. The shares were dematerialized subsequently in the next year i.e. 2012. e) The rubber stamp analogy is baseless as M/s Santoshima Tradelinks Ltd. was a substantial shareholder of Conart Traders Ltd. and hence a rubber stamp must have been prepared to save time as the share certificates were issued manually. The endorsement of shares in the name of the purchaser i.e. the assessee when they were sold is hand written. f) The broker account referred by the AO is that of USS Broking Pvt. Ltd. from whom the transaction of the shares of Conart Traders Ltd. has not taken place. (in case of Vijaya Nyati) The assessee was having demat account with two more depositories viz. Saraswat Bank and Swastika Investmart Ltd. from whom shares were purchased and sold respectively. g) The credit in the demat account on 12.02.2013 is simply because of the sreason that the assessee was holding shares in physical form and if the shares in question were sent for dematerialization on a later date it is immaterial as the period of holding shall be counted from the date of purchase and hence the theory of short term capital gain in the alternate is again baseless. h) The allegation that Sunrise Asian Ltd. was a paper company is a figment of imagination. The company was trading in textiles, diamonds and shares. The Revenue from operations as on 31.03.2013 and 31.03.2014 stood at Rs. 73,83,56,861 and Rs. 113,45,80,505 respectively which are healthy figures to prove that the company had business. The Profit after Tax of Sunrise Asian Ltd as on 31.03.2013 and 31.03.2014 was Rs. 27,58,163 and Rs. 69,54,857 respectively which

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

by no means was meager. The Reserves & Surplus of the company stood at Rs. 32.21 crores and Rs. 32.61 crores as on 31.03.2013 and 31.03.2014 respectively. The EPS as on 31.03.2013 stood at 0.65. The AO has not addressed the profits but fixed assets which are immaterial in the case of a trading activity. Even the Research unit of CRISIL has not given any adverse opinion on the company but given good prospects of the company as on 31.03.2016. Copy of CRISIL report is enclosed at pages 01 to 04. i) The allegation that the documents are cooked up is again misconceived as the shares were listed on BSE. The documents provided by the assessee prove that the primary onus cast on him had been discharged and it was open to the AO to controvert the same but he has instead taken shelter of three Supreme Court decisions and reached a definitive conclusion that the documents have been cooked up with the help of conniving brokers who are interested in such dubious transactions. The entire conclusion is based on conjectures and surmises without any evidence. Neither the assessee nor the broker have been implicated in the SEBI investigation. j) The AO has observed that the case was selected for scrutiny on the basis of inputs provided by the Investigation wing. So, there is no application of mind but merely a borrowed satisfaction on the basis of which the assessment has been framed. k) The AO has done no independent investigation at his end. Neither any summons u/s 131 nor any notices u/s 133(6) were issued to any of the entities involved to confirm the veracity of transactions. Instead he chose to make the addition simply on the basis of suspicion which howsoever strong it may be cannot replace evidence.

The Ld. CIT(A) on the other hand has relied on the investigation carried out by DIT (Investigation), Kolkatta and discussed the alleged modus operandi of the operators, pan India, to rig share prices and generate Long Term Capital Gain which is exempt from tax. No opportunity was given by the Ld. CIT(A) to counter the same. The Ld. CIT(A) has also quoted admission made by various entities like M.P. Stock Exchange, Indore, Destiny Securities Ltd. New Delhi that Sunrise Asian was one of the penny stocks through which Long term Capital Gains were arranged for beneficiaries. These are general observations and the appellant was never confronted with these facts.

The Ld. CIT(A) has further observed that the appellant has not produced evidences in support of this claim are not based on facts as the appellant has produced all possible documentary evidences to discharge the primary onus cast on him as stated above. Further observations made by the Ld. CIT(A) are addressed as under :- 12

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

i) The observation that the assessee has not made any investment in any other shares which is not correct in one of the cases (Smt. Vijaya Nyati) as the assessee has not dealt merely in Sunrise Asian Ltd. ii) Shares were not purchased with the collusion of broker as the purchase was an off-market transaction and not at a miniscule price but @ Rs. 20/- per share. iii) Since it was an off-market transaction the question of recording of purchase on the stock exchange or market does not arise. iv) There is no illegality in making an off-market purchase. v) The payment for purchase was made by cheque and not cash as stated and the same can be verified from the bank statement of Dena Bank which were submitted before the AO and the CIT(A). vi) The conversion of shares into demat form is made before the sale is made and again there is no illegality in that. The date of purchase is important. There are different reasons for not converting the shares into demat form immediately from its physical form. Dematerialisation of shares took place well in advance. There is a substantial gap from demat of shares and sale of shares. vii) The investors are basically guided by tips from the brokers in maximum cases or their own study of the market but the percentage of such people with own study is very low. Looking at the large number of traders/investors on the market all are not qualified to study the intricacies of the market and take decisions on their own. The markets normally work on buzz or news coming from the market, news available on net, tips circulated by friends or brokers. The entry and exit into a particular stock is guided by extraneous factors. viii) The allegation that Sunrise Asian Ltd. was having no turnover or profits is again a figment of imagination of Ld. CIT(A). The company was trading in textiles, diamonds and shares. The Revenue from operations of Sunrise Asian Ltd as on 31.03.2013 and 31.03.2014 was Rs. 73,83,56,861 and Rs. 113,45,80,505 respectively which by no means was meager. The Profit after Tax of Sunrise Asian Ltd as on 31.03.2013 and 31.03.2014 was Rs. 27,58,163 and Rs. 69,54,857 respectively which by no means was meager. The Reserves & Surplus of the company stood at Rs. 32.21 crores and Rs. 32.61 crores as on 31.03.2013 and 31.03.2014 respectively. Even the EPS as on 31.03.2013 stood at 0.65. ix) The conclusions drawn are not based on facts but on reports of Investigation Wing or statements recorded behind the back of the assessee without affording an opportunity of being heard.

The most important part in the Ld. CIT(A) order is his quoting of the statement of Shri Vipul Vidur Bhatt recorded on 04.02.2016 by ADIT (Inv), Unit 4(3), Mumbai during the course of survey u/s 133A in the case of Shipra Fabrics 13

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Pvt. Ltd. Mumbai wherein Shri Vipul Vidur Bhatt categorically accepted that he has rigged the price of shares of M/s Sunrise Asian Ltd. Reference to Q. 20 has been made.

Your Honour’s kind attention is drawn to the decision of the Hon’ble ITAT Mumbai bench in the case of Mayuresh Logistics, ITA 6691/Mum/2017 (copy at pages 200 to 216) where in a reference has been made to the retraction of statement made by Shri Vipul Vidur Bhatt on affidavit dated 02.09.2016 where he has denied to have given any accommodation entries. (Refer page 208) The said statement has not been rejected and thus stands accepted by the revenue authorities. When the retraction statement is made on affidavit on oath then it was required to be countered by revenue and rejected by the appellate authorities but it has not been done. The statement made earlier on 04.02.2016 by Shri Bhatt thus loses its sanctity and has no value. Moreover, Shri Bhatt never named the appellant as a beneficiary in the statement. Moreover, any statement recorded behind the back of the assessee and without giving an opportunity to cross examine has no value.

The Hon’ble Supreme Court in Pullangode Rubber Produce Company Ltd. Vs. State of Kerala & Another, (1973) 91 ITR 0018 (SC) has held that the admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made admission to show that it is incorrect and the assessee should be given proper opportunity to show the correct state of affairs.

Further, the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise, reported in 281 CTR 0241 (SC) (copy at pages 196 to 199) has held that :

“Not allowing Assessee to cross-examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice”

It would be worthwhile to submit here that all the observations and evidences which are narrated by the Ld. CIT(A) are part of the internal documents circulated by the Investigation Wing and used against the assessee without his/her knowledge and without affording any opportunity of being heard or cross examination. It is alleged that on getting this information the appellant indulged in bogus long term capital gain and claimed it as exempt which is not based on facts.

The Ld. CIT(A) has placed reliance on as many as 5 case laws.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

He has mainly relied on the decision of the Hon’ble Bombay High Court, Nagpur Bench in the case of Sanjay Bimalchand Jain vs. Pr. CIT (2018) The facts in the case of Sanjay Bimalchand Jain are different and distinguishable mainly because :- (i) in that case, the broker through which the shares were sold did not respond to AO's letter regarding the names and address and bank account of the purchaser of the shares sold by the assessee (ii) At the time of acquisition of shares of both companies by the assessee, the payments were made in cash (iii) The address of both the companies were same (iv) The authorized signatory of both the companies were also the same (v) The purchase of shares of both the companies was done by that assessee through broker, GSSL and the address of the said broker was same as the address of the two companies. None of these factors are present in the present case before your Honour. Hence it can be concluded that the decision of Hon’ble Bombay High Court is factually distinguishable.

In the case before your Honour the Ld. CIT(A) who has coterminous powers as that of the Assessing Officer made no efforts to conduct independent enquiries but chose to rely on borrowed satisfaction.

The other judgments cited by the Ld. CIT(A) have been distinguished by other judgments of appellate authorities which have been submitted separately as Case Laws Paper Book.

To summarize once again: 1. The purchase was an off-market transaction where payment was made by account payee cheque and duly reflected in the bank account. 2. The share of Sunrise Asian Ltd. was duly traded on BSE. 3. The sale of shares was made online on BSE through a registered and renowned broker of Indore i.e. Swastika Investmart Ltd. Even STT was paid. 4. The sale proceeds were received in the bank account of the assessee. 5. The sale and purchase of transaction had been made through account payee cheque which was supported by a copy of bank account. 6. The movement of shares is evidenced by a demat statement. 7. No critical faults were found by the AO in the documents submitted before him. 8. No independent enquiries or investigation was done either by the Assessing Officer or the Ld. CIT(A).

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

letter dated 24.10.2016 by Sunrise Asian Ltd. to BSE is enclosed at page 12. 19. The most important point in this case is that neither the Assessing Officer nor the Ld. CIT(A) were able to unearth any money trail which proved that the appellants own money has come back to shim in the garb of Long term capital gain. The entire addition thus falls flat as it is purely based on suspicion and surmises and suspicion howsoever strong it may be cannot replace evidence. 20. The entire case is built on conjectures and surmises without any evidence against the assessee appellants. Merely the modus operandi, general observations, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Reliance is laced on following decisions: 1. KARUNA GARG & ORS. Vs. ITO & ORS. (DELHI TRIBUNAL) – (2019) - 56 CCH 0371 2. DEEPAK NAGAR Vs. ACIT (DELHI TRIBUNAL) (2019) - 56 CCH 0143 (Pages 9 – 20 of Case Laws Paper Book) 3. VIJAYRATTAN BALKISHAN MITTAL & ORS. Vs. DCIT (MUMBAI TRIBUNAL) – (2019) – ITA No. 3427-3429/Mum/2019 – (Pages 21 – 102 of Case Laws Paper Book) 4. ITO Vs. ARVIND KUMAR JAIN HUF (MUMBAI TRIBUNAL) – (2017) - 51 CCH 0281 – (Pages 103 – 106 of Case Laws Paper Book) 5. DIPAK KR. DE SARKAR Vs. ITO (KOLKATA TRIBUNAL) – (2019) - 56 CCH 0253 – (Pages 107 – 132 of Case Laws Paper Book) 6. RADHIKA GARG & ANR. Vs. ITO & ANR. (DELHI TRIBUNAL) – (2019) - 55 CCH 0002 – (Pages 133 – 150 of Case Laws Paper Book) 7. VIDHI MALHOTRA & ANR. Vs. ITO & ANR. (DELHI TRIBUNAL) – (2018) - 54 CCH 0429 – (Pages 151 – 156 of Case Laws Paper Book) 8. AMAR NATH GOENKA & ORS. Vs. ACIT & ORS. (DELHI TRIBUNAL) – (2018) - 54 CCH 0344 – (Pages 157 – 167 of Case Laws Paper Book) 9. DCIT Vs. SAURABH MITTAL (JAIPUR TRIBUNAL) – (2018) - 53 CCH 0530 Pages 168 – 188 10. VAISHAL SURYAKANT SHAH Vs. ITO (AHMEDABAD TRIBUNAL) – (2017) - 49 CCH 0106 – (Pages 189 – 195 of Case Laws Paper Book) 11. Andaman Timber Industries vs. Commissioner of Central Exciese (Hon'ble Supreme Court) -2015 94 CCH 0187 12. ITO vs. Mayuresh Logistics Pvt. Ltd. (Mumbai Tribunal)-2019 ITANO.6691

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

the assessee is squarely covered by the decision of Co-ordinate

Bench of Jaipur in the case of Ashok Agrawal and others ITA

No.124/JP/2020 & others order dated 18.11.2020 wherein similar

facts and issues have been examined relating to Long Term Capital

Gain from sale of shares of M/s Sunrise Asian Limited and Hon'ble

Tribunal has held that since the assessee has discharged the

necessary onus casted on him in terms of claim of exemption of

Long Term Capital Gain u/s 10(38) of the Act by establishing the

genuineness of transaction to prove that “SAL” is not a penny stock

company and also satisfying the requisite conditions in order to

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

claim the exemption u/s 10(38) of the Act for LTCG arising from

sale of equity shares of M/s SAL.

that the Ld. AO has discussed all the relevant facts in the

assessment order as well as the modus operandi of various entry

providers as detected by the Department during the investigation

carried out by the Directorate of Investigation, Kolkata, Delhi etc.

and which has been upheld by the Id CIT(A) by passing a detailed

order. Thus it comes to the light that large scale manipulation has

been done in the market price of shares of certain companies listed

on Bombay Stock Exchange by a group of persons working as

syndicate for the purpose of providing entries of tax exempt bogus

Long Term Capital Gains to large number of beneficiaries in lieu of

unaccounted cash. Thus, in order to convert black money into

white, without payment of income-tax, a large number of persons

are availing accommodation entries of bogus Long Term Capital

Gains. The Id. D/R has submitted that the AO has discussed each

and every aspect of the modus operandi of the entry providers under

which the beneficiaries are asked to buy some shares of pre-

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

determined penny stock company controlled by them at a very

nominal price mostly off-line through preferential allotment. The

beneficiaries hold the shares for one year to avail the Long Term

Capital Gain exemption under section 10(38) of the IT Act. In the

meantime, the operators rig the price of stock and gradually rise its

price many times from 500 to 1000 times. This is done through low

volume transaction indulged in by the dummies of the operator at a

pre-determined price. Ld. D/R also submitted that the AO after

discussing the modus operandi of the operators minutely, has found

that the assessee is one of the beneficiaries of availing the

accommodation entries of bogus Long Term Capital Gain. There is a

stiff rise in the price of the shares at the time of sale as against the

acquisition cost which clearly shows that the transaction is not

genuine but it is a bogus transaction of accommodation entries of

Long Term Capital Gain. The Ld. D/R has submitted that the

transaction through banking channel and sale of shares on the

stock exchange is not sacrosanct to hold that the transaction is

genuine when all other surrounding circumstances indicate that

the assessee has obtained accommodation entries of bogus Capital

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Gain in respect of penny stock and the circumstantial evidence and

surrounding circumstances cannot thus be ignored. Thus the Ld.

AO has clearly brought out the case of accommodation entries of

bogus Long Term Capital Gain and which has been rightly

confirmed by the Id CIT(A). The Id. D/R has relied upon the

decision of Hon'ble Delhi High Court in case of Suman Poddar vs.

ITO, 112 taxmann.com 329 (Delhi). The Id. D/R has submitted that

the Hon'ble High Court has confirmed the decision of the Tribunal

whereby the Long Term Capital Gains claimed by the assessee in

respect of purchase and sale of penny stock were treated as bogus

transactions being accommodation entries. It was submitted that

the SLP filed by the assessee against the judgment of the Hon'ble

Delhi High Court has been dismissed by the Hon'ble Supreme Court

reported in 112 taxmann.com 330 (SC).

upon by the Ld. D/R in case of Suman Poddar vs. ITO (supra) is not

applicable in the facts of the assessee’s case as in the said case it

was a finding of fact by the Tribunal holding that the assessee has

failed to produce any evidence of actual sale except the Contract 21

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Notes issued by the share broker whereas in the case of the

assessee, the assessee produced all the documentary evidences

right from allotment of shares, holding in Demat account, payment

of purchase consideration as well as receipt of the sale

consideration through banking channel, thus the said decision

cannot be applied in the present case. Reliance placed on the

judgment of Hon'ble High Court of Delhi in the case of PCIT V/s

Smt. Krishna Devi & others wherein Hon'ble High court decided in

favour of the assessee after considering the judgment in the case of

Suman Poddar V/s ITO (supra) and Sumati Dayal V/s CIT (1995) AIR

2019.

placed before us carefully gone through the decisions and

judgments referred and relied by both the parties. First common

issue raised by the assessee(s) is with regard to Long Term Capital

Gain claimed u/s 10(38) of the Act arising from sale of equity

shares of M/s Sunrise Asian Limited through recognized stock

exchange and transfer effected through Demat account. The

assessee(s) has challenged the finding of Ld. CIT(A) treating the

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

alleged transaction as sham thereby confirming the finding of Ld.

A.O that the alleged capital gain is an accommodation entry

arranged by the assessee(s) through sale of shares of alleged penny

stock company namely M/s Sunrise Asian Limited, having no

means and the price of equity share of this company is

manipulated. The issue in brief remains is “whether M/s Sunrise

Asian Limited is a paper/ penny stock company”.

Traders Limited was made on 17.9.2011 and this company was

subsequently merged to “M/s Sunrise Asian Limited” by the order

of Hon'ble Bombay High Court and assessee received the converted

equity shares of “M/s Sunrise Asian Limited” in their Demat

account. Thereafter during the year under appeal the shares were

sold through recognized stock exchange at the price appearing on

the portal of the exchange. The shares were transferred from

Demat account and consideration was received. All the evidences

in support of above stated transactions have been filed before the

lower authorities and their genuineness are not in doubt. The main

contention of the revenue authorities is that M/s Sunrise Asian

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Limited is not a company of worth looking to the price of equity

shares appearing at the stock exchange portal and was

manipulated by the brokers and others by increasing the share

price abnormally and then provide bogus Long Term Capital Gain

entries. 15. Before us Ld. Counsel for the assessee has referred

to various judgments of which few was squarely applicable on the

facts and issues placed before us. There are so much similar that

they also pertains to issue of Long Term Capital Gain from sale of

equity shares of M/s Sunrise Asian Limited. Co-ordinate Bench of

Mumbai in the case of Dipesh Ramesh Vardhan V/s DCIT ITA

No.764/Mum/2019 dated 11.08.2020 and Co-ordinate Bench of

Jaipur in the case of Ashok Agrawal ITA No.124/JP/2020 and

others order dated 18.11.2020 has adjudicated very same issue.

Even this Tribunal recently in the case of Mr. Ayush Jain and others

ITA No.616/Ind/2019 order dated 30.4.2021 dealt with the very

same issue pertaining to genuineness of claim of Long Term Capital

Gain u/s 10(38) of the Act for sale of equity shares of M/s Sunrise

Asian Limited and both the above stated judgments of Co-ordinate

benches of Mumbai and Jaipur are considered and reliance has

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

also placed on the judgment of Hon'ble High Court of Delhi in the

case of PCIT V/s Smt. Krishna Devi & others (supra) observing as

follows:-

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

05 July 2011 Issue of proposal for private placement of shares of the company at a premium of Rs.10/- per shares alongwith copy of list of directors and copy of financial report for Financial Year 2007-08, Financial Year 2008-09 & Financial Year 2009-10 20 July 2021 Letter issued to the company for further clarifications and requiring copies of Memorandum of Association, Articles of Association and Balance Sheet for the Financial Year 2010-11. 28 July 2011 Reply received from the company alongwith the documents desired. 19 September Applied for 30000 equity shares of the company by 2011 paying an amount of Rs.6,00,000/- October 2011 Received shares certificate in respect of shares allotted. July 2012 Received Balance Sheet of the Santoshima Tradelinks Limited (name of company changed w.e.f. 16.09.11) for the FINANCIAL YEAR 2011-12 October, 2012 Received Notice for court convened meeting of Equity Shares Holders for amalgamation of company and another company Conart Traders Limited with Sunrise Asian Limited. 19 October Placed request for getting the shares in 2012 dematerialized form. 22 October Letter issued to Mr Nilesh P Chouhan, Director of 2012 the company seeking information in respect of amalgamation and raising concerns about the proposal. November Received letter from the company explaining the

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

2012 rationale for merger and satisfying the queries raised. March 2013 The Hon'ble Bombay High Court passed the order for merger of the company with M/s Sunrise Asian Limited June 2013 New shares in Sunrise Asian Limited received in lieu of holding of Santoshima Tradelinks Limited in demat account. July 2013 Received Balance sheet of the Sunrise Asian for the FY 2012-13 Nov 13 Sale of shares through stock Exchange onwards Following documents were furnished: . Copies of contract notes in respect of sale of shares. . Copy of ledger account of the broker. . Copy of the bank account statement for the year reflecting the transactions with broker.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

share for more than 12 months and the income in the form of Long Term Capital Gain is claimed to have arise from the transfer of Long Term Capital assets being equity share in the company carried out through recognized stock exchange and the transaction being chargeable to security transaction tax. On the strength of these facts the assessee has claimed exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited. On the other hand revenue authorities are alleging that there is an upward increase in the price of equity share of M/s Sunrise Asian Limited and looking to the financial growth of the assessee the increase in the share price is abnormal and unprecedented and beyond human probability and thus it was concluded that the transaction is sham transaction and the M/s Sunrise Asian Limited is a penny stock company. 18. Further in view of the claim of the Ld. Counsel for the assessee that the issue raised before us is squarely covered by the decision of Co- ordinate Benches, we have gone through the facts involved in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and find that the Co-ordinate Bench of Mumbai has thoroughly examined the similar set of facts and the same issue as raised before us including the claim of exempt income of Long Term Capital Gain from sale of equity shares of SAL u/s 10(38) of the Act and the revenue contending it to be a sham and bogus transaction liable to be taxed u/s 68 of the Act as unexplained cash credit and estimated brokerage expense for arranging LTCG. After thoroughly discussing the facts and issues, Co-ordinate Bench, Mumbai has decided in favour of the assessee and held that the claim of Long Term Capital Gain u/s 10(38) of the Act from the sale of equity shares of M/s Sunrise Asian Limited is genuine and SAL is not a penny stock company and further holding that the alleged transaction is neither bogus nor sham. Further the Tribunal has deleted the addition for estimated brokerage expenses for arranging accommodation entry. Relevant finding of Hon'ble 28

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Mumbai Tribunal in the case of Dipesh Ramesh Vardhan Vs DCIT recently delivered on 11.08.2020 is reproduced below:- 6. We have carefully heard the rival submissions and perused relevant material on record. So far as the factual matrix is concerned, there is no substantial dispute regarding the same. The perusal of record would reveal that the assessee purchased certain shares of an entity namely M/s STL as early as September, 2011. The shares were converted into demat form in assessee’s account during the month of March, 2012. The transactions took place through banking channels. The investments were duly reflected by the assessee in financial statements of respective years. The copies of financial statements of M/s STL for FYs 2009-10 & 2010-11 which led to investment by the assessee in that entity was also furnished during the course of assessment proceedings. Subsequently, M/s STL got merged with another entity viz. M/s SAL pursuant to scheme of amalgamation u/s 391 to 394 of The Companies Act, 1956. The Scheme was duly approved by Hon’ble Bombay High Court vide order dated 22/03/2013, a copy of which is on record. Consequently, the shares of M/s STL held by the assessee got swapped with the shares of M/s SAL and new shares were allotted to the assessee during June, 2013 pursuant to the approved scheme of amalgamation. M/s SAL is stated to be listed public company Group ‘A’ shares signifying high trades with high liquidity. The assessee has sold these shares through its stock broker namely M/s Unique Stockbro Private Limited in online platform of the recognised stock exchange during the month of March, 2014. The selling price was in the range of Rs.489/- to Rs.491/- per share. The transactions took place through online mechanism after complying with all the formalities and procedure including payment of STT. The delivery of the shares was through 29

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

clearing mechanism of the stock exchange and sale consideration was received through banking channels. The transactions are duly evidenced by contract notes, demat statements, bank statements and other documentary evidences. The key person of assessee group, in his statement, maintained the position that trading transactions were genuine transactions carried out through stock exchange following all process and legal procedures. The assessee also filed trading volume data and price range of the scrip for a period of more than 2 years i.e. from Jan, 2013 to July, 2015. The shares reflected healthy trading volume and the price range reflected therein was in the range of Rs.360/- to Rs.600/- per share. The price range was stated to be in the same range for 15 months after the period of sale of shares by the assessee, which has not been disputed by the revenue. On the basis of all these facts, it could be gathered that the assessee had duly discharged the onus casted upon him to prove the genuineness of the stated transactions and the onus had shifted on revenue to rebut the same. 7. As against the assessee’s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the 30

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. The whole basis of making the addition is third party statement without there being any tangible material. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon’ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). Therefore, we find that onus as caster upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and various entities of Shri Vipul Bhat. We find that the whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. 8. The allegations of Ld.AO that the assessee was part of the group which indulged in rigging or manipulation of prices of shares in connivance with Shri Vipul Bhat is not backed by any independent material. Firstly, there is nothing on record which establishes the fact that the assessee was acquainted with Shri Vipul Bhat or any 31

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

of his entities and secondly, the onus casted upon assessee to prove the genuineness of the transactions was already discharged by the assessee. Shri Vipul Bhat, in his statement, stated that one Shri Sandeep Maroo acted as intermediary who introduced Vardhan family to him. However, no further investigations have been carried out to establish this vital link between the assessee and Shri Vipul Bhat. We do not find any independent investigations by Ld. AO to bring on record any tangible material to corroborate the same. There are no evident or even allegation of any cash exchange between the assessee and group entities of Shri Vipul Bhat. This is further evidenced by the fact that no substantial incriminating material / wealth of that magnitude has been found during the course of search operations on assessee which would corroborate such presumption and prove that the transactions were sham transactions, in any manner. 9. The fact that the assessee could not produce the concerned person of M/s SAL was rightly controverted by submitting that the aforesaid entity was not under the control of the assessee and the assessee was under no obligation to do so. The existence of M/s SAL is beyond doubt since it was a listed corporate entity and secondly, it was subject matter of scheme of amalgamation u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon’ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner. 10. The above conclusion is further fortified by the fact that in share sale transactions through online mode, the identity of the buyer of the shares would not be known to the assessee. Therefore, the adverse conclusion drawn by Ld. AO merely on the basis of the fact that the buyer of the shares were group entities of Shri Vipul Bhat, could not be sustained. The fact that there were independent buyers 32

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

also would rebut the same and weaken the conclusion drawn by Ld. AO. 11. The Ld. AR has relied on plethora of judicial pronouncements in support of various submissions, which we have duly considered. These decisions would only support the conclusions drawn by us that once the assessee has discharged the onus of proving the genuineness of the transactions, the onus would shift on the revenue to dislodge assessee’s claim and bring on record contrary evidences to rebut the same. Until and unless this exercise is carried out, the additions could not be sustained in the eyes of law. 12. To enumerate the few, the Hon’ble Bombay High Court in CIT V/s Shyam S.Pawar (54 Taxmann.com 108 10/12/2014) declined to admit revenue’s appeal since the revenue failed to carry forward the inquiry to discharge this basic onus. The co-ordinate bench of this Tribunal in Mukesh R.Marolia V/s Addl. CIT (6 SOT 247 15/12/2005) held that personal knowledge and excitement on events should not lead the Assessing Officer to a state of affairs where salient evidences are over- looked. When every transaction has been accounted, documented and supported, it would be very difficult to brush aside the contentions of the assessee that he had purchased shares and had sold shares and ultimately purchased a flat utilizing the sale proceeds of those shares and therefore, the co-ordinate bench chose to delete the impugned additions. We find that this decision was firstly been approved by Hon’ble Bombay High Court vide ITA No. 456 of 2007 on 07/09/2011 and thereafter, special leave petition against the said decision has been dismissed by Hon’ble Supreme Court vide SLP No. 20146 of 2012 dated 27/01/2014 which is reported as 88 CCH 0027 SCC.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

The SMC Bench of Tribunal in Anraj Hiralal Shah (HUF) V/s ITO (ITA No. 4514/Mum/2018 dated 16/07/2019) held that in the absence of any evidence to implicate the assessee or to prove that the transactions were bogus, the Long-Term Capital Gains declared by the assessee could not be doubted with. This case was dealing with gains earned by the assessee on sale of same scrip i.e. M/s Sunrise Asian Ltd. 13. Therefore, considering the entirety of facts and circumstances, we are not inclined to accept the stand of Ld.CIT(A) in sustaining the impugned additions in the hands of the assessee. Resultantly, the addition on account of alleged Long-Term Capital Gains as well as estimated commission against the same, stands deleted. The grounds of appeal, to that extent, stand allowed.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

However, we note that the said enquiry was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction undertaken by the assessee or for that matter, the price and realization on sale of shares so undertaken by the assessee through the stock exchange. Further, it has been held in the aforesaid case that the findings of investigation & modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee's involvement or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc and for making the addition, it is necessary to bring on record evidence to establish ingenuity in transactions or any connection of the assessee or its transaction with any of the alleged parties. In the instant case, as we have discussed earlier, there is no finding which proves assessee's connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities,' human behavior and discovery of the modus operandi adopted in earning alleged bogus L TCG and STCG, that have surfaced during investigations, should g'uide the authorities in arriving at a conclusion as to whether the claim is genuine or not has been discussed at length. And referring to legal proposition laid down by the Hon'ble Supreme Court that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific 35

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. 24. We also find that while analyzing sale of shares of similar scrip of M/s Sunrise Asian Ltd and claim of exemption of long term capital gains u/s 10(38), the Mumbai Benches of the Tribunal in case of Anraj Hiralal Shah (HUF) vs ITO (supra) has upheld the claim of the assessee's claim of exemption under section 10(38) of the Act and the relevant findings of the Coordinate Bench contained at Para 8 read as under:- "8. The assessee has earned speculation profit in the immediately preceding year through M/s Eden Financial Services also and the said profit has been used to purchase the shares of M/s Sunrise Asian Ltd. The assessee has offered the speculation profit for income tax purposes in the immediately preceding year and It has been accepted. Further the assessee has shown the purchase of impugned shares as investment in the Balance Sheet. Hence the purchase of shares has been accepted. Further the shares have been received in the D-mat account of the assessee and they have been sold through the Dmat account only. Hence the delivery of shares a/so stand proved. The AO has not brought any material on record to show that the assessee was part of fraudulent price rigging. Accordingly, in the absence of any 36

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

evidence to implicate the assessee or to prove that the transactions are bogus/ 'r am of the view that the capital gains declared by the assessee cannot be doubted with. In that View of the metier; the addition made towards expenses is not also sustainable.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

conducted and secondly no dispute has been raised about the existence of the company. Therefore the judgment of Hon’ble Gauhati High Court is not applicable and thus distinguishable. 20. As regards the judgment of Hon’ble Supreme Court in the case of Suman Poddar V/s ITO (supra) delivered on 22.11.2019, we find that Hon’ble High Court of Delhi in its recent judgment dated 15.1.2021 in the case of PCIT V/s Krishna Devi & Others ITA No.125/2020 dealing with the similar issue of claim of exemption u/s 10(38) of the Act for Long Term Capital Gain from sale of equity shares has duly considered the judgment of Hon’ble Supreme Court in the case of Suman Poddar V/s ITO (supra) and has confirmed the order of the Tribunal stating it to be the last fact finding authority who on the basis of evidence brought on record has rightly came to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. Relevant extract of the judgment of Hon’ble Delhi High Court in the case of PCIT V/s Krishna Devi & Others is reproduced below:- “10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, 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 39

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

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.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

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.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Vardhan V/s DCIT and Ashok Agrawal V/s ACIT respectively and further find support from the judgment of Hon'ble Delhi High Court in the case of PCIT V/s Krishna Devi & Others and thus hold that the alleged transaction of earning Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited is neither bogus nor sham and thus eligible for exemption u/s 10(38) of the Act and no addition was thus called for u/s 68 of the Act. We accordingly allow Ground No.1 raised by the assessee namely Shri Ayush Jain and delete the addition of Rs.1,40,95,302/- and also allow Ground No.2 thus deleting addition for estimated brokerage expenses of Rs.4,22,859/-. The other two grounds are general in nature which needs no adjudication. 22. In the result appeal of the assessee, Shri Ayush Jain in ITA No.616/Ind/2019 is allowed.

entirety of facts and circumstances of the case and respectfully

following the judgment of the Co-ordinate Benches in cases referred

(supra) consistently holding that “Sunrise Asian Limited” is neither

a penny stock nor a paper company, are of the considered view that

as all the five assessee(s) namely Kumari Ayushi Nyati ,Smt. Vijay

Nyati, Shri Vijay Kumar Radheshyam Nyati (HUF), Shri Manish

Kumar Radheshyam Nyati (HUF), Smt. Mamta Nyati have

discharged necessary onus casted upon them in terms of claim of

exemption of Long Term Capital Gain u/s 10(38) of the Act by

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

establishing the genuineness of transaction of purchase and sale of

shares and satisfying the requisite conditions specified therein and

the Long Term Capital Gain so arisen has been rightly claimed as

exempt u/s 10(38) of the Act. Since we have held the transaction of

Long Term Capital Gain as genuine no addition for estimated

brokerage expense of Rs.72,281/- is thus called for in the case of

Miss. Ayushi Nyati. We therefore allow the common issues raised

in all the instant appeals in favour of the assessee(s) and set aside

the order of Ld. CIT(A) and allow the claim of LTCG exemption u/s

10(38) of the Act from sale of equity shares of “SAL” and delete the

following additions:-

S.No. Name Amount 1 Ms. Ayushi Nyati Rs. 36,14,053/- 2 Smt. Vijaya Nyati Rs. 33,98,387/- 3 Shri Vijay Kumar Rs. 35,01,004/- Radheshyam Nyati HUF 4 Shri Manish Kumar Rs. 33,25,952/- Radheshyam Nyati HUF 5 Smt. Mamta Nyati Rs. 35,99,598/-

allowed.

Kumari Ayushi Nyati & others ITA Nos.203/Ind/2019,703 to 705/Ind/2018, & 488/Ind/2019

Ayushi Nyati (ITA No.203/Ind/2019), Smt. Vijay Nyati (ITA

No.703/Ind/2018), Shri Vijay Kumar Radheshyam Nyati (HUF)

(ITA No.704/Ind/2018), Shri Manish Kumar Radheshyam Nyati

(HUF) (ITA No.705/Ind/2018), Smt. Mamta Nyati (ITA

No.488/Ind/2019), are allowed.

The order pronounced as per Rule 34 of ITAT Rules, 1963 on 25.05.2021.

Sd/- Sd/- (MADHUMITA ROY) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 25th May, 2021 /Dev

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Asstt.Registrar, I.T.A.T., Indore