M/S. SANJAY ONKARMAL AGRAWAL HUF,INDORE vs. THE ITO-5(3) RANGE-5, INDORE

PER BENCH

The above captioned appeals filed at the instance of the

assessee(s) for Assessment Year 2015-16 are directed against the

orders of Ld. Commissioner of Income Tax(Appeals)-II (in short ‘Ld.

CIT], Indore dated 14.01.2019 & 10.01.2019 which are arising out

of the order u/s 143(3) of the Income Tax Act 1961(In short the

‘Act’) dated 23.12.2017 & 12.12.2017 framed by ACIT-5(1) and

ITO-5(3), Indore respectively.

(i) Smt. Shweta Agrawal

ITA No.281/Ind/2019 Assessment Year 2015-16

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

1.That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the addition as made by the assessing officer of Rs.18,65,616/- to the total income of the appellant on account of long term capital gain as earned on sale of shares under section 68 of the Act without properly appreciating the facts of the case and submissions made before him more so when the appellant had filed ample documents so as to justify the genuineness of long term capital gain which are never disproved by the assessing Officer. 2. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the addition as made by the assessing officer on account of long term capital gain as earned on sale of shares on the basis of third party documents/statements which were never confronted with the appellant and against which an opportunity of cross examination was also not allowed to the appellant. 3. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in calculating the tax liability by invoking the provisions of section 115BBE of the Act even when the source of amount as found credited was duly explained. 4. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the interest as charged by the assessing officer under section 234A and 234B of the Act. 5. The appellant reserves her right to add, alter and modify the grounds of appeal as taken by her. (ii) M/s Sanjay Onkarmal Agrawal (HUF)

ITA No.279/Ind/2019 Assessment Year 2015-16

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

1.That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the addition as made by the assessing officer of Rs.22,88,883/- to the total income of the appellant on account of long term capital gain as earned on sale of shares under section 68 of the Act by treating it as income from undisclosed source without properly appreciating the facts of the case and submissions made before him more so when the appellant had filed ample documents so as to justify the genuineness of long term capital gain which are never disproved by the assessing Officer. 2. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the addition as made by the assessing officer on account of long term capital gain as earned on sale of shares on the basis of third party documents/statements which were never confronted with the appellant and against which an opportunity of cross examination was also not allowed to the appellant. 3. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in calculating the tax liability by invoking the provisions of section 115BBE of the Act even when the source of amount as found credited was duly explained. 4. That, on the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in maintaining the interest as charged by the assessing officer under section 234A and 234B of the Act. 5. The appellant reserves her right to add, alter and modify the grounds of appeal as taken by her.

two common issues have been raised :- 4

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

(i) Genuineness of Long Term Capital Gain from sale of equity shares of M/s Sunrise Asian Limited claimed exempt u/s 10(38) of the Act and whether the Ld. CIT(A) was justified in confirming the addition u/s 68 of the Act

(ii) Whether the assessment proceedings are liable to be quashed as the opportunity of cross examination was not provided to the assessee thereby violating the principles of natural justice.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

against the sale consideration received, the cost of purchase was debited giving rise of LTCG at Rs.18,65,616/-. However, Ld. A.O was not satisfied since in his view the extent of growth and financials of the company were not sufficient to justify the abnormal increase in the share price within a short span of time, which were very low in December, 2012 and then increased continuously up to April and May, 2015 and felled thereafter. Ld. A.O has also gave reference to various searches conducted u/s 132 and survey u/s 133A of the Act carried out by the department on various brokers of stock exchange and other companies where the investigation team came across various bogus transactions of providing accommodation entries to give benefit to various persons to convert their unaccounted cash into accounted money in the form of bogus LTCG. Ld. A.O also took statement of the assessee and came to the conclusion that the assessee had no knowledge about the company. He concluded the assessment observing that M/s SAL is a penny stock company and the alleged transaction of earning LTCG is bogus and sham and

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

the sale consideration is liable to be added as unaccounted cash credit u/s 68 of the Act and accordingly he added Rs.18,65,616/- being the sale consideration of sale of equity shares of M/s SAL. Other additions at Rs.1,92,402/- were also made. Income assessed at Rs.51,24,438/-.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

proceedings as null and void.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

Traders Limited was merged with M/s SAL and in lieu there of 10000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through Indira Securities which is a registered broker and all the transactions of sale of shares took place on the recognised stock exchange. Sale consideration was received in the bank account attached with the Demat account. The detail of the persons purchasing the shares is not available on the portal of SEBI and all the transactions of purchase and sale took place on the portal through registered brokers under the control of SEBI. M/s SAL has not been striked off as a shell company. Trading of shares of M/s SAL was permitted by SEBI. All the conditions provided u/s 10(38) of the Act prima facie seems to have been fulfilled by the assessee.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

out in the case of some brokers and other assessee(s) and there is a reference of the company M/s SAL, however it is not disputed that name of the assessee is not appearing in such report nor any evidence was found by the Ld. A.O which could indicate that assessee was also a part of the alleged racket of providing accommodation entry of bogus LTCG nor any proof of any agreement between the assessee and other persons mentioned in the report has been found. So the basis of addition is primarily on the statement of third party as well as the information gathered from other sources. Perusal of the records shows that the assessee has not been provided any access to such report nor any opportunity was provided to cross examine those persons who accepted to have provided accommodation entries for the bogus LTCG to the assessee.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

consideration received from sale of equity shares of M/s SAL

has been dealt by the Co-ordinate Bench of Mumbai Tribunal

in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and

the same is squarely applicable on the instant appeals. The

relevant extract of the decision of Co-ordinate Bench, Mumbai

is reproduced below:-

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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 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

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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 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 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.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

Ashok Agrawal V/s ACIT in ITA No.124/JP/2020 dated 18.11.2020

has followed the decision of Hon'ble Mumbai Tribunal in the case of

Dipesh Ramesh Vardhan (supra) while dealing with the same issue

of Long Term Capital Gain from sale of equity shares of M/s

Sunrise Asian Limited claimed to be exempt u/s 10(38) of the Act 16

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

and decided in favour of the assessee and against the revenue

observing as follows:-

“23. In the aforesaid decision, it has been held that it is SESI who monitors and regulates the stock exchanges & stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper & legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the Id. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. 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 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 17

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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.

"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 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.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

the Revenue. In the result, the ground of appeal so taken by the assessee is allowed. 26. In the result, the appeal of the assessee is allowed.”

case of Suman Poddar V/s ITO (supra) delivered on 17.09.2019

relied by Ld. Departmental Representative, 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 Delhi High Court in the case of

Suman Poddar V/s ITO (supra) and has decided against the

revenue confirming 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:- 19

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

“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.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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.

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

ratio laid down by the Hon’ble High Court of Delhi in the case

of PCIT V/s Smt. Krishna Devi & others (supra) we are of the

considered view that the case of the assessee is squarely

covered by the above stated judgments and we being bound to

follow the judicial precedence are inclined to hold that the

claim of LTCG of Rs.18,65,616/- made by the assessee is

genuine and is eligible for exemption u/s 10(38) of the Act.

We accordingly set aside the finding of Ld. CIT(A) and delete

the addition made u/s 68 of the Act by Ld. A.O. In the result

ground raised on merit as well as legal ground raised for not

providing opportunity to cross examination is allowed in

favour of the assessee. Thus appeal of the assessee namely

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

Smt. Shweta Agrawal is allowed.

Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019

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 : 25.05. 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