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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE MANISH BORAD, ACCOUNTANT
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.
Assessee(s) has raised following grounds of appeal:-
(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.
From perusal of the above grounds we find that following
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.
As the issues raised and facts are common, we will take up the facts of the assessee namely Smt. Shweta Agrawal to adjudicate the common issues and our decision shall apply mutandis mutandis in the case of another assessee namely M/s Sanjay Onkarmal Agrawal (HUF). Both the assessee(s) as well as Ld. Departmental Representative has raised no objection in case the common issues are adjudicated in the light of the facts of assessee namely Smt. Shweta Agrawal.
Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019
Brief facts of the case as culled out from the records are that the assessee is an individual running sole proprietorship M/s Samarth Impex. Return of income filed on 31.3.2016 declaring income of Rs.30,66,420/-. Assessee also claimed exemption u/s 10(38) of the Act towards Long Term Capital Gain at Rs.18,65,616/-. Case selected for compulsory scrutiny by CASS followed by serving of notice u/s 143(2) and 142(1) of the Act. Ld. A.O called for the details of the transaction of purchase and sale of equity share giving rise to Long Term Capital Gain of Rs.18,65,616/-. Assessee filed relevant details of purchase of 10000 shares of M/s Conart Traders Limited purchased on 16.01.2012 at Rs.2,50,000/- and paid through banking channel. M/s Conart Traders Limited was subsequently merged with M/s Sunrise Asian Limited (In short ‘SAL’). Assessee opened Demat account with Union Bank of India. 10,000 equity shares of M/s SAL were received in lieu of the shares in M/s Conart Traders Limited. Subsequently assessee sold the shares of SAL on the recognised stock exchange through a registered broker and
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/-.
Aggrieved assessee preferred appeal before Ld. CIT(A) only against the addition made u/s 68 of the Act at Rs.18,65,616/-. Again complete details of purchase and sales were filed along with the Demat account and bank statement. However, Ld. CIT(A) was not satisfied and he confirmed the view taken by Ld. A.O observing that the assessee is indulged in arranging bogus LTCG, the appellant had made investment through the derecognised broker and have earned excessive return within a short span of time which is extremely unfair. Placing reliance on the decisions Ld. CIT(A) held that the transactions of purchase and sale of equity shares giving rise to the alleged LTCG at Rs.18,65,616/- are sham transaction which could not stand the test of human probability.
Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019
Aggrieved assessee is now in appeal before the Tribunal.
Ld. Counsel for the assessee referred to the detailed synopsis placed at page 527 to 573 of the paper book which forms part of the paper book running from page 1 to 573 and another paper book dated 4.2.2020 running from page 1 to 91. It was also submitted that the issue raised in this appeal are squarely covered by the decision of Co-ordinate Bench, Mumbai in the case of Dipesh Ramesh Vardhan Vs DCIT ITA No.7648/Mum/2019 dated 11.08.2020 which has been subsequently followed by the Co-ordinate Bench of Jaipur in the case of Ashok Agrawal V/s ACIT ITA No.124/JP/2020 dated 18.11.2020. He also submitted that there was no evidence found with regard to the assessee which could indicate that the assessee was engaged in the alleged racket of providing accommodation entries. Reliance was also placed on the judgment of Hon’ble Supreme Court in the case of M/s Andaman Timber Industries V/s CCE contending that no opportunity of cross examination was provided which thus violates the principles of natural justice rendering the 9
Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019
proceedings as null and void.
Per contra Ld. Departmental Representative vehemently argued supporting the orders of both the lower authorities and decisions referred and relied by Ld. CIT(A). Reliance was also placed on the judgment of Hon’ble High Court in the case of Suman Poddar V/s ITO, ITA No.841/2019 dated 17.09.2019.
We have heard rival contentions and perused the records placed before us and carefully gone through the decisions placed and relied by both the parties. The first common issue relates to addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL by treating the LTCG as bogus. We observe that the assessee purchased 10000 equity shares of M/s Conart Traders Limited on 16.1.2012 from M/s P. Saji Textiles, Mumbai for a price of Rs.2,50,000/- paid by cheque and purchased in physical form. There is no restriction under the law to purchase equity shares on off line mode. Vide order dated 22.3.2013 of the Hon’ble Mumbai High Court M/s Conart
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.
As regards the second issue raised is that assessee was not provided opportunity of cross examination, we observe that Ld. A.O has referred to some investigation reports carried 11
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.
We observe that all the above stated facts and the issue of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale
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:-
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 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 13
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
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. 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.
Subsequently Co-ordinate Bench of Jaipur in the case of
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
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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.
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 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.
In light of above discussions and in the entirety of facts and circumstances pf the case and following the decisions of the Hon'ble jurisdictional High Court and of that of the Coordinate Benches in cases referred supra, we are of the considered view that the assessee has discharged the necessary onus cast on him in terms of claim of exemption of long term capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) of the Act. Accordingly, in the facts and circumstances of the case, we set-aside the order of the Id. CIT(Appeals) and the claim of the assessee ul: 10(38) is allowed. The matter is thus decided in favour of the assessee and against 18
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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.”
As regards the judgment of Hon’ble Delhi High Court in the
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.
On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of 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 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 20
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.
Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard 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.
The learned ITAT, being the last fact-finding authority, on the basis of 21
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.
On perusal of the decision of the Co-ordinate Bench of
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.
Now we take up the appeal of M/s Sanjay Onkarmal Agrawal (HUF) in ITA No.279/Ind/2019. We find that the same issue of bogus LTCG and its addition u/s 68 of the Act and failure of Ld. A.O to provide opportunity to cross examination by the assessee has been raised. As we have decided the very same issue under the similar set of facts in the preceding paras i n the case of Smt. Shweta Agrawal ITA No.281/Ind/2019, we shall apply the same decision on this appeal also in the case of assessee namely M/s Sanjay Onkarmal Agrawal (HUF) placing reliance on the decision of Co-ordinate Bench, 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 Krishna Devi & others. In the result grounds of appeal raised in ITA No.279/Ind/2019 are allowed.
Smt. Shweta Agrawal & Anr ITA No.281 & 279/Ind/2019
In the result both the appeals of the assessee(s) namely Smt. Shweta Agrawal, ITA No.281/Ind/2019 and M/s Sanjay Onkarmal Agrawal (HUF), ITA No.279/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 : 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