NEELAM MITTAL,BURHANPUR vs. ITO BURHANPUR, BURHANPUR

From perusal of the above grounds we find that the common issues have been raised firstly relates to genuineness of Long Term Capital Gain(in short LTCG), claimed exempt u/s 10(38) of the Act arising from sale of equity shares of Kappac Pharma Limited and secondly legal issue that opportunity of cross examination not provided to assessee(s).

As issues raised and facts are common, at the request of all the parties, these appeals were heard together and being disposed off by way of this common order for the sake of convenience and brevity. As agreed by all the parties we will take up the facts of assessee namely Neelam Mittal to adjudicate the common issues. 4

Brief facts of the case as culled out from the records are that the assessee is an individual. She filed e-return of income on 29.10.2015 showing income at Rs.3,22,610/-. Case selected under complete scrutiny through CASS followed by serving of notices u/s 143(2) and 142(1) of the Act. While examining records it was revealed that during the year assessee had earned LTCG at Rs.16,54,277/- from sale of 3000 equity shares of Kappac Pharma Limited (in short KPL) purchased for Rs.6,000/-. The assessee claimed it to be exempt income u/s 10(38) of the Act but the same was not disclosed in the income tax return. Ld. AO called for various details pertaining to this transaction. The assessee filed various documents in support of purchase and sale of shares. Purchase was offline in cash made from a Private Limited Company and sale was through a registered broker on the recognized stock exchange. Ld. AO called for information from the seller of the shares located at Ahmedabad. The notice was returned un-served. Ld. AO doubted the purchase which was made at Rs.2 per share. Ld. AO further examined the sale transaction and was able to lay hands on a report dated 13.04.2016 issued by Joint Director Investigation, Indore for the alleged group of concerns engaged in providing bogus LTCG by way of bringing the prices of the shares at abnormally high price which are much higher than the fair market value of the shares. The assessee sold the shares during April and May 2014. Security Exchange Board of India suspended the trading of Kappac 5

Aggrieved assessee preferred an appeal before the ld. CIT(A) but failed to get any relief. Ld. CIT(A) placing reliance on various decisions came to the conclusion that complete transaction of purchase and sale of shares are sham which cannot stand the test of human probability and also held that assessee is indulged in arranging bogus LTCG to claim exemption u/s 10(38) of the Act.

Now the assessee is in appeal before the Tribunal. Ld. counsel for the assessee vehemently argued referring to the written submissions running from pages 1 to 16 filed during the course of hearing, giving details of facts of the case, arguments made and reliance placed on various decisions.

Ld. counsel for the assessee submitted that the assessee had duly discharged its onus by filing all the necessary documents in order to support the genuineness of purchase and sale of equity share of Kappac Pharma Limited. The impugned addition made in the hands of assessee is based on an investigation report which was carried out in case of another person to which the assessee is not connected and also no opportunity to cross examine Mr. Nishant Niyati was provided even after making specific request. He 6

Per contra ld. Departmental Representative vehemently argued supporting the orders of both lower authorities. Reliance was placed on various decisions referred by Ld. CIT(A) and in addition reliance was also placed on the following judgments: 1. Udit Kalra vs. ITO ward-50(1) ITANo.220/2019 dated 08.03.2019(Delhi HC) 2. Udit Kalra, vs. ITO ITANo.6717/Del/2017 dated 08.01.2019 3. Suman Poddar vs. ITO [2019} 112 taxmann.com 330 (SC)

We have heard rival contentions and perused the records placed before us and carefully gone through the judgments referred and relied by both sides. The common issue on merit relates to genuineness of claim of LTCG from sale of equity shares of Kappac Pharma Limited to be exempt u/s 10(38) of the Act and common legal ground has been raised for quashing the assessment proceedings as no opportunity was provided to cross examine the third person whose statement was adopted as a basis to make addition in the hands of assessee. In the case of assessee namely Neelam Mittal against gross sale consideration of Rs.16,54,277/- deduction of purchase cost of Rs.6000/- was claimed and the net gain is claimed exempt u/s 10(38) of the Act at Rs.16,48,277/-. The similar amount of purchase and sale and LTCG is shown in the case of Ritu Mittal. In both these cases the purchases were made offline in cash and sale affected on a recognized stock exchange through registered broker and share transferred from DMAT account. However, Ld. AO has held the complete transactions from purchase and sale as a sham transactions and have alleged the assessee has taken an accommodation entry of bogus LTCG in order to convert it unaccounted money by claiming exempt u/s 10(38) of the Act on the basis of investigation reports in other cases and also doubting the abnormal increase in share price of Kappac Pharma Limited in a very short span.

We observe that offline purchases are made from Pvt. Ltd. Company. The details of which were provided in the debit note. It is not claimed by assessee that the purchase are made through registered broker. It was a direct purchase from a shareholder who was allotted shares in November 2010. KPL is a limited Company having its registered office at Mumbai. It allotted shares to various shareholders in 2010. Thereafter in 2012 on 18.09.2012 both the assessee(s) purchased 3000 equity shares each at Rs.2 per share and paid cash. Purchasing of equity shares on offline mode is not barred in law. After the purchase the shares were lodged for getting transfer in the name of assessee and the same was completed on 09.10.2012 by transfer No.26217 and registered Folio No.AS0273 in the case of Neelam Mittal & vide transfer No.26218 by registered Folio No.TS0022 in case of Titu Mittal. Thereafter these shares were sold through member of Bombay Stock Exchange namely Indira Securities Pvt. Ltd. having SEBI REGN. No. INB011286631. The sale consideration so received was credited to the bank account of the assessee. We further note that the shares are sold through registered brokers on the stock exchange. The details of buyers of the shares are not visible as all such transaction of purchase and sale on the recognized stock exchange are carried out through registered brokers and work under a software controlled by SEBI. So the genuineness of documents evidencing sale consideration from sale of shares has not been doubted by revenue authorities.

It is also brought to our notice that the trading of equity shares of KPL was suspended from 1st January 2015 but the transaction of sale of shares in the case of assessee was carried out almost 9 months before i.e. in April & May 2014 when there was no such restriction on trading of equity shares of KPL on the portal of stock exchange. The purchase and sale of equity shares of KPL were allowed for all those who wanted to deal in this scrip.

We further note that Ld. AO has referred to investigation report pertaining to some persons who are alleged to be indulged in providing accommodation entry to various persons in the form of bogus capital gain against charging of some brokerage/commission. No such report has been filed before us. Ld. AO has also not allowed the request of assessee to cross examine the person based on whose statement the addition have been made in the hands of assessee. It is clearly a violation of principles of naturel justice which the assessee is eligible to be allowed as the assessee was subjected to tax on the additions made. This ratio was laid down by the Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that “not allowing the assessee to cross- examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected”. 10

Similar view was also taken by Hon'ble Bombay High Court in the case of Pr. CIT vs. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Bombay) has held that “once the assessee has produced documentary evidence to establish the existence of such companies, the burden shifts to the Revenue to establish their case. Reliance on statements of third parties is not permissible. Voluminous documents produced by the assessee cannot be discarded merely on the basis of statements of individuals contrary to such public documents”. 14A. In view of the ratio laid down by the Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE (supra), we find that in the instant case also there is a violation of principle of natural justice as both the assessee(s) were not allowed to cross examine the person and the statements were made on the basis of the addition. We therefore allow the legal ground commonly raised through Ground No.3 by both the assessee(s) holding that no addition should have been made without providing opportunity of cross examination with Mr. Nishant Nyati to both the assessee(s) namely Smt. Neelam Mittal and Smt. Ritu Mittal as the statement of Mr. Nishant Nyati was taken at the back of the assessee(s). Thus the common Ground No.3 raised by both the assessee(s) are allowed.

As regards merits of the case, we find that the issue raised in the instant case of question of genuineness of Long Term Capital 11

Further this tribunal in the case of Aditya Mundra vs. Pr. CIT (supra) has also dealt with the similar issue relating to KPL though with reference to proceedings u/s 263 of the Act observing as follows: 1. Para 37 – “On the other hand all the relevant documents to prove the purchase and sale were before the Ld. A.O. Purchases were at the fair market value at Rs.12/-. Sales have been effected through registered broker after payment of security transaction tax and sold at the prices appearing at the recognized stock exchange. Merely observing that the prices of the equity shares have been increased drastically cannot be a evidence in itself to treat the transactions as bogus. There are number of incidences where the share prices of certain listed companies increased drastically but that all depends on demand and supply of the equity share, perception of its growth and the market sentiments. Unless and until the company of which the equity shares are being traded is found to be involved in malpractices the financial results are not commensurate with the prices at the NSE/BSE portal and sufficient proofs are available showing the alleged company to be a bogus/penny stock or paper company, one cannot question the genuineness of transactions carried out on the portal of NSE/BSE which are under the control of Securities and Exchange Board of India." [emphasis supplied]

As regards the judgment of Hon'ble Delhi High Court in the case of Suman Poddar vs. ITO [2019] 112 taxmann.com 329 (Delhi), the Special Leave Petition filed against the order of Hon'ble High Court was dismissed by Hon'ble Supreme Court but in this case the issue related to sale of equity shares of Cressanda Solutions Ltd. where as in the case of assessee company is KPL. The facts are also different as in the case of assessee in the instant appeal, there was no restriction by the SEBI on the trading of Shares of KPL on the Bombay Stock Exchange on the dates when sale transaction took place. It was almost after 9 months that the trading was suspended. There are also no documentary evidence to prove that the assessee was indulged in managing the affair of providing accommodation entry. Judgment of Hon'ble Delhi High Court in the case of Suman Poddar (supra) was subsequently considered by the Hon'ble Delhi High Court in the case of Pr. CIT vs. Smt. Krishna Devi (Supra) and since there was no evidence produced by the Ld. AO to show that there was an agreement between assessee and any other party which are alleged to be involved in providing accommodation entry, the appeal of the revenue was dismissed by the Hon'ble Court observing as follows: 11. 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 14

We, therefore, in view of the above discussions and respectfully following the ratio laid down by Hon'ble Courts in the case of PCIT v/s Smt. Krishna Devi (supra) and the decisions of Coordinate Bench Kolkata in the case of Yougendra Dalmia (supra) are squarely applicable on the facts and issues raised before us are inclined to hold that both the appeals deserves to be allowed on merits of the case, conditions for claiming exempt u/s 10(38) of the Act were fulfilled with regard to the sale transaction and the evidence so produced in support thereof has not been controverted by the revenue authorities. Thus the common grounds raised on merits by both assessees are allowed.

In the result, all grounds raised by the assessee(s) are allowed and appeals filed by the assessee in ITANo. 434 & 435/Ind/2019 are decided in favour of the assessee and against the revenue.