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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE MANISH BORAD, ACCOUNTANT
PER MANISH BORAD, A.M
The above captioned appeals filed at the instance of the
assessee(s) for Assessment Years 2014-15 & 2015-16 are directed
against the orders of Ld. Commissioner of Income Tax(Appeals)-II
(in short ‘Ld. CIT], Indore dated 28.02.2019 and 31.08.2020 which
are arising out of the order u/s 143(3) of the Income Tax Act
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
1961(In short the ‘Act’) dated 14.12.2016, 06.12.2016, 17.12.2018
and 21.12.2018 framed by ITO-4(2), Indore.
As accepted by both the parties the issues raised and facts
involved in all these four appeals are common, therefore it was
decided to hear all these appeals together and are being disposed off
by way of this common order for the sake of convenience and
brevity.
Assessee(s) has raised following grounds of appeal:-
ITA No.616/Ind/2019 Ayush Jain Assessment Year 2015-16 1.The Learned CIT(A) erred in confirming the addition of Rs. 1,40,95,302/- made by the AO by disallowing the claim of exemption u/s 10(38) in respect of the long term capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed. 2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the addition of Rs. 4,22,859/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted. 3.The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed. 4.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 3
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
before final hearing, if necessity so arises.
ITA No.617/Ind/2019 Pritesh Jain (HUF) Assessment Year 2015-16 1.The Learned CIT(A) erred in confirming the addition of Rs. 37,40,741/- made by the AO by disallowing the claim of exemption u/s 10(38) in respect of the long term capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed.
2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the addition of Rs. 1,17,022/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted.
The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed.
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. ITA No.293/Ind/2020 Pritesh Jain (HUF) Assessment Year 2014-15
The Learned CIT(A) erred in confirming the addition of Rs. 1,02,86,220/- made by the AO by disallowing the claim of exemption u/s 10(38) in respect of the long term capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed.
2.That on the facts and in the circumstances of the case and in law, the 4
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Learned CIT(A) erred in confirming the addition of Rs. 3,21,790/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted.
3.The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed.
4.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. ITA No.294/Ind/2020 Nilesh Jain (HUF) Assessment Year 2014-15
1.The Learned CIT(A) erred in confirming the addition of Rs. 1,43,22,060/- made by the AO by disallowing the claim of exemption u/s 10(38) in respect of the long term capital gains of the appellant. That on the facts and in the circumstances of the case and in law, the claim of the appellant being proper and legal is prayed to be now allowed.
2.That on the facts and in the circumstances of the case and in law, the Learned CIT(A) erred in confirming the net sale proceeds as Rs.1,43,22,060 as against actual sale proceeds of Rs.1,48,71,538/-. The balance amount of Rs.50,522/- represented the expenses which have been incurred by the appellant on sale of shares and therefore the same should have been allowed. The said addition being wrong and uncalled for is prayed to be deleted. addition of Rs. 4,22,859/- made by the AO u/s 68 on account of alleged commission on surmises and conjectures. The said addition being wrong and uncalled for is prayed to be deleted.
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3.The order passed by the AO without following the principle of natural justice is bad in law and is prayed to be quashed.
4.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.
From perusal of the Ground in all the 4 appeals we find that
the major common issue raised by the respective assessee(s) is
against the finding of Ld. CIT(A) confirming the action of Ld. A.O
denying the benefit of exemption of Long Term Capital Gain (In
Short ‘LTCG) u/s 10(38) of the Act arising from sale of equity
shares of listed company namely M/s Sunrise Asian Limited carried
out through a recognized stock exchange. Ld. A.O has also made
addition in the case of three assessee(s) on account of brokerage
expenses alleging the same to have been paid by the assessee for
arranging accommodation entry in the form of Long Term Capital
Gain from sale of equity shares. A minor addition for disallowance
of expenses is also made in the case of Nilesh Jain HUF. The
addition raised in these appeals can be summarized by way of
following charts:-
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Name of the Ayush Jain Pritesh Jain Pritesh Jain Nilesh Jain appellant HUF HUF HUF Appeal No. 616/Ind/2019 617/Ind/2019 293/Ind/2020 293/Ind/2020 Assessment. 2014-15 2015-16 2014-15 2014-15 Year Scrip Sunrise Asian Sunrise Asian Sunrise Asian Sunrise Asian Limited Limited Limited involved Limited Addition on 14095302 3740741 10286220 14322060 account of Capital Gain Addition on 422859 117022 321970 0 account of brokerage charges Disallowance - - - 50522 of expenses
Since the issues are common we are adjudicating the same on
the basis of facts of the case of Mr. Ayush Jain in ITA
No.616/Ind/2019 to which no objection was raised by any of the
parties.
Brief facts of the case as culled out from the records are that
the assessee is an individual having source of income from salary,
Capital Gain and other sources. Return of income was e-filed on
12.8.2015 declaring total income of Rs.9,98,606/- and also
claiming exemption for Long Term Capital Gain u/s 10(38) of the
Act arising from sale of equity shares of Sunrise Asian Limited at
Rs.1,40,95,302/-. Case was selected for scrutiny assessment
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through CASS and notice u/s 142(1) was duly served upon the
assessee. Detailed questionnaire was also issued. Details
submissions were filed by the assessee. Ld. A.O asked information
about the transaction of sale of 30,000 equity shares of M/s
Sunrise Asian Limited which were purchased on 10.10.2011 at a
cost of Rs.6,00,000/- and sold during the financial year 2013-14 at
Rs.1,46,95,302/-. The assessee filed complete details of the
purchase and sale of shares effected through a recognized stock
exchange and shares transferred through Dmat account thereby
fulfilling the condition of Section 10(38) of the Act. However, the
Ld. A.O was not convinced and observed that the figures available
from the Annual Report shows that the market value of the equity
share of the company on the stock exchange is unrealistic and not
at par with the financials of the company. The price are
manipulated and they are not in consonance with the growth in the
company and the stock price increased for not understandable
reason. Ld. A.O accordingly came to a conclusion that the company
namely “M/s Sunrise Asian Limited” is a penny stock company and
the said transaction of earning abnormal amount of Long Term
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Capital Gain is through a colorful device and is not genuine and
fabricated. Ld. A.O gave benefit of purchase against the sale
consideration and made addition for unexplained cash credit u/s
68 of the Act at Rs.1,40,95,302/-. Ld. A.O further made addition at
Rs.4,22,859/- on account of estimated brokerage expenses @3%
assuming that the assessee might have paid it for arranging bogus
Long Term Capital Gain for converting unaccounted money.
Accordingly income assessed at Rs1,55,16,771/-.
Aggrieved assessee preferred appeal before Ld. CIT(A) but
failed to succeed who after referring to some decisions confirmed
the action of Ld. A.O observing that the alleged transaction of Long
Term Capital Gain is a sham transaction which cannot stand the
test of human probability and confirmed the addition for estimated
brokerage expenses.
Now the assessee is in appeal before the Tribunal.
At the outset Ld. Counsel for the assessee apart from referring
to the written submission submitted that the common issues raised
in all these four appeals relating to Long Term Capital Gain from
sale of equity share of M/s Sunrise Asian Limited are squarely
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covered by the recent decision of Co-ordinate Bench of I.T.A.T.
Mumbai in the case of Dipesh Ramesh Vardhan V/s DCIT ITA No.
7648/Mum/2019 dated 11.08.2020. The facts are verbatim similar
so much so that similar issue of facts of Long Term Capital Gain
from sale of equity shares of M/s Sunrise Asian Limited and
addition for brokerage expenses was made. Hon'ble Mumbai Bench
after discussing the issue and facts of the case in length have
decided in favour of the assessee thus setting aside the finding of
the Ld. CIT(A) sustaining the impugned addition and deleted the
addition made u/s 68 of the Act for the alleged Long Term Capital
Gain from penny stock company and estimated brokerage expenses.
Ld. Counsel for the assessee submitted that the above decision
of Hon'ble Mumbai Bench in the case of Dipesh Ramesh Vardhan
V/s DCIT (supra) was subsequently followed by the Co-ordinate
Bench of Jaipur in the case of Ashok Agrawal V/s ACIT ITA
No.124/JP/2020 order dated 18.11.2020.
Ld. Counsel for the assessee also relied heavily on the recent
judgment of Hon'ble Delhi High Court in the case of PCIT V/s
Krishna Devi & Others in ITA No.125/2020 dated 15.01.2021.
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The written submissions in the form of synopsis by the
assessee is reproduced below:
The appellant is an individual which has income from salary, capital gains and other sources. 2. The return of income was filed on 12.08.2015 declaring a total income of Rs.9,98,606/- and claiming an amount of Rs.1,40,95,302/- on account of long term capital gain as exempt u/s 10(38). 3. The return was processed u/s 143(1) on the same income. The return was selected for scrutiny. Notices u/s 142(1) were issued from time to time which were duly complied with. 1. 4. Assessment u/s 143(3) was completed on 23.12.16 by making the following additions :-
Income as per return filed u/s 139 Rs. 9,98,610 Add: Capital Gain exempt u/s 10(38) Rs. treated as unexplained cash credit u/s 1,40,95,302 68 Add: Alleged charges on transaction Rs. 4,22,859 Rs. 1,55,16,771
The appellant contested the addition made before the H’ble CIT (A), wherein the additions were sustained and consequently the present appeal was filed before Your Honor’s.
The transaction 6. During the month of June 2011, the appellant was approached by the directors of M/s. Santoshima Lease Finance and Investment India Limited (hereinafter called as Company), an unlisted limited company and their authorized persons with a proposal to invest money in their company by way of acquiring shares of the company on a private placement basis. After the preliminary discussion held, a written and formal proposal dated 05.07.2011 was received from the company for the proposed investment to be made (copy appearing at page no.62 to page no.66 of the paper book) providing various other documents.
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On receipt of the formal proposal, deliberation was made in the family and a letter seeking additional details was issued to the company (copy appearing at page no.67 to page no.68 of the paper book) on 20.07.2011 before finalizing the matter of acquiring of the shares. In response to the same, the details were furnished by the company vide letter dated 28.07.2011 (copy appearing at page no.69 to page no.70 of the paper book) 8. The appellant on being satisfied by the information and explanations given by the company had applied for purchase of 30,000 equity shares of the company for a value of Rs.20/- per shares comprising of face value of Rs.10/- and securities premium of Rs.10/- (copy appearing at page no.1 of the paper book). The purchase consideration for shares was paid through account payee cheque which was duly cleared from the bank account of the appellant on 21.09.2011 (copy appearing at page no.3 of the paper book). Subsequently the assesse was allotted 30,000 shares on 10.10.2011 and the share certificate was also issued (copy appearing at page no.2 of the paper book) 9. In the month of September 2012, copy of annual report of the company for the FY 2011-12 was received through which the appellant was made aware that the shares of the company could be placed in demat form. The appellant took the benefit of the same and lodged the shares for demat which were duly processed on 29.10.2012 (copy appearing at page no.48 to page no.53 of the paper book) 10. Subsequently the appellant received a notice of meeting of shareholders of M/s. Santoshima Tradelinks Limited (new name of M/s. Santoshima Lease Finance and Investment India Limited) in the month of October 2012 issued on the direction of H’ble Bombay High Court for proposal for scheme of amlagamtion of the company with M/s. Sunrise Asian Limited. (copy appearing at page no.4 to page number 19 of the paper book) 11. The appellant also inquired about the rationale behind amalgamation with the company (copy appearing at page no.71 of the paper book) and received explanations and justification for the same (copy appearing at page no.72 of the paper book). 12. The scheme of amalgamation was finally approved by the H’ble Bombay High Court in the month of March 2013 (copy appearing at page no.20 to page no.47 of the paper book)
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Pursuant to the amalgamation, in lieu of the shares held by the appellant in M/s. Santoshima Tradelinks Limited, new 30,000 equity shares of M/s. Sunrise Asian Limited were allotted to the appellant on 26.06.13 (copy of demat account reflecting the shares transaction is appearing at page no.55 to page no.56 of the paper book). 14. Subsequently, the appellant liquidated his investment made almost two years back by selling the 30,000 shares of M/s. Sunrise Asian Limited for a net consideration of Rs.1,46,95,302/- and after claiming the deduction of cost of acquisition of Rs.6,00,000/-, reflected long term capital gain of Rs.1,40,95,302/- which was claimed as exempt u/s 10(38) in the return filed by the appellant.
The sequence of the events is tabulated as under for brevity. Period of Event Event June 2011 Meeting with director Mr. Nilesh P Chauhan regarding investment in Santoshima Lease Finance & Investment (India) Limited. 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 FY 2007-08, FY 2008-09 & FY 2009-10. 20 July 2011 Letter issued to the company for further clarifications and requiring copies of Memorandum of Association, Articles of Association and Balance Sheet for the FY 2010-11. 28 July 2011 Reply received form the company alongwith the documents desired. 19 September 2011 Applied for 30000 equity shares of the company by 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 FY 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 2012 Placed request for getting the shares in
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dematerialized form. 22 October 2012 Letter issued to Mr Nilesh P Chouhan, Director of the company seeking information in respect of amalgamation and raising concerns about the proposal. November 2012 Received letter from the company explaining the rationale for merger and satisfying the queries raised. March 2013 The H’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 onwards Sale of shares through Stock Exchange 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 the broker.
Assessment and first appeal Proceedings 15. During the course of the assessment proceedings, inquires and information was called in respect of the share transaction. The appellant explained all the above facts and events to the Learned AO during the assessment proceedings. However, without pointing out any short coming or any defect in the transaction or without bringing on record any specific charge, merely on the basis of general remarks and allegations, drawing adverse inferences from the general modus operandi, merely on surmises and conjectures, the amount of capital gain earned by the appellant was treated as unexplained cash credits and the amount was taxed in the hands of the appellant. 16. Further, the learned AO also assumed that certain charges would have been incurred for arranging the alleged non genuine capital gain and therefore an amount equal to 3% of the capital gain earned of Rs.1,40,95,032/- amounting to Rs.4,22,859/- was added without any basis and without any cogent material on record, to the income of the appellant as income from undisclosed sources. 14
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The Learned CIT(A) confirmed both the additions mainly on the same basis on which the additions were made by the AO and has not controverted the various facts and submissions made by the appellant during the appeal proceedings. The first appeal order is also based on surmises and conjectures and nothing concrete has been brought on record before the confirming the additions made by the AO. 18. Both the above additions made by the Learned AO and confirmed by the Learned CIT(A) have been challenged by the appellant through ground nos. 1 & 2 before Your Honours.
Allegations in the assessment order and their rebuttal 19.1 In the assessment order in Para 3.1 the Ld. AO has made general observation in respect of the searches conducted u/s 132 / surveys u/s 133A / enquires conducted by the department based upon which a report was prepared by the Investigation Wing stating the alleged modus operandi for non genuine Long Term Capital Gain. However, there is not a single specific information about the so called investigations and there is no link of any of these observations with the appellant. The observation that the whole modus operandi was to give accommodation of capital gain, is without any basis and is purely based on surmises and conjectures. The appellant is not aware of any such modus operandi and is not a party to it. 19.2 The Ld. AO in Para 3.3 based upon the financial performance of the company for few years has opined that the scrip of M/s. Sunrise Asian Limited is a penny stock. It is stated that the penny stock companies have no actual business or establishments and the beneficiaries subscribe for their shares through private placement. However, the above salient features of penny stock company as stated by the Ld. AO does not hold ground in the instant case. From the perusal of the perusal of the Yearly results for the FY 2012-13 reproduced by the Ld. AO in the order it would be seen that M/s. Sunrise Asian Limited had a turnover of Rs.73.52 Crore and against the transaction has earned a net income of Rs.0.40 Crores. It would be apt to mention that achieving a turnover in excess of Rs.70 crores is itself a big achievement in the challenging and demanding business scenario in India and it is for this reason they cannot be simply brushed aside. 19.3 Even further, if the company was indeed a penny stock as alleged by the AO, some sort of inquiry or proceedings must have been initiated by various governing bodies like SEBI, Stock Exchange etc against the 15
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alleged manipulation and price rigging in the shares of M/s. Sunrise Asian Limited. It would be worthwhile to state that to the best of the knowledge and belief of the appellant, no such action has been taken against the company or any of its director by any authority which itself establishes that the company is an operational company and not a penny stock company as alleged by the AO. Such an allegation is absolutely without any basis and without bringing any cogent material on record. 20.1 Further with respect to the observations of the AO regarding high growth in the share price of the company, which is one of the major reason of doubting the transactions it would be sufficient to say that the price at which the script is traded in the exchange is affected by the profit but the same is not the only deciding factor. The various factors which determine the price of the shares can be summarized as under: a) At the most fundamental level, supply and demand in the market determines stock price. b) Earnings of the company and its prospectus c) Investors' sentiments, attitudes and expectations towards the sector as well as the company. d) When a major brokerage gets behind a stock or upgrades it e) Good companies with battered stocks that get bought out can provide huge boosts to a stock’s price. If the deal goes through, stock holders are often compensated at a premium 20.2 The major deciding factor for increase in share price is market sentiment. The fact that the market sentiment is deciding factor is proved beyond doubt through the sudden drop in stock market indices as well as individual script from January 2008 which lasted till 2010 wherein share prices of most of the companies tumbled down and touched a new low without having any effect on the profits of the company. Similarly, due to COVID Pandemic in 2020, the prices of all shares listed on the exchange dropped instantly by 30% to 50% within a span of 10 days without any effect on the financial working which also establish that the profit/ earning per share is not the determining factor for price of the shares rather it is the market sentiment. 21.1 In Para no.3.5 of the order, it has been stated by the Ld. AO that there were no transaction in shares undertaken by the appellant before the above activity of gain earned during the year. In this respect attention is drawn to the balance sheet of the appellant as on 31st March 2013 (copy appearing at page no. 80 of the paper book) from the perusal of which it would be seen that the appellant had earned an income of Rs.10 Lacs during the FY 12-13 and after taking effect of all the 16
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transaction during the year the closing capital of the appellant was Rs.25.18 lacs. Being a salaried employee and in the early years of his career, one cannot be expected to invest all the capital in a single basket and accordingly the source of investment and the avenue of investment made by him were limited. During the year under consideration being saddled with sufficient capital, investments were made in other unlisted companies, details of which are appearing in the balance sheet as on 31st March 2014. (copy appearing at page no. 79 of the paper book) 21.2 It is a well settled phenomenon that at the initial stage small steps are being taken and with the efflux of time and by gaining knowledge and information giant leaps are taken in future. In the same way, having a good return on investment made earlier and hoping to repeat the success in future, investment in shares have been made by the appellant in the year under consideration and therefore there does not occurs any reason for treating the transaction as non genuine. 22.1 In para no.3.6 of the order, the Ld. AO doubted the transaction of the appellant by holding that the price of the shares of M/s. Sunrise Asian Limited was not tracked since starting. The observation made by the Ld. AO is not only grossly wrong but also casts negative shadow on the actual and genuine transaction. As has been stated in the facts of the case (supra), the appellant has acquired the shares of M/s. Santoshima Tradelinks Limited after discussion with the management and considering the future prospects of the business of the said company. At that point of time the issue of merger of the company with M/s Sunrise Asian Ltd. was not under consideration and therefore he was unaware of the existence of M/s. Sunrise Asian Limited let alone its price. Therefore, this observation of the Learned AO is misconceived. 22.2 It would also be worthwhile to point out that the equity shares of M/s. Sunrise Asian Limited were issued to the appellant on 28.06.2013 post approval of scheme of amalgamation and completion of the formalities by the respective companies and therefore, there was no point in tracking the price of the shares. Having received the details of credit of shares at the fag end of June, the appellant started tracking the price of the shares from August 2013 onwards. 22.3 Further, from the perusal of the transactions of the sale of shares it would be seen that the appellant has sold the shares over a period of almost four months i.e. from November 2013 to February 2014. During the intervening period the price of the shares was not fixed and rather there were upward (highest price being Rs.510) as well as downward movement (lowest price being Rs.392) in the price of shares. Due to the 17
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tracking and monitoring the price of the scrip, the appellant was able to sell the shares at a favourable rate leading to long term gain from the transactions. 22.4 Thus, the observation of the Ld. AO that there was no tracking of the shares by the appellant since beginning is factually wrong as well as irrelevant. 23.1 During the course of the assessment proceedings, the statement of appellant was taken u/s 131 of the Income Tax Act. In the course of such statement, reference was raised about the statements of the some person who have stated that there was manipulation in the price of equity shares of M/s. M/s. Sunrise Asian Limited. Heavy reliance has been placed by the Ld. AO on the alleged statements obtained from some persons wherein they have been alleged to have admitted that they were instrumental in Bogus LTCG in the shares of Sunrise Asian Limited which allegedly were confronted to the appellant. In this respect it is submitted that there are no specific details of the alleged statements, which were taken behind the back of the appellant and no opportunity of cross examination was allowed. Therefore, such statements cannot be used against the appellant. Further the appellant being a genuine investor and unaware of any such activity which has been allegedly undertaken by some persons not known to him and not connected in any manner, the appellant rightly stated that he was not aware of the statement and is not privy to the matter. 23.2 The reply given by the appellant has been misconceived and misrepresented and negative shadow has been casted upon by stating that the appellant has invested in the shares for the first time and despite of investing a substantial money in one go, no monitoring of the investment was made. 23.3 At the cost of repetition, attention is drawn to the fact that the decision of investment was a very conscious one and has been done after due deliberation and vetting. Further, even after the shares were purchased, attention was given to the transactions and announcements made by the company which would have affected the status of investment. A tabular chart of the events in the total transaction has already been given above, from the perusal of which it would be seen that there was continuous and proactive monitoring of the transactions which can not by any stretch of imagination can be considered as meagre. 23.4 The fact that the assessment was made with a pre-conceived notion of treating the transaction as non genuine by relying on the 18
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statements obtained from some persons is also evident from the fact that despite of the request made by the appellant for certified copies of the statements and documents relied upon while framing the assessment order, no documents have been provided to the appellant. Non providing of the details, establish that there were no documents / evidences which could establish that the transaction undertaken by the appellant were non genuine or he was instrumental in alleged price manipulation in shares of the M/s. Sunrise Asian Limited. 23.5 In spite of request for providing the statement, neither the statements were provided nor any opportunity to cross examine the concerned persons whose statements were obtained u/s 131 of the Act was provided. Still the relevant information and allegations, if any, made therein, has been used against the appellant. At this stage, it would be apt to point out that mere information is not enough rather it has to be substantiated with facts. The information may and may not be correct. For fastening the liability upon anybody, the Department has to provide the authenticity of the information to the person against whom such information is used. The principle of natural justice, demands that without confronting the appellant of such evidence, if any, or the information, no addition can be made. 23.6 Attention is drawn to the following judicial decisions wherein Hon’ble Courts have held that order passed in violation of principle of natural justice is bad in law: a. Smt. Sunita Dhadda vs DCIT 71 DTR 33 b. Dhakeshwari Cotton Mills 26 ITR 775 c. Lalchand Bhagat Ambikaram vs CIT 37 ITR 288 d. Ponkunnam Traders 83 ITR 508 e. Suraj Mall Mohta & Co. vs A.V. Visvanatha Sastri & others 26 ITR 001 f. C. B. Gautam vs CIT 199 ITR 530 g. Sarupchand Hukamchand 13 IT
Thus it would be seen that there was clear and gross violation of the principle of natural justice. 24.1 In Para No.3.8 of the assessment order it has been stated that letters were issued to various persons who were stated to be counterparty in the transaction to explain the transaction and in most of the cases the letters were returned unserved and no reply was received from any of the parties. Accordingly, the transaction was doubted as the identity of the purchaser was not established. In this respect, attention is 19
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drawn to the fact that the appellant has sold all the shares of M/s. Sunrise Asian Limited through the recognized stock exchange i.e. BSE Limited through a registered broker M/s. Arihant Capital Markets Limited wherein all the transactions are settled online through matching concept by the exchange without having any physical contact. The transactions are entered on the terminal and the details of counterparty are only available with the exchange and both the parties are unaware of the other party. It is submitted that in the case of screen base online trading, even today, the buyer and the seller are not aware of each other. It is for this reason the appellant during the course of the statement has stated that he is unaware of the person who have acquired the shares sold by him. On these facts and circumstances the AO was not at all justified in drawing adverse inference on the basis of this statement of the appellant. 25.1 It is submitted that from the examination of the contract notes, it would be seen that there was considerable time gap between the time at which the sell order was placed and the time at which the same was executed. If by any stretch of imagination, the transaction would have been a managed affairs, as alleged, there would have been no time gap in the order time and execution time as it would have been impossible on the part of the appellant to be in hand in glow with multiple persons and that too at different time simultaneously. There are no documents or evidence which could establish that there was any such connivance on the part of the appellant. 26. Thus, it is submitted that various baseless and too general statements / observations have been made in the assessment order and the strength for making the addition is based on such generalizations without any direct or cogent evidence which could establish any wrong doing on the part of the appellant. 27. Further, on going through the income tax return, balance sheet and the bank statement of the appellant it would be seen that there is no source of income through which such a huge amount of income from undisclosed sources could have been earned by the appellant which was allegedly brought in the accounts in the form of non genuine long term capital gain as alleged. Therefore, the addition made by the AO is against the human probabilities. 28. To sum up, the Ld. AO has proceeded in a manner which is against the principle of natural justice by not providing any opportunity to the appellant of cross examination. Further, various allegations have been raised against the appellant which are without any corroborative 20
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facts and evidence on records and are too general. The addition made in the hands of the appellant is on flimsy grounds without having any iota of substance in the allegation. The transactions undertaken by the appellant were in the course of its investment horizon which are prayed to be accepted. 29. It is further submitted that the appellant has sold the shares of a listed company after holding the same for a period of more than one year, the sales were affected through recognized exchange and through a registered broker and STT was paid on such sale transactions. Thus all the conditions of section 10(38) of the Act were duly complied with and the exemption claimed under the said section was properly and rightly claimed, which is prayed to be now allowed.
Your Honor’s attention is drawn to the order dt.14-12-09 of the Jurisdictional Tribunal in the case of Arzoo Anand vs JCIT in appeal no. ITA No.113 of 2009 for the AY 05-06, which decision subsequently has also been approved by the Honourable Jurisdictional High Court of Madhya Pradesh, wherein allowing relief on the issue of long term capital gain on sale of shares of penny stock on the basis of sudden spurt in the price of underlying shares and the report of Securities Exchange Board of India (SEBI) wherein the broker, through whom the assessee in that case has transacted, was found as a party involved in manipulation of price of another script, at Para No.16 & Para No.17 of the order, the Honourable ITAT held as under:
“16. From the above it is apparent that both the orders are not based on concrete evidence and no single iota of evidence has been discussed to prove that the assessee was involved in creating artificial price rise in the shares of the concerned company. The final fait of the order of the SEBI discussed above are not known to either of the sides. The above order do not help the revenue so as to prove live link between cash deposited by the assessee and received back in form of long term capital gain. Further, the appellant did not dealt with the broker Sri B.D. Daga in whose case enquiry was conducted about shares of “Konark Commerce & Industries Ltd.”. Further, in case, of any violation of the provision of SEBI (intermediaries) Regulation (2008) or SEBI Act, 1922 have been committed, the same is fault of the SEBI broker. The manipulation if any conducted by the broker, the appellant is not liable to be penalized.
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Further in view of the overwhelming evidences filed by the assessee in support of its transaction of purchase and sale of shares in the said company duly confirmed by third party evidence like confirmation of brokers and bank details we are of the view that the short point for our determination as enumerated in para 4 (supra) needs to be answered in the favour of the assessee. That is, the said transaction was rightly reflected by the assessee as long term capital gain, The Ld. AO as well as the Ld CIT(A) were not justified in treating the same as unexplained cash credit u/s 68 of the IT Act when the assessee has been able to discharge its primary onus effectively and satisfactorily. The Revenue could not establish live link between cash deposited by the assessee in form of long term capital gain. Accordingly, this ground of appeal is decided in the favour of the assessee.”(Emphasis Supplied)
From the perusal of the above decision it would be apparent that the legislature has not intended to treat each and every transaction on the same footing. If the revenue is unable to prove by way of documentary evidence that the assessee has manipulated the transaction so as to suit its purpose and the assessee has filed satisfactory evidences which establishes that there was no default on the part of the assessee the addition made is not justified. On the same analogy, in the instant case, there are no incriminating documents or other facts which establish or for that matter even remotely suggests that the appellant has undertaken any sort of agreement with any broker and the transaction undertaken with it were ingenuine.
It would also be apt to mention that the treatment of long term capital gain earned on alleged penny stocks as unexplained cash credit was subject matter of an appeal before the H’ble High Court of Delhi in Pr. CIT vs Krishna Devi in ITA No.125/2020 wherein their lordship vide most recent order dated 15.01.21 (copy enclosed at page no. 01 to 10 of the case law paper book) have dismissed the appeal of revenue by making the following observations:
a) While framing the assessment order, reliance was placed by the assessing officer on the statement obtained of various persons during the course of search/ survey however those persons/ their statements have not been independently verified / examined during the course of assessment. b) There was no corroboration of alleged bogus long term capital earned by the assesse on the basis of cogent material.
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c) No evidence was furnished which established that there was any alleged transfer of money from the assesse to any third party for alleged accommodation entry.
The facts in the instant case before Your Honour are more or less identical to the facts of Pr. CIT vs Krishna Devi (supra) before the Honourable Delhi High Court as the observations which have been given by the H’ble High Court and lack of details/ information/ corroborative evidence are integral in the order appealed against.
Further, various coordinate benches of H’ble Income Tax Appellate Tribunal in their orders in respect of the long term capital gains earned on shares of M/s. Sunrise Asian Limited treated as unexplained cash credit have deleted the additions made in the hands of the assessees’. The appellant places heavy reliance on following judicial pronouncements in this regards:
Date Bench Appeal No. Name of Party 18.11.20 Jaipur “B” 124/JP/2020 Ashok Agrawal Bench 11.08.20 Mumbai 7648/Mum/2019 Dipesh Ramesh Vardhan Vs “D” Bench DCIT Central 08.08.19 Mumbai 4811/MUM/2018 Narayan RamchandraRathi vs “B” Bench ITO 16.07.19 Mumbai 4514/Mum/2018 Anraj Hiralal Shah (HUF) vs SMC ITO Bench 28.11.18 Mumbai 2560/ Mum/ Arun S Tripathi Vs CIT “A” Bench 2018
Copies of the above orders are enclosed at page no. 11 to 129 of the case law paper book.
It is submitted that all the above decisions of various Coordinate Benches of Honourable ITAT are in respect of the same script i.e. Sunrise Asian Ltd. wherein similar additions were made on almost identical facts. The latest decision of Honourable Jaipur Bench in ITA No. 124/JP/2020 dated 18.11.2020 (copy at page no. 11 to 76 of case law paper book) is an elaborate and detailed decision wherein the Honourable ITAT has also discussed various other decisions of Honourable High Courts and also various Honourable ITAT and on the similar set of facts, following the decision of Honourable Rajasthan High Court and also of the Coordinate Benches held that the Learned CIT(A) was not justified in not allowing 23
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the claim of the assessee u/s 10(38) and allowed the appeals filed by the assessee. The appellant places heavy reliance on all the above orders.
Second Ground 33.1 The second ground of appeal is against addition of charges paid to alleged broker for transactions as deemed income of the appellant. 33.2 The Ld. AO made an addition of Rs. 4,22,859/- by estimating that commission @ 3% of the transaction amount might have been incurred for earning Long Term Capital Gain on the presumption that it is a normal expense required to be incurred for routing such transactions. 33.3 First of all, as submitted above, there is no evidence with the Ld. AO that the long term capital gain reflected by the appellant is not a regular transaction but unaccounted money which has been converted into accounted money of the appellant. The addition made in the hands of the appellant are purely on the basis of assumption In absence of the very base on which addition has been made in the appellant, treating any expenses which might have been incurred on the transaction also does not stand the test of law. 33.4 Secondly, in the assessment order (Refer para 4 of the assessment order), the Ld. AO has stated that “As per normal business practices such expenses is worked out totaling to 3% of the total transaction.” It would be seen that the Ld. AO has alleged that the appellant has entered into some sort of arrangement with for arranging the above transactions. However, no evidence or information has been supplied to the appellant and the basis on which such inference has been drawn is also not clear. No details have been given as to what is the basis on which such figure has been arrived at. In absence of any evidence, addition made in the hands of the appellant purely on the basis of unconfirmed or unestablished details is improper. 33.5 Further, during the assessment proceedings, no query was raised to the appellant on this issue. In absence of any query or show cause, the addition cannot be made in the hands of the appellant. 33.6 Without prejudice to the above, attention is drawn to the copies of contract notes for purchase and sale of shares of M/s. Sunrise Asian Limited. From the examination of the documents it would be seen that the appellant has sold the shares during the year under construction through M/s. Arihant Capital Markets Limited The broker has charged various expenses like Brokerage, Service Tax, Securities Transaction Tax and other charges levied by the exchange in the bill itself. The said 24
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broker is a listed company and has its presence pan India through various own office, joint ventures and branches. In this respect, it would be sufficient to say that no reputed company with pan India presence will get indulged in any malpractice for benefit of an individual client. Therefore there is no reason for charging any amount apart from the amount which has been charged in the contract note itself. 33.7 In view of the above and in continuation to the submissions made in respect of ground no. 1 it is prayed that the addition of Rs. 4,22,859/- made on account of alleged payment to the broker is purely based on presumptions and surmises, without any evidence and hence, the same may kindly be deleted.
In the following cases Hon'ble Co-ordinate Benches of Tribunal
have dealt the identical issue of Long Term Capital Gain in respect
of sale of shares of Sunrise Asian Ltd:-
Date Bench Appeal No. Particulars 18.11.20 Jaipur 124/JP/2020 Ashok Agrawal V/s ACIT “B” Bench Jaipur 11.08.20 Mumbai 7648/Mum/2019 Dipesh Ramesh “D” Bench Vardhan V/s DCIT Central Mumbai 08.08.19 Mumbai 4811/MUM/2018 Narayan Ramchandra “B” Bench Rathi V/s ITO 3(1) Mumbai 16.07.19 Mumbai 4514/Mum/2018 Anraj Hiralal Shah SMC (HUF) V/s ITO Mumbai Bench
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28.11.18 Mumbai 2560/ Mum/ Arun S Tripathi V/s CIT “A” Bench 2018 Mumbai
Further Ld. Counsel for the assessee referring to the various
allegations/ observations made by the Ld. A.O in the appellants
case vis-à-vis observation/finding of the Hon'ble Tribunal on all
these allegations/ observations are tabulated hereunder:-
Allegation/ observation of the AO Dealt in the case law relied upon 1. Modus Operandi of long term It has been held that the capital gain which has been observations of the AO are only stated in the report of the general methodology for capital gains investigation Wing and has been and there is nothing specific against relied on the by the AO the transactions of the assessee. 1. Ashok Agrawal – Jaipur Bench Para No. 12 at page no. 25 of PB. 2. Narayan Rathi – Mumbai Bench Para no. 11 at page no. 108 of PB 3. Anrajhiralal Shah – Mumbai Bench Para no. 08 at page no. 114 of PB The submission and arguments of the appellant on this aspect are covered in para no.19.1 to 19.3 of the synopsis. 2. High growth in the share price of It has been held that the AO has not the company without any major brought any material on record to financial changes which was on show that the assessee was part of account of alleged manipulation fraudulent price rigging. in the share price. 1. Ashok Agrawal – Jaipur Bench Para No. 21 at page no. 54 of PB 2. Dipesh Ramesh – Mumbai Bench Para no. 7 at page no. 92 of PB 3. Anrajhiralal Shah – Mumbai Bench Para no. 08 at page no. 114 of PB The submission and arguments of the appellant on this aspect are covered 26
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in para no.20.1 to 20.2 of the synopsis.
No prior transactions by the The appellant is a regular investor in appellant in shares and shares and the same are reflected in securities. the balance sheets of various years. Therefore, it cannot be said that it is a sole transaction. 1. Ashok Agrawal – Jaipur Bench Para No. 15 at page no. 34 of PB The submission and arguments of the appellant a on this aspect are covered in para no.21.1 to 21.2 of the synopsis. 4. Reliance by the AO on various It has been held that the AO has not statement obtained u/s 131 of the brought any material on record to Act by the Investigation Wing. show that the assessee was part of fraudulent price rigging. There was no evidence which could establish the nexus between the assessee and the persons whose statements were recorded. Further no opportunity to cross examine was provided which is against the principal of natural justice and the flaw could not be cured. 1. Ashok Agrawal – Jaipur Bench Para no. 13 at page no. 29 of PB & Para no. 14 at page no. 31. 2. Dipesh Ramesh – Mumbai Bench Para no. 07 at page no. 91 of PB 3. Narayan Rathi – Mumbai Bench Para no. 06 at page no. 102 of PB The submission and arguments of the appellant on this aspect are covered in para no.23.1 to 23.6 of the synopsis. 5. Independent enquiries made from It has been held that in case of third party for sale of shares were transaction of share through stock returned unserved. exchange the identity of buyers is not known to the assessee. Therefore, no adverse inference can be drawn for unavailability of response from purchaser. 1. Dipesh Ramesh – Mumbai Bench Para no. 9 & 10 at page no. 93 of PB The submission and arguments of the appellant on this aspect are covered in para no.24.1 of the synopsis. 27
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At this juncture the appellant also wishes to place reliance on the recent decision of Honourable High Court of Delhi in the case of PCIT V/s Krishna Devi & Others in ITA NO. 125/2020 order dated 15.01.2021 (copy already enclosed at page no. 01 to 10 of common case law paper book) wherein also the LTCG earned by the assessee in respect of shares of M/s Goldline International Finvest Ltd. was treated as a colorable device and addition was made u/s 68. The Honourable High Court was pleased to endorse the order of the Honourable ITAT Delhi Bench and dismissed the appeals filed by the department. It is submitted that in this case also almost similar allegations were made by the AO such as abnormal increase in share price within a short span which was not supported by the financials, allegation of conversion of unaccounted income by claiming fictitious LTCG in a preplanned manner to evade taxes, search and seizure operation conducted by the Investigation Wing in Kolkatta, Delhi, Bombay and Ahmedabad, non response to the notices issued to the investee company etc. Therefore, the present before Your Honours is also squarely covered by the decision of the Honourable High Court of Delhi.
Apart from above the appellant’s case is further strengthened on the basis of following salient features: - A. The appellant has furnished plethora of documents in connection with the transactions of purchase and sale of shares and has also submitted various communications with the investee company which were not submitted in all the case laws relied upon which further fortifies the transactions of the assessee. B. Further all these documents remained uncontroverted, so as to say have been accepted by the authorities below. C. Sunrise Asian Ltd. cannot be stated to be a penny stock for the reason that the turnover of the company was in excess of Rs. 70 corers and Rs. 113 crores and the profit was in excess of Rs. 40 Lacs and Rs. 103 Lacs for the FY 2012-13 and 2013-14 respectively as evident from the financial discussed by the AO in the assessment order itself. Therefore, the nomenclature given by the Investigation Wing is baseless and devoid of any substance. D. No action has been taken by the SEBI against the investee company for alleged manipulation in the price of shares of the company. E. Neither the appellant nor the broker through whom the appellant has transacted in share have been specifically pointed out in the report of Investigation Wing.
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Per contra Ld. Departmental Representative vehemently
argued supporting the detailed finding of both the lower authorities
and again asserted the fact that the abnormal increase in price of
shares of M/s Sunrise Asian Limited were not commensurate with
the financial strength of the company. Further Investigation Wing
has gathered sufficient material before concluding that the alleged
transaction is a sham transaction and has been carried out across
the country through various brokers. Reliance was placed on the
decision of Hon'ble High Court of Gauhati in the case of CIT V/s
Smt. Sanghamitra Bharali . Ld. DR also relied on the following
judgments of :-
(i) Hon'ble Supreme Court of India in the case of Suman
Poddar V/s Income Tax Officer (2019) 112 taxmann.com 330
(SC)
(ii) Hon'ble High Court of Gauhati in the case of CIT V/s Smt.
Sanghamitra Bharali (2014) 50 taxmann.com 47 (Gauhati)
We have heard rival submissions and perused the records
placed before us and carefully gone through the judgments and
decisions referred and relied by both the parties. The issue of
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genuineness of claim of exemption of Long Term Capital Gain (In
short ‘LTGC’) u/s 10(38) of the Act from sale of equity shares of a
listed company namely M/s Sunrise Asian Limited (In short ‘SAL’)
carried out through a recognized stock exchange and shares been
transferred through Demat account is in dispute before us.
Revenue authorities have alleged that the company namely M/s
Sunrise Asian Ltd is a “penny stock company” and the transaction
giving rise to LTGC is sham and assessee has used colorable device
to convert its unaccounted money into Long Term Capital Gain in
order to claim exemption u/s 10(38) of the Act. Assessee has also
challenged the action of Ld. A.O making addition for estimated
brokerage expenses for arranging the alleged bogus Long Term
Capital Gain.
We observe that the assessee has claimed to have sold 30000
equity shares of M/s Sunrise Asian Limited for a consideration of
Rs.1,46,95,302/-. These shares were claimed to be purchased on
10.10.2011 at cost of Rs.6,00,000/-. Ld. Counsel for the assessee
has filed following sequences of events which have occurred since
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the purchase of these equity shares during the Financial Year 2011-
12 till they were finally sold during Financial Year 2013-14.
Period of Event Event June 2011 Meeting with director Mr. Nilesh P Chauhan regarding investment in Santoshima Lease Finance & Investment (India) Ltd 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 2011 by 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 2012 Placed request for getting the shares in dematerialized form. 22 October 2012 Letter issued to Mr Nilesh P Chouhan, Director 31
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of the company seeking information in respect of amalgamation and raising concerns about the proposal. November 2012 Received letter from the company explaining the 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 onwards Sale of shares through stock Exchange 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.
From going through the above sequence of events which are
duly supported by evidence filed by the assessee before both the
lower authorities and before us prime facie show that the assesse
applied for 30000 equity shares on 19.9.2011 the name of the
company at the point of time was Santoshima Lease Finance &
Investment Limited which was later on changed to Santoshima
Tradelinks Limited. This company with another company namely
M/s Conart Traders Limited was planned to be amalgamated with 32
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M/s Sunrise Asian Limited. Hon'ble Bombay High Court passed an
order for merger of the company with M/s Sunrise Asian Limited.
New shares in M/s Sunrise Asian Limited were received in the
demat account of the assessee in lieu of holding in the shares of
M/s Santoshima Tradelinks Limited. Undisputedly the assessee
has held the 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.
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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 Mumbai Tribunal in the case of Dipesh
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Ramesh Vardhan Vs DCIT recently delivered on 11.08.2020 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
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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 witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious
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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 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
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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
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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. 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
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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) qwhile 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
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 SESI 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 40
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
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 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
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
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.
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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 the Revenue. In the result, the ground of appeal so taken by the assessee is allowed.
In the result, the appeal of the assessee is allowed.”
We find that both the above decisions are squarely applicable
on the facts and issues raised before us. Ld. Departmental
Representative has relied on two judgments, the one of Hon High
Court of Gauhati in the case of CIT V/s Smt. Sanghamitra Bharali
(2014) to taxmann.com 47 (Gauhati) (supra) is not applicable on the
instant case since in this case the company address where shares
were sold by the assessee has not been found by the Inspector of
the Income Tax Department proving its non existence. This is not
the fact in the instant case as neither any such enquiry has been 43
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
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.
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:-
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
“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
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
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
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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.
We therefore are of the considered view that the facts involved
and issues raised in the instant appeal are squarely covered by the
decision of Co-ordinate Bench of Mumbai and Jaipur in the case of
Dinesh Ramesh 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
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
expenses of Rs.4,22,859/-. The other two grounds are general in
nature which needs no adjudication.
In the result appeal of the assessee, Shri Ayush Jain in ITA
No.616/Ind/2019 is allowed.
Now we take up remaining appeals of Shri Pritesh Jain (HUF)
ITA No.617/Ind/2019 & 293/Ind/2020 & Shri Nilesh Jain ITA
No.294/Ind/2020. The common issue relating to Long Term
Capital Gain from sale of equity shares of Sunrise Asian Limited
(SAL) is in dispute where the assessee has claimed to exemption
u/s 10(38) of the Act and revenue authorities are alleging it to be
bogus and sham transactions liable to be taxed u/s 68 of the Act.
Since we have adjudicated similar issue in the case of Mr. Ayush
Jain discussed in the preceding paras and have held in favour of
the assessee, thus allowing the benefit of exemption u/s 10(38) of
the Act for Long Term Capital Gain earned from sale of equity
shares from M/s Sunrise Asian Limited relying on the decision of
Co-ordinate Benches of Mumbai and Jaipur in the case of Dinesh
Ramesh Vardhan V/s DCIT and Ashok Agrawal V/s ACIT
respectively have held that SAL is not a penny stock company. We
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
thus applying the same decision in these three appeals, delete the
addition made for bogus Long Term Capital Gain as unexplained
cash credit u/s 68 of the Act and allow the claim of exemption of
income u/s 10(38) of the Act for Long Term Capital Gain from sale
of equity shares of M/s Sunrise Asian Limited at Rs.37,40,741/-,
Rs. 1,02,86,220/- and Rs.1,48,71,538/- made by the assessee
namely Shri Pritesh Jain (HUF) for Assessment Year 2015-16 and
2014-15 and Shri Nilesh Jain (HUF) for Assessment Year 2014-15
respectively. Accordingly Ground No.1 raised in ITA
No.617/Ind/2019, 293/Ind/2020 and 294/Ind/2020 are allowed.
As regards Ground No.2 raised in ITA No.617/Ind/2019 &
293/Ind/2020 regarding estimated brokerage expenses at
Rs.1,17,022/- and Rs.3,21,790/- made in the case of Shri Pritesh
Jain (HUF), we apply the same analogy and decision as taken in the
case of Shri Ayush Jain in ITA No.616/Ind/2019 and delete the
addition for estimated brokerage expenses and allow Ground No.2
raised in Appeal No. ITA No.617/Ind/2019 & 293/Ind/2020.
As regards Ground No.2 raised by the assessee Shri Nilesh
Jain (HUF) in ITA No.294/Ind/2020 for disallowance of expenses of
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
Rs.50,522/- claimed by the assessee, we find that the Ld. A.O has
made the addition for bogus Long Term Capital Gain at
Rs.1,43,22,060/- which in view of Ld. A.O is claimed as Long Term
Capital Gain. There is a factual error in his observation. The
assessee received sale consideration of Rs.1,48,71,538/-, the
purchase cost is Rs.6,00,000/- and Long Term Capital Gain
claimed to be exempt u/s 10(38) of the Act is Rs.1,42,71,538/- .
Whereas the Ld. A.O has adopted the sale consideration at
Rs.1,49,22,060/- which was taken from the information received
from the Investigation Wing. However as claimed by the assessee
that there was an expenses of Rs.50,522/- which was incurred to
effect the sales and the assessee received not the sale consideration
of Rs.1,48,71,438/- only. Since sum of Rs.50,522/- was an
expense the same should have allowed. We find force in the
contention of the Ld. Counsel for the assessee and in the given facts
and circumstances of the case, out of the total addition of
Rs.1,43,22,060/- sum of Rs.1,42,71,538/- is eligible for exemption
u/s 10(38) of the Act as Long term Capital Gain and remaining
amount of Rs.55,522/- is allowed as a claim of expenses made for
Ayush Jain & Ors ITA No.616, 617/Ind/2019 & 293&294/Ind/2020
effecting the sales. In the result Ground No.2 of the assessee’s
appeal in the case of Shri Nilesh Jain (HUF) is allowed.
All other grounds raised in this bunch of appeals are general
in nature which needs no adjudication.
In the result all the four appeals viz ITA No.616/Ind/2019,
No.617/Ind/2019 & 293/Ind/2020 and No.294/Ind/2020 are
allowed in favour of assessee(s) and against the revenue as per
terms indicated above.
The order pronounced as per Rule 34 of ITAT Rules, 1963 on 30.04.2021.
Sd/- Sd/-
(MADHUMITA ROY) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER
�दनांक /Dated : 30th April, 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