INCOME TAX OFFICER 33(1)(4), MUMBAI vs. DHEERAJ BABULAL SHAH, MUMBAI

“Q.5. Please give the details of movable and Immovable properties held by you and your family members. Ans. I and my family members owned the following movable and immovable properties: -

1. 1. Flat No. 3A-1601, Green Acre, Lokhandwala, Andheri West, Mumbai - 400 053 in the name of Mrs. Tanu Agrawal and G.K.Agrawal, HUF.

2. Office No. E-109, Crystal Plaza, Link Road, Andheri West, Mumbai - 400 053 is in the name of myself.

3. Flat No. 305, Krishna-A, Vishal Nagar, Marve Road, Mith Chowki, Malad West, Mumbai - 400 064.

4. Shop No. 1, 340, Mahalaxmi Coop. Hsg. Soc., S V Road, Kandivali West, Mumbai - 400 067.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 5. Shop at Baroda, the detailed address Is not remembered, will provide the details within 2 to 3 days time.

9. M/s. Rockon Capital Market Pvt. Ltd.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah Ans. Yes, I know Ms. Surface Finance Pvt. Ltd. I do not know about its shareholders however as far as my knowledge is concerned Mr. Amit Gulecha is Director In the above company. Q.9. Please state in the capacity of Director of the Companies mentioned in answer to Q.No.6, whether you and your wife have transacted with M/s. Surface Finance Pvt. Ltd. In the form of shares, finance, loans, advances etc. Ans. Being a Director, I and my wife may have transacted with M/s. Surface Finance Put. Ltd. but I do not remember the exact nature of transaction. I will furnish the ledger accounts of all the companies wherein myself and my wife Is director within 2 to 3 days time. Q.11.Whether you know about Shri Varun Malik, BRRM of Axis Bank, Springfield Branch. Ans. Yes, I may have met. Mr. Varun Malik, as the companies wherein I and my wife is director are having bank accounts in Axis Bank, Springfield Branch. Q.12. How and through whom you know Mr. Amit Gulecha. Ans. I know him through one of my friend Mr. Chaturvedi since last 2 to 3 years. He is also a Chartered Accountant and a director in some of the companies wherein were also one of the Directors, such as Banas Finance Ltd. Q.14. Do you know Shri Dheeraj Babulal Shah, if yes, since when and how? Ans. I know him since last 5 to 6 years. Shri Dheeraj Babulal Shah, is a Software Consultant and I know him through one of my friend Mr. Manish Gupta who Is also Software Consultant. Q.15. Do you know M/s. Esaar (India) Ltd., If yes, how and from when?

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah Ans. I know the above company. I was a Director in the said company for shorter period might be in the year 2010-11 but without holding any shares. Mr. Vijay Poddar one of my friend was interested along with me to buy the said company but later on due to some reasons the same has not been materialized. Shri Dheeraj Shah was Interest to buy that company and Mr. Vijay Poddar Introduced Shri Dheeraj Shah to Mr. Ajay Saxena, the old promoters of Esaar (India) Ltd. based in Kolkata. Q.22. I am showing you the statement recorded us. 131 of the I.T. Act, 1961 of Shri Varun Malik, the then BBRM of Axis Bank Ltd., Springfield Branch, Lokhandwala Complex, Andheri West, Mumbai on 07/12/2016. Please go through the said statement and comment upon the same. Ans. Yes, I have gone through the entire statement and found that Mr. Varun Malik has given the wrong statement and I would like to have cross examination. Q.23. Please state on which date and time you would like to cross examine Mr. Varun Malik so that Mr. Varun Malik may be informed accordingly. Ans. I will be available for cross examine Mr. Varun Malik on 24/12/2016. Q.25. I am showing you the statement recorded u/s. 131 of the I.T. Act, 1961 of Shri Navin Shah on 04/12/2016. Please go through the said statement and comment upon the same. Ans. Yes, I have gone through the entire statement and found that Mr. Navin Shah has given the wrong statement and I would like to have cross examination.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah Q.26. Please state on which date and time you would like to cross examine Mr. Navin Shah so that Mr. Navin Shah may be informed accordingly. Ans. I will be available for cross examine Mr. Navin Shah on 24/12/2016. Q.28 Whether the companies wherein you and your wife are director have purchased the shares of M/s. Esaar (indla) Ltd., if yes, please give the full and complete details such as purchase of said shares and further sale of said shares. Ans. I will provide the complete and full details of purchase of shares of Esaar (India) Limited and further sale of shares of Esaar (India) Limited in respect of all the companies, wherein I and my wife is directors, who have purchased and sold the shares of said company. I will also provide the details of net result of purchase and sale of shares of Esaar (India) Limited within 2 to 3 days time. Q.29. Whether you know the following companies? S.No. Name Of The Parties 1 B M Traders 2 Bakshish Singh 3 Bhanumati Chhabildas Shah 4 Bharti Amit Rungta 5 Bimla Devi 6 Deepak Mittal 7 Deepak Suryakant Chavan 8 Gajanan Enterprises 9 Garth Mercantile Private Ltd 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 10 Goodpoint Impex Private Limited 11 Isairis Trading Private Limited 12 Jatin Nanji Chheda 13 Kunvarji Karshan Nishar 14 Mukesh Dhirajlal Mahetalia 15 Narendra Dattatray Nikame 16 Nrav Rajababu Gandhi 17 Nirmala Devi Kashiprasad Bajaj 18 Olympia Multitrading Private Limited 19 Overload Financial Advisory Private Limited 20 Pankaj Mohanlal Gandhi 21 Panna Haris Thakar 22 Prakash K Shah Shares & Securities Pv Ltd 23 Purav Jasmin Visaria 24 Rahul Gupta 25 Rahul Kunvarji Nishar Huf 26 Rajaldevi Mohanlal Jain 27 Romy Realty Private Limited 28 Rupak Developers Private Limited 29 Saurabh Surendra Jadhav 30 Shallot Tie Up Private Limited 31 Shivkhori Construction Private Limited 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 32 Shivsathi Mercantile Private Limited 33 Smita Shukla 34 Surface Finance Pvt Ltd 35 Topwell Properties Pvt Ltd 36 Trishuldhari Vinimay Private Ltd 37 Vaishali Dhaval Shah 38 Vijaykant Deviprasad Mishra 39 Vikram Sharma Ans. No, I do not know any of the above parties / persons / companies however they may be the shareholders of the companies wherein we are the directors and there may be any financial transaction. Q.30. l am showing you the Annual Report / Balance Sheet of M/s. Five X Tradecom Limited (Formerly Five X Finance & Investment Limited) and M/s. Axon Ventures Limited (Formerly Axon Finance Limited) for the F.Y. 2013-14, from which It Is seen that M/S. Isairis Trading Pvt. Ltd. Is the shareholder of more than 5% in the above said two companies wherein you and your wife Is director. Please confirm the same. Ans. Yes, after perusing the Annual Report / Balance Sheet of the above two companies, I confirm that Ms. Isairis Trading Pvt. Ltd. Is a shareholder having more than 5% as on 31/03/2014. Q.31. I am showing you the Balance Sheet of Mr. Dheeraj Babulal Shah for the F.Y. 2013-14 and 2014-15. Most specifically please go through the Investment in Equity of Mr. Dheeraj Babulal Shah and confirm the appearance of investment / holding of Mr. Dheeraj 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah Babulal Shah in equity shares of Ms. Banas Finance Limited and M/s. Five X Finance & Investment Ltd. Ans. Yes, I have gone through the Investment in Equity of Mr. Dheeraj Babulal Shah and it appears to be confirmed but / will check up with Company Records whether he is shareholder of our above said two companies during the above period.”

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah Ans. Company originally incorporated on 21st August 1951 under the provision of Companies Act 1956, and registered address at 4-A, Council House Street, 1st Floor Kolkata, West Bengal - 7000001. Q.8 As you entered into the above said SPA with 23 Nos. of Sellers. What are the addresses of the 23 Nos. of Sellers rather please state in which state the above 23 Nos. of Sellers belongs to. Ans. All the sellers belong to Kolkata West Bengal and their addresses and PAN numbers are mentioned in SPA. Q.9. What is your residential address and in which state do you live? Ans. My residence address is 23-A/12 Akash CHS Zalawad Nagar Ashok Nagar Road Kandivali (East) Mumbai - 400101 in Maharashtra state. Q.10 As the above said SPA is executed in Kolkata, the company's Registered and Corporate address is at Kolkata, all the Sellers are having their addresses in Kolkata, please state why the Stamp Paper Issued by Maharashtra State has been used to enter into said SPA, when the asset / property i.e. shares of the company, sellers belong to Kolkata and the same has been shown to have been executed at Kolkata. Ans. Since I am resident of Mumbai, Maharashtra therefore I arranged purchase of stamp paper from here in my name and executed SPA in Kolkata since the company and the old promoters were from Kolkata West Bengal. Q.11.As per Clause 2.4 of Article 2: i.e. "AGREEMENT TO SEL THE SALE SHARES? of the Said SPA, the Sellers have delivered the following documents to you:- i. The duly executed share transfer deeds in relation to the transfer of the Sale Shares held by it in the Company to the Purchaser; 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah ii. The original respective share certificate(s) evidencing the title of the Sale Shares held by it in the Company; iii. Signed blank dated delivery instruction slips of demat account duly verified by the depository participant. Please go through the above Clause and confirm the same. Ans. I confirm the above clause as a part of SPA. Q.12. As you have confirm the above said Clause No. 2.4, please state why you have not produce and submit the above documents when asked for during the course of Survey Action u/S. 133A in your case at your residential premises 23-A/12, Aakash Co-operative Housing Society Limited, Jalawad Nagar Road, Ashok Nagar, Kandivall (E), Mumbal-400101 on 09.09.2016. Ans. I did received physical share certificates and transfer deed which was handed over to my then broker M/s Mangal Keshav Securities Ltd for dematerialization of shares, for which have submitted acknowledgement which I did received from Ms Mangal Keshav Securites Ltd. Q.13. Please go through the Clause No. 17.1 of Article 17 I.e. "MISCELLANEIOUS" of the above said SPA and confirm. Ans. I confirm the above clause as a part of SPA. Q.14. in respect of your answer to the Q. No. 13, please state being the Purchaser of the Shares, whether you have paid any Stamp Duty. If you have paid the Stamp Duty please give the details there of, such as, amount of Stamp Duty and where you have paid the same. Ans. I executed SPA but / was not aware of stamp duty payment and its procedure hence have not paid stamp duty on the sold SPA. Q.15. Please state by using the Stamp Paper Issued by Maharashtra State for executing the SPA in respect of sale & purchase of Shares of the Company I.e. Essar (India) Limited and also 23 Nos. of Sellers 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah belonging to Kolkata, whether and how the said SPA Is valid in legality. Ans. As per my knowledge for executing any agreement, stamp paper of any state can be procured by any person (party to the agreement) of their respective state, hence it is legally valid.”

6. Having regard to the above enquiries made, and taking into account the submissions furnished by the assessee and the findings of the Kolkata Investigation Directorate, the AO concluded that the long term capital gain derived by the assessee was not genuine but pre- arranged to launder his own unaccounted monies. The AO observed that this was a pre-ordained scheme and the unusually high gain earned by the assessee was unbelievable. According to the AO, the assessee was unable to explain the unusual rise and fall in the share price and was unable to prove that the price fluctuations were natural and based on market forces. According to the AO, it is evident that such share transactions were closed transactions and the fund flow analysis showed that the cash has been routed from various accounts to provide accommodation to assessee. Therefore, taking into consideration, the ITS/AIR data wherein it is shown that sale consideration was Rs.8,88,19,767/- (assessee has shown share consideration of Rs.8,87,46,620/-) and since the assessee could not reconcile these figures, the AO considered the amount reported in ITS/AIR data, i.e. Rs.8,88,19,767/-, as the sale consideration and accordingly denied the benefit of exemption claimed by the assessee 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah u/s 10(38) of the Act in relation to the LTCG of Rs, 8,69,30,970/-. The AO, accordingly, added the sale proceeds of Rs. 8,88,19,767/- (as per AIR information) as unexplained cash credit u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the impugned addition. Being aggrieved by the aforesaid decision of the Ld. CIT(A), the Revenue is now before us.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 8. We have heard both the parties. It was brought to our notice that, the assessee is engaged in the business of development of software and was engaged in this business through his company, M/s Atman Infotech Pvt Ltd, which was primarily doing software development work in area of operational control of banking, insurance and security holdings and transactions. The notable clients of the assessee were Ratnakar Bank, India First Life Insurance Co. Power Grid Corporation etc. In 2011, the assessee received an offer from M/s. Essar (India) Ltd, which was a registered NBFC with the Reserve Bank of India and listed on the Bombay Stock Exchange, to come onboard and develop an exhaustive software system to synchronize the business of the NBFC, streamlining operation through software of banking, insurance/investments and other security related operations. Since this was his area of expertise, and with the intent to integrate his business of developing software, the assessee joined the existing promoters of M/s. Essar (India) Ltd. by acquiring part stake in the company. For this, the assessee entered into a Share Purchase Agreement (SPA) to acquire 9.95% of stake in equity of the company, M/s. Essar (India) Ltd. at a competitive rate being equivalent to face value of shares at Rs.10/- and joined the company’s board in the capacity of managing Director (MD) and assumed full managerial control of the company vide resolution passed in Extraordinary General Meeting dated 19.04.2011. The assessee has furnished a copy of the SPA dated 18.03.2011, entered into with Mr. Ajay Saxena, who was one of the promoters, and who also held power of attorney on 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah behalf of all the other promoters, who had also sold their respective stakes to the assessee. It is noted that the assessee had purchased 4,97,430 shares and the payments were evidenced by the bank statements of assessee. The AO is noted to have questioned the assessee on this SPA while recording his statement u/s 131 of the Act and the assessee is noted to have confirmed the same. Having regard to the foregoing facts, we note that the assessee has demonstrated the manner in which he came to know about the company, M/s Essar India Ltd and has explained the rationale for investing in this company. Hence, the Revenue’s suspicion as to how did the assessee come to know about this little known scrip is found to have been addressed by the assessee.

10. Now coming to the source of funds, which were used by the assessee to acquire these shares, it is noted that the assessee had borrowed monies from M/s Surface Finance Ltd. and M/s Chirag Securities Ltd at commercial rates of interest. The AO is noted to have had laid much emphasis on the issue as to how did the assessee come to know about these lenders who had lent him monies. From the statement given by the assessee on 18.10.2016, it is noticed that he had averred that, he was introduced to these lenders by Shri Vijay Poddar. But Mr. Poddar in his statement dated 09.12.2016 denied this fact. The assessee is noted to have been summoned again by the AO and in his statement/s dated 26.12.2016 & 28.12.2016 he again re- affirmed that Shri Vijay Poddar had introduced him to these lenders and submitted that the denial by Shri Vijay Poddar was incorrect. It is noted that the assessee had sought cross-examination of Shri Vijay Poddar, which was denied by the AO due to paucity of time. Having 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah perused these statements, we are unable to comprehend as to how this aspect i.e., how did the assessee came in contact with these lenders, was a decisive factor to ascertain the genuineness of the transactions in the shares of M/s Essar (India) Ltd. It is not in dispute that these loans were received through banking channel which carried commercial interest rates, and that the assessee had subsequently repaid these loans along with interest. According to AO, the statements of the Directors of these lender companies revealed that these companies were managed and controlled by Shri Girraj K Agarwal. Examination of the statement of Shri Girraj K Agarwal (supra) and also the statements of the directors of the lender companies shows that nowhere has anyone stated that these loans were not genuine or that it represented unaccounted monies of the assessee. Having regard to this factual position, we agree with the Ld. CIT(A) that the AO’s action of doubting the genuineness of the source of purchase of shares of M/s Essar (India) Ltd was unjustified.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 13. It was further brought to our notice that, the assessee had explained before the lower authorities, the reasons for the surge in price of shares of M/s Essar (India) Ltd and explained the surrounding circumstances leading to sale of these shares, which according to the assessee, supported his case. We note that the Ld. CIT(A) had taken due note of the same and found that the case of the assessee was factually distinguishable from that of the general cases flagged by the Investigation Wing who were purportedly found to be beneficiaries of bogus LTCG. The relevant findings of the Ld. CIT(A) were as follows:

“6.5 In the assessment order, while making additions, the ld. AO had relied on the report of DIT (Inv.), Kolkata. In para 6 of the assessment order, the AO has mentioned the content of the report of the Investigation wing of Kolkata. The report talks of only the scrip Essar (India) Ltd and names it as Penny Stock. It is only mentioned that large number of beneficiaries have claimed bogus LTCG/STCL. There is no specific mention of the name of the appellant. This shows that the enquiry carried out by the investigation wing of Kolkata did not reflect the name of the appellant as the beneficiary. Further, the statements recorded are reproduced by the AO, which form substantial part of the assessment order, do not directly link the appellant with any of the companies or persons related to Giriraj K Agarwal. The appellant has taken loans from Surface Finance Pvt Ltd and Chirag Securities Pvt Ltd. through banking channel, creditors have confirmed the giving of loan, and the loan was repaid by the appellant from his bank account. It is not the case of the AO that the loan was a cash credit entry in the books of the appellant. The identity, genuineness 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah and creditworthiness of the lenders of loan to the appellant are proved. None of the persons whose statement was recorded by the AO stated that the appellant was involved in price rigging of the shares, or that he gave cash to any of them which they deposited in the bank accounts and accommodated the appellant for getting the bogus LTCG. Thus, the inference drawn by the Id. AO on the basis of the said report and statements recorded by him cannot be considered as any base for treating the LTCG claimed by the appellant as bogus.

6.6 Therefore, no adverse inference can be drawn with respect to the genuineness of the transaction entered by the appellant in the normal course, merely because one Giriraj Kishore Agarwal was involved in arranging accommodation entries for LTCG to various others. Just because the loan was taken by the appellant from some companies which were remotely connected to Shri Agarwal it cannot be conclusive evidence to prove that the transactions made by the appellant were bogus. In fact, the statement of the appellant was also recorded u/s 133A on 09 and 10 of September, 2016 by the AO wherein several questions were raised. He was specifically asked the questions relating to the transactions in the shares of Essar (India) Ltd. and he had given all the details of the transaction and confirmed that the said transactions were genuine. The said statement and the answers given by the appellant have not been disproved by the AO.

6.7. The AO also doubted the purchase price paid by the appellant for the shares of Essar (India) Ltd. at Rs.10 per share by SPA, when the market rate of the share was very low. In this case, the appellant wanted to enter company as a promoter by acquiring the promoter quota, which he can buy only from promoters. He took a decision to invest in the said company as he saw an opportunity to expand his 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah business of providing software solutions to NBFCs through a RBI registered and listed company by becoming Managing Director of the company. This was forward integration of his existing business. Therefore he purchased the shares at face value though the same were available at for lesser rate online. If he chose to purchase online, he could not have entered the company as a promoter and become MD of the company. Further it was decision of the company to split the shares Rs.10 to Re.1 share, in which the appellant has no role. Though the shares of Essar (India) Ltd was at a lower price, the appellant purchased at face value as he was acquiring promoters’ quota and to take over the listed company for his business plans. On the facts and circumstances of the case, I am of the view that AO cannot sit in the armchair of the businessman and decide as to how the assessee should acquire a company or the company should conduct its affairs.

6.8 The AO gave an assumption that the LTCG was quid pro quo for cash paid by the appellant. Through the statements, the AO tried to prove that the promoters of those companies who purchased shares from the appellant are directly or indirectly related to Giriraj K. Agarwal. It is the argument of the AO that Giriraj K. Agarwal was the operator. Through none of ‘the statements recorded from the persons, the AO could get a reply that they received money in cash from the assessee Mr. Dheeraj B. Shah, which they used to buy the shares form him when they were put on sale. AO has nowhere given a finding that the appellant had huge cash, which he gave to Sh. Giriraj K. Agarwal or his front companies. Actually, AO gave a finding that the appellant was not financially strong; therefore, he took loans to buy shares of Essar India Ltd. Appellant was drawing salary form Atman Infotech Pvt. Ltd., where he was selling software to reputed companies. There 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah is no scope for generation of any cash out of books to Ratnakar Bank etc. It is also seen that the AO has nowhere directly either stated or brought an iota of evidence to sav that the appellant gave the cash which was deposited in the jamakharchi companies and the said companies provided the exit to the appellant. In the absence of any evidence, circumstantial or otherwise to hold that the appellant had unaccounted income/wealth/cash, the presumption that the appellant purchased or took an entry of LTCG by way of purchase and sale of Essar (India) Ltd which is named as Penny Stock, by giving the cash, cannot be held to be correct and it is a mere presumption without any direct or circumstantial evidence.

6.9 AO has not established by way of various statements recorded, that appellant was in collusion with said persons, including Giriraj K. Agarwal, in rigging of the shares of Essar (India) Ltd or with the other whom the AO alleged that are exit providers. Appellant was a technical person, proved his credentials, which others - may have used to project the company to sell the shares. From the harmonious reading of the statements recorded by the AO and the affairs of the appellant, it appears that appellant is not connected with the said operators, exit providers etc.

AO himself in para 33.1 in his conclusion, extracted above at para 4.1, held that the assessee was ignorant about Penny Stock companies. It is the conclusion of the AO that the assessee had no knowledge about shares traded and fundamentals of penny stock companies. This finding means that the appellant was not involved in rigging of shares, not a party to the pre-arranged, pre meditated scheme for booking abnormal LTCG. The finding of the AO in this regard should go in favour of the appellant. Actually the appellant invested in Essar 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah (India) Ltd to integrate his expertise into a RBI registered and listed company. He has no intention of selling shares after 1 years to book huge profit on sale of shares, as in the case in typical penny stock investor, as described by the AO in para 6.5 of his order. Intention of the appellant, as can be understood form the statements recorded from him, and also from the submissions made, was to take the company to higher levels through business. It is also seen from the records that, towards this, he also prepared proposals for the company like “ROC services, Income tax Return filing software, TDS package, Service tax, Online registration for PAN/TAN/VAT/Service tax and Excise numbers, Online shopping”. He also made confidential proposals for Supply Chain Management in the name of ‘STREAMSCM’. The proposals and plans could not take off is different issue. Therefore the allegation of the AO without any tangible evidence that the assessee purchased and sold only to earn exempt LTCG after one year of holding of shares is held to be not sustainable in view of the facts.

6.10 From the gamut of facts brought out above, it appears that the ld, AO is predominantly influenced by the penny stock related issue for treating the said transactions as sham. It is, however, seen that there is no adverse criticism on the relevant documentation involving these share transactions nor is there any allegation against the appellant individually as involved in price rigging or taking the benefit of accommodation entries to route his cash into the books of account. Thus, the purchase of shares of Essar (India) Ltd by the appellant is backed by evidences which have not been doubted by the AO and the reasons provided by him for making the addition can at the most be termed as presumptions, but in view of these evidences submitted by the appellant to substantiate the transaction, in absence of any adverse 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah finding by the AO on any of the documents filed by the appellant, the LTCG claimed by the appellant of Rs. 8,88,19,797cannot be treated as bogus. 6.11 Another circumstantial fact, which has to be taken into consideration, is that the appellant was holding 49,74,300 shares, but he sold only 18,15,650 and balance 31,58,650 shares were remaining with the appellant. In a typical Penny Stock transaction, shares are purchased by unconnected investor at a low price based on information or through private placement and sold after 1 year or lock-in period of 1 year, to book huge profits. Here in this case, the appellant has invested in bulk shares to enter as a promoter of the company, following religiously all regulatory formalities of BSE/SEBI. He held shares 2 to 3 years, he tried to promote the company with business proposals. When he realized, the required breakthrough of business was not happening, he decided to sell part of shares held. He sold only 36.5% shares and still he had 63.5% shares with him as on 31.03.2014. If the intention was only to en-cash the surge price of shares, he could have sold entire holding, but he sold only part of the holding under intimation to regulatory agencies. Therefore, the arguments of the AO related to typical Penny Stock case are not ipso facto applicable in the case of the appellant.”

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah a) Copy of share purchase agreement (SPA) evidencing investment made in Essar (India) Ltd., b) Explanation regarding the purpose and intention for making the investment for purchase of shares in Essar (India) Ltd., which has not been found to be concocted by the AO, c) Explanation regarding the source of funds used for making investment made in shares of Essar (India) Ltd. in earlier year/s was furnished by the assessee, d) Evidence of receipt of shares of Essar (India) Ltd. and its subsequent dematerialization has also been placed on record, e) Evidence that shares were sold after being held for 2 - 3 years and therefore qualified as a long term capital asset; f) Reason for rise in the prices of shares of Essar (India) Ltd. was explained before the A.O., g) Copies of brokers’ contract note for sale of shares of Essar (India) Ltd. evidencing that the shares were sold through stock brokers registered with SEBI through recognized stock exchange at the prevailing quoted rate on the day of sale and duly subjected to STT, 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah h) Evidence regarding receipt of sale proceeds of shares of Essar (India) Ltd. through normal banking channel, i) Evidence regarding the statutory compliances and disclosures undertaken by the assessee being the promoter- MD of M/s Essar (India Ltd) with the SEBI and BSE, both upon purchase and sale of the shares.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah wherein it was held that, not allowing the assessee to cross-examine the witnesses on whose statements the adjudicating authority wishes to rely upon, is a serious flaw which renders the order impugned to be a nullity. Similar view has been expressed by the Hon'ble jurisdictional Bombay High Court in H.R. Mehta Vs ACIT (387 ITR 561). On the overall conspectus of facts and circumstances, as discussed in the foregoing, we therefore do not find any fault with the order of the Ld. CIT(A).

6. It is in that regard that we find that Mr. Gopal’s contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd. for the total consideration of Rs.25,93,150. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 and 37 of the appeal paper book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah regarding client code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal’s order are not ‘vitiated by any error of law apparent on the fact of the record either.

6.18 Thus, I find that on similar set of facts, judicial authorities have already held that addition cannot be made in the hands of the assessee merely on the basis of some investigation carried out by the authorities without pointing out as to whether the assessee had converted his unaccounted cash into exempt capital gains.

6.19 In an identical manner, the addition on account of long term capital gain on sale of shares was deleted by holding it to be a genuine transaction in the case of Mukesh Marolia v. Addl. CIT-6 SOT 247 (Mum). Even in the said case, the AO had held that the long term capital gain shown by the assessee was unexplained since in the said case broker had confirmed in a statement before the AO that he never sold any shares to the assessee. However, taking note of the evidence as available on record, the Hon’ble Tribunal held that the AO had not disproved the genuineness of the transactions. The said decision of the Tribunal was later upheld by the Hon’ble Bombay High Court in the case of CIT v. Mukesh Marolia - ITA 456 of 2007 dated 07.09.2011.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah The SLP against the said decision filed by the Department has also been dismissed by the Hon’ble Supreme Court in SLP (Civil) No. 20146/2012 dated 27.01.2014.

6.20 Reliance was also placed on the decision of the Hon’ble Mumbai Tribunal in the case of ITO v. Indravadan Jain (HUF) (ITA No, 4861/Mum/2014) dated 27.05.2016 wherein an identical issue was involved, In the said case, the long term capital gains claimed by the assessee was denied by the AO and treated as unexplained cash credit u/s 68 of the Act on the basis of action taken by SEBI against the broker through whom the assessee had sold shares. The Hon’ble Tribunal after taking into consideration the facts involved held that action taken against the broker by SEBI cannot be a ground to treat the transaction of the assessee as non-genuine and upheld the action’ of Ld. CIT(A) in deleting the addition made by the AO. The relevant extract of the order is reproduced as under:

8. We have considered rival contentions and carefully gone through the orders of authorities below and found form the record that the AO has treated the share ' transaction as bogus on the plea that SEBI ins initiated investigation in respect of Ramkrishna Fincap Put. Ltd. The AO further stated that investigation revealed that transaction through M/s Basant Periwal and Co. on the floor of stock exchange was more than 83%. We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not form M/s Basant Periwal and Co. Against purchases 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transaction in M/s Ramkrishna Fincap Pvt. Ltd. on the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT(A) after relying on the various decision of the coordinate bench wherein on similar facts and circumstances issue was decided in favour of the assessee came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT(A). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a-vis findings recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A).

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 6.21 In similar type of case, the issue was decided in favour of the assessee in the case of Commissioner of Income-tax, Jamshedpur vs. Arun Kumar Agarwal (HUF) 210 Taxman 205 (Jharkhand High Court). In this case, the AO i) on the basis of finding in the SEBI enquiry, consequent to which eleven stock brokers & their trading were suspended by the Kolkata Stock Exchange from buying & selling the securities ii) investigation by the CIT (Inv.) in the case where modus operandi adopted by the brokers of the assessee was also identical with one adopted by M/s Ahilya Commecial Pvt. Ltd., held that transaction of the purchase of the share and sale thereof is not genuine and is a sham transaction. Hon’ble Jharkhand High Court while dismissing the appeal of revenue held as under:

Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering an rising of share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he shows his bona fide in the transaction by showing relevant material, facts and circumstances & documents, then merely on the basis of the reason that share broker was involved in dealing in share of a particular company in collusion with other or in the manner of unfair trade practice against the norms of SEBI and stock exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by assumption such a transaction cannot be held to be a sham transaction.

Hon'ble Jharkhand High Court further held as under:

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah “It is not disputed by the revenue before us that the share of these assessee were already shown in the balance sheet submitted by the assessee, and therefore, in that situation, how the revenue condemning the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price had risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share price, then how can it be inferred that such a transaction entered into a sham transaction few years ago and prepared for getting the benefit after few years when share will start rising steeply. In the present case even there was no reason for such suspicion when the shares purchased years before the unusual fluctuation in the share price. Hence, the appeal of department dismissed CIT(A) and ITAT while allowing the appeal held as under; It is also not in dispute that assessee disclosed the shares in their possession in earlier return and statement of accounts and they are duly entered into the books of the accounts of the assessee which was duly proved by the bank statement.”

6.22. In CIT v Orchid Industries Ltd (ITA 1433 of 2014) dated 5th July 2017, dealing with the documents filed by the assessee, Hon’ble Bombay High Court observed that the assessee had produced the documents such as PAN, confirmation, bank statement, allotment letters, financial statements. The Balance Sheets showed significant funds to invest in shares of the assessee. The Hon’ble Bombay High Court held that considering the voluminous documentary evidence, only because those persons had not appeared before the Id. AO would 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah not negate the case of the assessee. The Hon’ble Bombay High Court held as under:

“The Tribunal has considered that the assessee has produced on record the ‘documents to establish the genuineness of the party such as Pan of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account.

The Balance Sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the assessee. In view of these voluminous documentary evidences, only because those persons had not appeared before the AO would not negate the case of the assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case.”

Hon’ble Bombay High Court held that the transaction was genuine as the assessee produced voluminous documentary evidence. I find that the facts of this case are identical to that of the appellant’s case insofar as production of evidence is concerned. I find that in the case at hand before me, substantial evidence was produced to suggest that the transactions undertaken through banking channel and through registered broker of Stock Exchange were genuine.

4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah 6.23 I agree with the arguments of the appellant after considering the reply filed at para 5.3 above, distinguishing his case from the case of Sanjay Bimalchand Jain L/h Shantidevi B Jain v CIT of Mumbai High Court, Nagpur Bench in Income tax Appeal No. 18/2017.

6.24 Recently, the Mumbai ITAT F Branch in its decision in in case of M/s. Farah Marker v/s ITO dated 27- 04-2018 held as under.

3.4.8 From the appreciation of the facts of the case, the material evidence placed on record by the assessee and in the light of the discussion of the factual and legal matrix of the case as discussed from para 3.1 to 3.4.7 of this order (supra), we are of the considered opinion that , the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the ‘said shares’ of M/s. Shukun Construct Ltd., copies of the physical share certificates and her D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the ‘said shares’ by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from Shri Niraj Sanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah behind the assessee’s back, front a person who was not involved in the purchase of the said shares and also since the assessee was not afforded opportunity for rebuttal of the same and to cross-examine the said person. We are also of the view that the ratio and the factual matrix of the decisions in the cited case, i.e. Jatin Chhadwa (Supra), Harkhchand K. Gada (HUF) & others (supra) and Andaman Timber Industries (supra) would be applicable and support the case of the assessee since no adverse finding las been rendered in respect of the direct material evidence placed on record in respect of her transactions of purchase and sale of the ‘said shares’ of M/s. Shukwun Constructions Ltd. which stand duly disclosed in her audited Balance Sheets filed with the return of income of assessment years 2004-05 and the current year under consideration. In this factual and legal matrix of the case, as discussed above, we find that the addition of Rs.95,12,812/under section 68 of the Act made and confirmed by the authorities below to be unsustainable and therefore direct the AO to delete the said addition and accept the LTCG income of Rs.93,00,012/shown as exempt under section 10(38) of the Act. Consequently, ground No. 1 of the assessee’s appeal is allowed.

6.25 Therefore, in view of the binding decisions of the jurisdictional High Court and a plethora of decisions of Mumbai and other Benches of ITAT, in this factual and legal matrix of the case, I find that the addition of Rs.8,88,19,767 under section 68 of the Act made by the AO is unsustainable and therefore direct the AO to delete the said addition and accept the LTCG income of Rs.8,69,30,970 shown as 4092/Mum/2019 A.Ys.2014-15 & 2015-16 Dheeraj Babulal Shah exempt under section 10(38) of the Act. Appellant gets relief. Ground nos.1 and 2 of the appeal are allowed.”