GYAN PRAKASH GUPTA,NEW DELHI vs. ITO WARD-10(4), NEW DELHI

Being aggrieved, the appellant-assessee preferred present appeal on following grounds of appeal:-

That on the facts and circumstances of the case, the order passed by the learned CIT (A) is bad both in the eye of law and on facts.

On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming the addition of an amount of Rs. 1,49,14,984/- made by AO holding the sale proceeds of the shares, to be not genuine.

That under the facts and circumstances, both the lower authorities erred in law as well as on merits in assessing the declared LTCG of Rs. 1,49,14,984/-on sale of shares as unaccounted income and further erred in not allowing the exemption u/s. 10 (38) as claimed.

That the learned Commissioner of Income Tax (Appeals) has sustained the addition on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law.

That the additions made by Ld. AO and upheld by Hon'ble CIT(A), in the absence of confronting with the adverse material used against the assessee and in the absence of providing cross-examination of persons whose statements have been recorded on the back of the assessee, no cognizence of such material on statements should had been taken.

That the learned Commissioner of Income Tax (Appeals), Guwahati has further grossly erred both in law and, on facts in denying the claim of exemption of long term capital gain of Rs. 1,49,14,984/- on sale of shares sold on recognized stock exchange

That learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in making an addition of Rs. 1,49,14,984/- being sale consideration on sale of shares listed on recognized stock exchange as unexplained credit u/s 68 of the Act.

That while sustaining the aforesaid addition and denying the exemption learned Commissioner of Income Tax (Appeals) has failed to appreciate that, appellant was owner of equity shares of a listed company which had been held by it for a period exceeding 12 months and the same were sold on recognized stock exchange after payment of STT, resulting into a long term capital gain and therefore the long term capital gain accrued to the assessee on transfer of long term 'capital asset' was not includible in total income of the assessee in view of section 10(38) of the Act.

That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the claim of sale of shares and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced.

That the erroneous addition by Ld. AO have been confirmed by Hon’ble CIT(A)-2, Guwahati despite the same having been made by LD AO grossly indulging in conjecture and surmises without there being any direct adverse material against the assessee, based only on suspicion.

That the addition has been confirmed despite the assessee bringing on record all evidences and material to prove the genuineness of the transaction.

On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming the addition despite the AO taking adverse inference, misinterpreting the statement of assessee recorded on oath.

That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and denied exemption without confronting the material/investigation to appellant and also not providing cross examination of the parties on whose statements reliance has been placed in impugned order of assessment and therefore order so made is in disregard of principles of natural justice is vitiated.

On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the above addition despite the assessee declaring the total

That the addition was made grossly indulging in surmises without bringing on any direct evidence against the assessee, only on the basis of presumption and assumption.

That the learned Commissioner of Income Tax (Appeals) while sustaining the above addition has arbitrarily and, mechanically rejected the explanation and evidence tendered by the appellant and made the addition and denied exemption by drawing subjective, premeditated and preconceived inferences, on mere speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law, hence the same is not sustainable on facts and in law.

That on the facts circumstances of the case and in law, the Ld. A.O. erred in concluding assessment proceedings as well as the Ld. CIT (A) in confirming the assessment so concluded without granting proper opportunity to the appellant of being heard thereby assessment and CIT (A) orders are in violation of principles of natural justice and liable to be annulled.

That the learned Commissioner of Income Tax (Appeals) has erred in concluding without any basis that assessee has introduced his unaccounted income in the form of long term capital gain by manipulating the penny stock.

That the grounds of appeal as herein are without prejudice to each other.

Facts misplaced by Lower Authorities (a) Reliance on statement of not connected brokers Sh. Ashok Kumar Jalan and Sh. Sanjay Voha whereas the appellant never dealt through with such brokers and duly explained it only dealt through M/s. Divya Portfolio Pvt. Ltd (b) Entire transactions were conducted by M/s. Divya Portfolio Pvt. Ltd not done of the transaction through Sh. Ashok Kumar Jalan and Sh. Sanjay Voha (c) The Transactions though on-line trading at Bombay Stock Exchange not at all appreciated (d) No findings were recorded or brought on record with respect to activities conducted by such brokers (e) No material on record that cash trail of the appellate was prepared by the Investigation Wing, or by the AO (f) Even neither the assessee not the assessee's broker 's name either in SEBI or Investigation Report. (g) The record arising out of investigation report relied by LD. AO or by SEBI in the order relied upon by Ld. AO. Does not contain anything on contrary against appellant or Broker

Cases Relied Upon where the matter before courts were the matter before courts was:

A reliance was placed on - Suman Poddar Vs. ITO[2020] 268 taxmann 320(SC) (22.11.2019) (2019). 112 taxmann.com 329 (Delhi) High Court of Delhi. - Pr. Commissioner of Income Tax Vs Swati Bajaj on 14.06.2022 (Calcutta High Court) - Hemll Subhashbhai Shah Vs DCIT (ITAT)

A Coordinate Bench in titled as Reena Kumari Vs. Income-tax Officer [2025] 170 taxmann.com 430 (Delhi-Trib.) held as under:-

Heard and perused the record. The main issues involved is alleged bogus long term capital gains claimed by the Assessee in the following scrips:

Sunstar Realty Development Limited (“SRDL”) 1,81,75,146/-

As with regard to the contention that wrong section is invoked to make the addition it was submitted by the Id. AR that A.O. has made the addition u/s 68 in the Assessment Order, whereas in the remand proceedings, he specifically asked CIT(A) to consider the additions u/s 69A. However, CIT (A), in Para 9.7 sustained addition u/s 68 only:

Then as with regard to the allegation of the assessee that the A. O has relied upon certain statements and documents while making the impugned additions in the assessment but they were not provided to the Assessee neither an opportunity of cross examination was afforded to the Assessee. We find that the ground was raised before CIT (A), who in remand proceedings, directed the A.O to provide the relevant documents to the Assessee and give an opportunity to cross examine. It is a matter of record that the A.O. accepted that the relevant material was not provided to the Assessee during the Assessment and then the A.O. in his remand report has mentioned that he sent all the statement by post to the Assessee on the Address mentioned in the ITR for AY 2018-19. In this regard, it is submitted by the ld. AR that the address of the Assessee was changed and the same was updated in PAN records. Same is certainly established by copy of return available on Page 60-61 of the Paperbook and the said documents should have been sent on the address as per PAN records with NSDL. Then we find that AO forwarded these documents to CIT(A) along with Remand Report with the observations that these documents relied by AO could not be provided to the assessee yet CIT (A) failed to share these documents with the Assessee during appellate proceedings. Thus no doubt certain principle of natural law are violated but we have to examine the issue on P a g e | Gyan Prakash Gupta (AY 2015-16) merits and then consider that how far absence of this opportunity cross examination of witness or non-provision of documents was prejudicial to the

As with regard to the merits of case id. AR submitted that the Assessee was not a part of any sham transaction which is also evident by the investigations conducted by the Securities and Exchange Board of India. According to Ld. AR, the Assessee was specifically given a clean chit in that investigation.

Now as matter of fact the Assessee acquired 100000 (One Lakh) Pre-IPO Equity Shares of HPC Biosciences Limited @10/- per share for Rs. 10,00,000/-(Rupees Ten Lakh Only) on 04.02.2013 from AMS Powertronics Private Limited vide account payee Cheque No. 540577 dated 04.02.2013 drawn on Punjab National Bank and got the shares transferred in her name on 16.02.2013. The said shares were lodged for dematerialization and were dematerialized on 16.03.2014 with NSDL. The company's IPO was listed on BSE SME Segment on 19.03.2013 at an issue price of Rs. 35/- which opened at Rs. 37.25/- and closed at 39.10/-. The Assessee sold these shares starting from 27.03.2014 to 11.07.2014 at around Rs. 540 to Rs. 569 however, the price even went up to Rs. 735.90/ 8.1 The claim of Assessee is that she invested in these shares owing to the luring future plans of the company which was in the sector of Organic farming and horticulture activities. The Assessee was guided by her son, Jagat Singh and sub broker, Mr. Subodh Kumar Jain that growing consumer's concerns on food safety, health and environment in recent decade has resulted increased demand for organic food across the world. Awareness and knowledge has become a crucial factor in changing the attitude and behavior of consumers towards organic foods, which in turn drives the growth in the organic food market. Considering the health benefits of organically produced food, and knowledge of the damage done to the environment by conventional, intensive farming methods and tremendous growth in market of organic food over the past decade.

We find, and as rightly pointed by the id.DR also that heavy reliance is placed by the Assessing officer on Kolkata Investigation Report, Weak Financials of the Company, SEBI Orders, Orders of different courts in other cases. The Assessing Officer mentioned upon general modus operandi as alleged by the Kolkata Investigation Report in the cases where bogus LTCG is claimed. The A.O has drawn a negative inference from the fact that the M/s. Sunstar Realty Development Limited, HPC Biosciences Limited and AMS Powertronics Limited have not complied with the notices issued under section 133(6) of the Act.

Now we find that most vital piece of material on record are the SEBI orders as the same have substantial bearing on the issue about transaction in a share being suspicious or otherwise tainted. What is established is that by SEBI order 29.06.2015, Para 50 page 401, direction were passed against the assessee restraining her from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions, name of the Assessee is at point 64 page number 404. Then by SEBI Order dated 17.02.2016 [Page No. 208 to 217 of PB), directions passed in Order dated 29.06.2015 were confirmed and the name of the Assessee is at Serial Number 40 at Page 215 of the Paperbook. It is pertinent to note that this Order was passed as the Assessee failed to file its objections before the SEBI. Then by SEBI Order dated 25.08.2016 [Page No. 261-367 of PB], is the confirmatory order against the remaining 107 entities. However, vide SEBI Order dated 06.09.2017 [Page No. 48 to 58 of PB; Relevant Para 3 & 4 at Page Number 53 of PB], the directions passed against the Assessee vide Order dated 29.06.2015 and confirmed vide Order dated 17.02.2016 were revoked after a detailed investigation by the SEBI. Assessee's name is at serial number 31, Page number 54. Relevant Para is reproduced herein below:

Subsequent to the interim orders, an Investigation was carried out to look into the role of debarred entities in price manipulation and IPO manipulation of the scrips. Upon completion of investigation, violation of provisions of SEBI Act. 1992 (SEBI Act) and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) are not observed in respect of following 216 entities against whom directions were issued vide the interim orders. The details of the entities against whom the prima facie findings are not observed in the Investigation report are as under:"

Further what is relevant is the SEBI Order dated 22.12.2020 [Page No. 218-260 of PB), by which SEBI has drawn conclusion about the nature of irregularities in subscription of the IPO of HPC Biosciences Limited wherein it was found that 29.03% of P a g e | Gyan Prakash Gupta (AY 2015-16) the allotment in the IPO was to the entities funded by the Funding group. We find substance in the contention of Ld. AR that these proceedings have nothing to do with the Assessee, these are independent proceedings against the HPC Biosciences Limited and other entities for violation of SEBI regulations. No conclusion was drawn that the scrip was traded as a penny stock and the investors had in any way been privy to transactions giving rise to bogus appreciation and gains.

A coordinate Bench in & 2625/Del/2022 titled as Archit Gupta Vs. ACIT

Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares directly from the company and through share transfer from other party, subsequently, sold the same in the stock exchange. However, there are no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the Assessing Officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon'ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in [Income Tax Appeal No. 2012 of 2017, dated 4-3-2022] held as under: - "1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the LT. Act, 1961, ignoring the fact that the shares were bought acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I.T. Act, 1961?" 2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd.

Therefore we find nothing perverse in the order of the Tribunal.

Mr. Walve placed reliance on a judgment of the Apex Court in Principal Com-missioner of Income-tax (Central)-1 v. NRA Iron & Steel (P) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.

In our view, the Tribunal has not committed any perversity or applied in-correct principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.

The appeal is devoid of merits and it is dismissed with no order as to costs." 9. Further, the Hon'ble Delhi High Court in the case of Pr. CIT-12 v. Smt. Krishna Devi ITA 125/2020 dated 15.01.2021/[2021] 126 taxmann.com 80/279 Taxman 148/431 ITR 361 (Delhi) held as under: - "8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the invest-ments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd. under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.

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 un- accounted 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 con-clusion 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 Section 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unac-counted 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 demat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.

The learned ITAT, being the last fact-finding authority, on the basis of 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.

In this view of the matter, no question of law, much less a substantial ques-tion of law arises for our consideration.

Accordingly, the present appeals are dismissed."

Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of human probabilities and held the above said scrips to be a penny stock without bringing on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon'ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non- genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed.

In the result, appeal filed by the assessee is allowed.

Therefore, the grounds of appeal of assessee are accepted. Impugned orders of Departmental Authorities are set aside.

In the result, the appeal filed by the assessee is allowed.