MUKESH MITTAL,NEW DELHI vs. ITO, WARD-41(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI (Through Video Conferencing) BEFORE, SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER

SA No.152/Del/2020 (ASSESSMENT YEAR 2014-15)

ITA No.761/Del/2020 (ASSESSMENT YEAR 2014-15)

Sh. Mukesh Mittal, Income tax Officer, 138, Deepali Enclave, Ward-41(1), Pitampura, Vs. New Delhi. New Delhi- 110 034 PAN –AJGPM 2125D (Appellant) (Respondent)

Appellant By Sh. Gautam Jain, Adv. Sh. Lalit Mohan, CA Respondent by Ms. Rakhi Vimal, Sr. DR 06.01.2021 Date of Hearing Date of Pronouncement 26.03.2021

ORDER PER SUDHANSHU SRIVASTAVA, JM: The present appeal is preferred by the assessee

against the order dated 29.11.2019 passed by the Ld.

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Commissioner of Income Tax (Appeals)- 14, New Delhi {CIT (A)}

for Assessment Year 2014-15.

2.0 The brief facts of the case are that return declaring

taxable income of Rs. 85,85,510/- was filed on 30.7.2014

through e-filing and was processed u/s 143(1) of the Income

Tax Act, 1961 (hereinafter called ‘the Act’). The case was

selected for scrutiny through CASS. During the year under

consideration, the assessee has declared income from house

property, short term capital gain and other sources. Besides

this, the assessee has declared income from long term capital

gains to the tune of Rs. 5,83,61,303/- which has been claimed

exempt u/s 10(38) of the Act.

2.1 During the year under consideration, the assessee

had sold 7,50,000 shares of M/s Radford Global Ltd. for a

total consideration of Rs. 5,99,40,819/- against the purchase

of 1,50,000/- shares at Rs. 22,50,000/- resulting into long

term capital gains of Rs. 5,76,90,819/-. The assessee was

allotted 1,50,000/- preferential shares on 20.1.2012 at a price

of Rs. 15/- per share which included premium of Rs. 5/- per

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share. Subsequently, these shares were split and the assessee

was allotted 7,50,000 shares of M/s Radford Global Ltd.,

formerly known as M/s P.S. Global Ltd. These shares were

sold through M/s Vivek Financial Focus Ltd. In addition to

the above, the assessee also sold 55,000 shares of M/s V&K

Software Ltd. (now known as USG Tech Ltd.) for a total

consideration of Rs. 7,13,384/- whereas these shares were

purchased at a price of Rs. 42,900/- resulting into long term

capital gain of Rs. 6,70,484/-.

2.2 In the assessment order, the Assessing Officer (AO)

noted that as per the investigation report of Pr. DIT (Inv.)

Kolkata, the assessee was one among the beneficiaries in the

list by accepting bogus long term capital gain entries through

stock brokers trading in circular and penny stocks. The name

of the stock which was used for the purpose of providing

accommodation entry has been stated to be M/s Radford

Global Ltd. (old name P.S. Global Ltd.) in the form of capital

gains. To verify the above transactions reported by the

assessee for claiming long term capital gain of Rs.

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5,76,90,819/- claimed as exempt u/s 10(38) of the Act, the

assessee was asked to furnish all details including bank

statement, share brokers note, ledger account copies, share

certificates, and all other documentary evidences in support of

purchase and sale of shares and the mode of payment and

receipts of proceeds. Further, notices u/s 133(6) of the Act

dated 27.9.2016 were issued to M/s Radford Global Ltd.,

Security Exchange Board of India (“SEBI”) and the broker M/s

Vivek Financial Focus Ltd. It is stated that the investigation

was also undertaken by SEBI and that SEBI in its interim

report dated 19.12.2014, in exercise of the powers conferred in

terms of section 19 read with section 11(1), section 11(4) and

section 11B of the SEBI Act, 1992, restrained 108

persons/entities including the assessee from accessing the

securities market and buying, selling or dealing in securities,

either directly or indirectly, in any manner, till further

directions. The name of Shri Mukesh Mittal is stated to appear

at S.No 36 of the said list. In the said order it was held as

under:

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“26 Since prior to the trading in its scrip during the examination period. Radford did not have any significant financial standing in the securities market, in my view, the only way it could have increased its share value is by way of market manipulation. In this case, it is noted that the traded volume and price of the scrip increased substantially only after Radford Group & Suspected Entities and allottees started trading in the scrip. The average volume increased by 5,05,066% (5050 times) during the patch I, i.e., from 98 shares per day to 4,95,063 shares per day and the price increased by 74.8% during the same period, i.e. from Rs. 49.2 to Rs. 86. Radford Group & Suspected Entities were trading in the scrip above the LTP and their trades created artificial volumes and manipulated the price of the scrip during the examination period. It is further noted that on the days when Radford Group & Suspected Entities were not trading, the trading volumes in the scrip were very low and the substantial increase in traded volumes as observed in this case was mainly due to their trading. I further note that Radford Group & Suspected Entities and allottees traded amongst themselves as substantiated by their matching contribution to net buy and net sell in patch I. there was no change in the beneficial ownership of the substantial number of traded shares as the buyers and

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sellers both were part of the common group and were acting in league/concert to provide LTCG benefits to the allottees. In view of the above, I prima facie find that Radford Group & Suspected Entities and allottees used securities market system to artificially increase volume and price of the scrip for making illegal gains to an to convert ill gotten gains into genuine one”.

2.3 A show cause notice dated 2.12.2016 u/s 142(1) of

the Act was issued to the assessee and reply dated 12.12.2016

was filed wherein the assessee contended as under:

“a) That the said order only pertained to scrip Radford Globals Ltd. and not to scrip V&K Software; b) That the said order is not final order but only an interim order and hence could not be considered as reliable to form any adverse inference in the matter; c) That the said order is solely based on prima facie observation only of the SEBI and not on any final or concrete findings of the SEBI; d) That the transactions so entered into by the assessee have not been cancelled or annulled by the SEBI, as empowered under section 9 of Securities Contract (Regulation) Act, 1956;

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e) That all the transaction of sales had been done through screen based trading on recognized stock exchange. The assessee doesn’t have any details about the identity of the persons to whom he sold the shares; f) That it is an undisputed fact in case of screen based trading, all trades are executed in the opaque screen wherein person do not get to choose counterpart to their trade. The automated systems itself matches orders on a price time priority basis and hence is not possible for anybody to have access over the identity of counter party dealing in any transaction. Since the counter party identity is not displayed, one can never have any choice with whom it wants to deal or not to deal; g) That assessee Mr. Mukesh Mittal is a regular investor in the stock market and all of his investments and income is duly assessed to tax; h) That SEBI has not placed any material on record to show any culpable conduct on the part of the assessee even by discharge of the standard of preponderance of probabilities; i) That all the documents, which SEBI had provided to the assessee during the course of proceedings do not prove at all that Mr. Mukesh Mittal was involved in fraudulent transaction. On the contrary, these evidences/documents

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so provided by SEBI has established that trade transaction of Mr. Mukesh Mittal is genuine; j) That the summary of trade of Sh. Mukesh Mittal obtained from Extracts of order log and trade log drawn from the date provided to us in CD by SEBI is as under: Date Qty. Qty. sold to Qty. sold Total Qty. Ordered persons to others Qty. sold unsold mentioned in Table IV of the interim order* 26.4.2013 150000 87649 62351 150000 ---- 7.5.2013 250000 25000 ---- 25000 ---- 8.5.2013 64691 14691 50000 64691 ---- 20.5.2013 100000 10000 ---- 100000 ---- 20.6.2013 123028 123028 ---- 123028 ---- 26.6.2013 35000 10000 2500 12500 22500 27.6.2013 80000 32000 28000 60000 20000 28.6.2013 50000 12318 16308 28626 21374 2.7.2013 105265 71878 8387 80265 250000 3.7.2013 105890 67940 37950 105890 ---- Total 838874 844504 205496 750000 88874 Percentage 73% 27% 11.85% of total share sold *Table IV of the interim order specifies the list of 44 persons alleged as related party and suspected entities. Hereinafter referred to as Table IV entities. k) That shares sold by Sh. Mukesh Mittal were purchased by different persons through different stock brokers through online trading platform of Bombay Stock Exchange at different point of time;

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l) That consideration for aforesaid share trade was received by Sh. Mukesh Mittal through proper banking channel as per SEBI and BSE norms; m) That shares were not immediately purchased by the buyers on placement of sale order by Sh. Mukesh Mittal. Rather there was considerable amount of time gap in placement of sales order and purchase of shares by the buyer. Therefore, sales order placed by Sh. Mukesh Mittal at the online trading platform of BSE, was open to the other investors for purchase of those shares; n) That only 73% of the shares sold by Sh. Mukesh Mittal were purchased by persons mentioned in table IV of the interim order passed by SEBI. Remaining 27% shares were purchased at similar price by other investors, who are not alleged as related party and suspected entities in the interim order; o) That no evidence has been brought on record that investment made by Sh. Mukesh Mittal in the preferential allotment of shares of Radford Global Limited was not out of his own funds but funded by Radford group or other suspected entities; p) That similarly no evidence has been brought on record that consideration received on sale of shares of Radford Global Ltd. was black money of Sh. Mukesh Mittal routed through

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Radford group or other suspected entities and converted into Tax free LTCG; q) That SEBI itself has admitted that there were proper Board Resolutions in place for issuing the preferential shares. The company had properly issued of preferential shares after taking shareholder/board approvals. SEBI has not contended or contested the validity of the issue of the preferential allotment and hence the preferential shares allotted to the assessee were under due process of law; and r) That in the absence of cogent material no much presumption can be drawn that entire purchase and sale transactions of Sh. Mukesh Mittal was a device for the purpose of money laundering by Sh. Mukesh Mittal and to convert black money into tax free LTCG.”

2.4 The AO, however, denied the claim of

Rs. 5,76,90,819/- being not taxable u/s 10(38) of the Act on

sale of shares of M/s Radford Global Ltd. in the order of

assessment dated 27.12.2016 passed u/s 143(3) of the Act.

The AO held that the receipt of Rs. 5,76,90,819/- was nothing

but unexplained cash credit u/s 68 of the Act to be taxed @

30% u/s 115BBE of the Act at the hands of the assessee.

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Furthermore, he also held that commission @ 3% to 5% would

have been charged for providing arranged capital gains and

since the assessee has claimed LTCG of Rs. 5,76,90,819/, an

amount of Rs. 17,98,225/- i.e. 3% of Rs. 5,99,40,819/- being

the total sale value of shares of M/s Radford Global Ltd.) was

to be added u/s 69C of the Act as unexplained expenditure of

the assessee.

2.5 Aggrieved, the assessee approached the Ld.

First Appellate Authority. The submissions of the assessee are

reproduced in the appellate order in which the assessee

reiterated the submissions made before the A.O. and filed

details of purchase and sale of scrip of M/s Radford Global

Ltd. to show that he had entered into genuine transaction

which was supported by documentary evidences. It was

further submitted that the interim order of the SEBI had been

revoked and the assessee had been cleared from all the

allegations. The Ld. CIT (A) was of the opinion that the

evidences furnished by the assessee with respect to the long

term capital gain of Rs.5,76,90,819/- could not be accepted as

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genuine as it had been established by the Investigation Wing

of the Department, after making detailed enquiries, that the

brokers through whom the assessee had purchased shares

were involved in business of providing accommodation entries

and that the shares purchased by the assessee were in the

nature of penny stock. The Ld. CIT (A), did not accept the

contention of assessee and following the rule of preponderance

of probability dismissed the appeal of assessee. It was

observed that in the order of SEBI dated 26.8.016, it had

declined to revoke the restraint imposed upon the assessee.

Thus, the addition of LTCG of Rs. 5,76,90,819/-, as

unexplained cash credits u/s 68 of the Act, was upheld along

with the addition of Rs. 17,98,225/- made on account of

alleged unexplained commission expenditure u/s 69C of the

Act.

2.6 Now, the assessee has approached this

Tribunal challenging the order of the Ld. CIT (A) and has

raised the following grounds of appeal:

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“1 That the learned Commissioner of Income Tax (Appeals) 14, New Delhi has erred both in law and on fact in sustaining addition of Rs. 5,94,89,044/- representing long term on sale of equity share and 3% commission on sale vlue of shares through registered stock exchange and brought to tax u/s 68 of the Act at the rate provided u/s 115BBE of the Act, though the same was eligible for exemption u/s 10(38) of the Act. 1.1 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. 1.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the evidence tendered by the appellant to support the calim of sale of share and hence, findings mechanically recorded on borrowed inference in disregard of evidence and based on irrelevant and extraneous considerations are misconceived and, misplaced. 1.3 That the learned Commissioner of Income Tax (Appeals) has confirmed the above addition and denial of exemption without appreciating that neither the material/investigation relied upon was confronted to appellant and nor cross examination of the parties on whose statements reliance had been placed in impugned order of assessment was granted and therefore order so made in disregard of principles of natural justice was vitiated. 1.4 That further more the learned Commissioner of Income Tax (Appeals) has sustained the addition on mere

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speculation, generalized statements, theoretical assumptions and allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law. 1.5 That learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the broker of the assessee M/s Vivek Financial focus Ltd. had neither denied and nor disputed the genuineness of transaction, the conclusion arrived in the order is highly whimsical, arbitrary, illogical and wholly untenable. 1.6 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 therefore the same are not sustainable. 1.7 That various adverse findings and conclusions recorded by the learned Commissioner of Income Tax (Appeals) are factually incorrect and contrary to record, legally misconceived and untenable. 1.8 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. It is therefore, prayed that it be held that exemption denied and addition made and sustained by the learned Commissioner of Income Tax (Appeals) may kindly be deleted and appeal of the appellant be allowed.”

3.0 The Ld. Authorized Representative (AR) reiterated

the submissions made before the authorities below and

referred to pages 298-309 of the Paper Book which contained

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the Final Order dated 20.9.2017 of the SEBI in which SEBI,

after detailed investigation, has revoked the interim order

against the assessee. It was submitted that this was the sole

reason for rejecting the claim of the assessee. It was argued

that the AO did not make any further investigation into the

matter. He contended that the material upon relied by the AO

was not provided to the assessee. Neither copies of statements

of alleged entry operators were supplied nor was cross

examination provided. It was submitted that the AO has

mechanically lifted the conclusions/observations from the

interim order without making any independent inquiries either

from the SEBI or the stock exchange to ascertain genuineness

of such transactions. He submitted that the theory of

preponderance, human probabilities, circumstantial evidence

so called rules of suspicious transactions are not applicable in

respect of transactions of listed security where the

transactions are supported by evidences on record. He

submitted that the assessee is a habitual investor having

portfolio of investment in shares and has earned capital gains

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both in preceding and succeeding years. It was submitted

that the allegation that there was an astronomical increase in

the price of share of M/S Radford Global Ltd. (old Name PS

Global Ltd) cannot be a valid basis to deny the legitimate claim

of long term capital gain claimed by assessee u/s 10(38) of

the Act. He also referred to the financials of M/s Radford

Global Ltd. from Assessment Years 2010-2011 to 2015-16 to

plead that this company is not penny stock company. He also

referred to the orders of assessment u/s 153C/153A and u/s

143(3) of the Act in the case of M/s Radford Global Ltd. for

Assessment years 2013-14 to 2015-16. The financials for the

assessment year under appeal in the case of M/s Radford

Global Ltd. are reproduced as under:

Particulars Assessment year 2014-15 Share Capital 14,06,23,000 Reserves and Surplus 5,77,67,887 Tangible Assets 1,51,839 Inventories 9,17,40,364 Trade receivables 11,18,94,152 Cash and Cash equivalents 3,10,125 Revenue from operations 11,03,60,575 Other income 87,73,463 Profit before Tax 26,10,120

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3.1 The learned AR submitted that in case of Shri Brij

Bhushan Singhal vs. ACIT, the Tribunal considered an

identical issue in scrip of the same company M/s Radford

Global Ltd. In that case also, interim order of the SEBI was

rejected and the appeal of assessee has been allowed. He

submitted that the issue is covered in favour of the assessee

by the aforesaid decision. I was further submitted that a

similar view has also been expressed in the case of Sh. Riaz

Munshi v. ACIT (supra). He also relied upon the following

decisions in which such proposition has been held in favour of

the assessee:

i) Smt. KarunaGarg v. ITO ITA No. 1069/D/2019 dated 6.8.2018 A.Y. 2014-15 ii) Smt. SimmiVerma v. ITO ITA No. 3387/D/2018 dated 6.11.2018 A.Y. 2014-15 iii) Smt. Jyoti Gupta ITA No. 3510/D/2018 dated 6.11.2018 A.Y. 2014-15

4.0 The Ld. DR on the other hand relied upon the

orders of the authorities below and submitted that the

assessee had entered into bogus transaction and purchase

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value is very less and that the shares have been sold at a high

price. It was submitted that the Ld. CIT (A) has rightly invoked

the principle of preponderance of probability against the

assessee. It was argued that the modus operandi was

examined by the Kolkata Investigation Wing because there was

a rigging in the profit. It was also contended that the order

dated 20.9.2017 could not be relied upon since the company

M/s Radford Global Ltd. was yet a penny stock company and

had not been cleared by SEBI. Therefore, the authorities below

had correctly made the addition against the assessee. Reliance

was placed upon the decision of Delhi Bench of ITAT in the

case of Suman Poddar vs. ITO dated 25.07.2019, which was

confirmed by the Hon’ble Delhi High Court dismissing the

appeal of assessee vide order dated 17.09.2019 in

ITA.No.841/2019. The judgment of Hon’ble Delhi High Court

in the case of Udit Kalra vs., ITO in ITA.No.220/2019 dated

08.03.2019 in which scrip of M/s. Kappac Pharma Ltd., has

been considered, was also relied upon.

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5.0 We have heard the rival contentions and have also

perused the relevant records available with us, especially the

orders of the revenue authorities and the case laws referred

hereinabove. The assessment order clearly shows that the AO

has merely reproduced the modus operandi of the entry

providers who booked bogus long term capital gains through

penny stock companies. The show cause notice dated

2.12.2016 issued by the AO during the assessment

proceedings and the findings of the AO are based upon interim

order of SEBI dated 19.12.2014. Even the Ld. CIT (A) has

relied upon another interim order dated 26.8.2016 confirming

the earlier interim order dated 19.12.2014. However, it is now

an admitted fact that interim orders of the SEBI have been

later on revoked by the SEBI. The interim orders framed by

SEBI dated 19.12.2014 and 26.8.2016 were revoked in respect

of 82 entities including the assessee by final order dated

20.9.2017. It was held in Para 9 of the said order as under:

“9 Upon completion of investigation by SEBI, investigation did not find any adverse evidence/adverse

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findings in respect of violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 2003 (PFUTP Regulations) in respect of following 82 entities (against whom directions were issued vide the interim orders as confirmed vide the above said confirmatory orders) warranting continuation of action under section 11B r/w/ 11(4) of SEBI Act. However investigation has found adverse findings against Radford which warrants Adjudication proceedings”.

5.1 The name of the assessee appears at item 77 of the

list. Further it was held in Para 10 as under:

“10 Considering the fact that there are no adverse findings against the aforementioned 82 entities with respect to their role in the manipulation of the script of Radford, I am of the considered view that the directions issued against them vide interim orders dated December 19, 2014 and November 9,2015 which were confirmed vide orders dated October 12, 2015, March 18, 2016 and August 26, 2016 are liable to be revoked.”

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5.2 The decision of ITAT in the case of Shri Brij

Bhushan Singhal vs. ACIT (supra), considered the scrip of M/s

Radford Global Ltd. on identical facts and held as under:

“30. Further, the assessing officer has heavily relied upon the various orders passed by The Securities and Exchange Board Of India in various companies in which the assessee has earned the long-term capital gain as well as in case of the assessee. First Such order relied upon is interim ex parte orders dated 19/12/2014 passed in case of M/s First financial services Ltd and M/s Redford global Ltd. The learned CIT-A was also heavily harping upon the orders of the SEBI for confirming the addition. In interim order in Redford global Ltd, dated 19/12/2014 assessee was restricted to access the securities market till further directions. Subsequently, on 20/09/2017, SEBI passed an order in that company holding that there are no adverse findings against the aforementioned 82 entities, which included the family of the assessee, and the assessee himself with respect to their role in the manipulations in prices of the script of the company. Therefore, it revoked the original order passed on 19/12/2014. …….. …….. 31. Almost similar orders were passed in all the companies wherever the income tax department asked the

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SEBI to enquire. The assessee has placed all these orders at page number 302 – 419 of the paper book. Furthermore, the para number 96 of the above order clearly shows that the intimation is also given to The Director General Of Income Tax Investigation, New Delhi and The Principal Director Of Income Tax Investigation Kolkata and Chandigarh for necessary action. From this, it is apparent that reliance on the interim order of securities exchange control Board of India by the revenue authorities is misplaced as in each of these companies in which the income tax department requested SEBI to investigate has given a clean chit to the assessee and his family. Therefore, reliance on SEBI interim order was misplaced and even otherwise now do not survive in view of subsequent final orders of SEBI.”

5.3 Similar view has also been expressed by the ITAT in the case of Shri Riaz Munshi wherein it was held as under: “6. We have considered the rival submissions and perused the material on record. The assessment order clearly show that the A.O. merely reproduced the modus operandi of the entry providers who booked bogus long term capital gains through penny stock companies in which either there is no business or they have

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accumulated losses or a Company is floated only for that purpose. Learned Counsel for the Assessee has filed financials of M/s EBFL from A.Ys. 2011-2012 to 2017- 2018 and for the assessment year under appeal the financials are reproduced above, which clearly show that this Company is dealing in actual business activities. Its financials are very heavy and as such the modus operandi of this type of penny stock companies would not be available in the case of M/s EBFL. The findings of the A.O. are entirely based upon interim order of SEBI. However, it is an admitted fact that interim order of the SEBI have been later on revoked by the SEBI on assessee as well as M/s EBFL have been cleared from all allegations and charges. In the case of Amar NathGoenka vs. vs., ACIT reported in 54 CCH 344, the ITAT, Delhi Bench considered the scrips of M/s EBFL on identical facts and held as under: “Assessee placed sufficient documentary evidences before A.O. to prove genuineness of the transaction. The assessee purchased shares through banking channel and actually got the shares transferred in his name. Purchase was made through cheque which is supported by bank statement. The transactions of sale have been made through Demat account. The contract note along with other details were produced to show that purchase and sale of

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the shares have been made through banking channel through recognized Stock Exchange through Demat account on which Security Transaction Tax have also been paid. The A.O. did not make any enquiry on the documentary evidences filed by the assessee. No material have been brought on record against the assessee to disprove the claim of assessee. It is not the case of the Revenue that amount received on sale of shares is more than what is declared by the assessee. The assessee pleaded that the Interim Order of the SEBI have been diluted by passing final order in which no adverse view have been taken against the aforesaid company. Thus, the assessee’s claim of purchase and sale of shares have been supported by documentary evidences. The statement of Shri Sanjay Vohra was recorded by the Investigation Wing, Kolkata, but, the same was not confronted to the assessee and his statement was also not subjected to crossexamination on behalf of the assessee. Therefore, his statement cannot be read in evidence against the assessee. The A.O. did not mention any fact as to how the claim of assessee was sham or bogus. The assessee satisfied the conditions of Section 10(38). The broker through whom transactions were carried-out have not denied the transaction conducted on behalf of the assessee. It, therefore, appears that the addition is merely

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made on presumption and assumptions of certain facts which are not part of the record. There is no other material available on record to rebut the claim of assessee of exemption claimed under section 10(38). Issue is decided in assessee ‘s favour.” 6.1. In the present case, the assessee submitted sufficient documentary evidences before A.O. to prove genuineness of the transaction. The assessee purchased the shares through banking channel and actually got the shares transferred in his name. The purchases are supported by bank statements. The transaction of the sale have been made through Demat Account which is corroborated by contract note and other details and transaction is carried out through banking channel through stock exchange through Demat Account on which Security Transaction Tax have also been paid. The A.O. merely relied upon interim order of the SEBI to make addition against the assessee, otherwise, there were no evidence or material on record to disprove the claim of assessee. Since the interim order of the SEBI have been revoked against the assessee and M/s EBFL, therefore, nothing survives in favour of the A.O. The A.O. did not make any further investigation or enquiry into the matter and merely relied upon the interim order of the SEBI and investigation carried out by the Kolkata Wing. Further, it is not clear from the assessment order

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whether Investigation Wing report have been confronted to the assessee or any right of cross-examination have been allowed to any statement recorded at the back of the assessee. The assessee asked for the cross-examination of any statement which is used against the assessee for making the addition. But, the assessment order is silent on this aspect. Therefore, the above facts clearly show that assessee entered into the genuine transaction and as such the profit on sale of scrip was exempt from tax. The Ld. D.R. relied upon decisions of the ITAT, Delhi Benches, Delhi in the cases of SumanPoddar vs., ITO (supra) and UditKalra vs., ITO (supra), in which the findings of the Tribunal had been that these are cases of penny stock companies which fact is not there in the present case. Therefore, these decisions would not support the case of the Revenue as having distinguishable on facts. The authorities below have not rebutted the explanation of assessee that he has indulged in dealing in scrips in earlier year as well as in subsequent years. It would, therefore, show that assessee is regularly dealing in scrips. The A.O. has not brought any adverse material against the assessee so as to make the above additions. Considering the totality of the facts and circumstances of the case and financials of M/s EBFL as reproduced above

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and other years [PB-76], we set aside the Orders of the authorities below and delete both the additions. 7 In the result, appeal of the assessee allowed.”

5.4 We also find that the AO has held that many share

brokers as well as many employees of these share broking

companies in Kolkata, in their statements recorded under

section 131 of the Act, have admitted to the fact that they have

artificially inflated the prices of the shares of their dummy

companies to deliberately provide bogus accommodation

entries of the long term capital gain/loss, short term capital

gain/loss to the beneficiaries. However, no such statement has

been confronted or supplied to the assessee during the course

of assessment proceedings. In fact no specific statement has

even been referred by the AO in the order of assessment or in

the show cause notice extracted in the order of assessment.

On the contrary, the fact is that the assessee is a habitual

investor. The undisputed details of investment and

disinvestment made by the assessee and accepted by the

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revenue in the earlier year, instant year and succeeding year is

as under:

Sr. Assessment Particulars Date of Sale Price Date of Purchase Capital Gain No. Year Sale Purchase price i) 2012-13 Vikas Global -- -- -- -- 13,183 Limited (Claimed exempt u/s 10(38) ii) 2014-15 SBI Magna 10.5.2013 45,06,452 2.5.2013 45,00,000 6,452 (other Insta Cash (Short term capital than gain) script SBI Premier 4.7.2013 2,30,79,18 -- 2,30,00,00 791,88 under Liquid Fund 8 0 (Short term capital considerat gain) ion) V&K Software 21.2.2014 7,13,384 -- 42,900 6,70,484 (Claimed exempt u/s 10(38) iii) 2015-16 Dhruv Global 16.3.2015 12,500 9.9.2002 50,000 -1,02,041 Ltd. (Indexed cost 1,14,541) Cubical 11.6.2014 13,61,908 8.3.2013 4,34,982 9,26,926 Services (Claimed exempt u/s 10(38) iv) 2017-18 PC Jewellers 20.2.2017 1,53,02,86 21.8.201 33,56,119 1,19,46,749 8 3 (Claimed exempt u/s 10(38) PVR 20.2.2017 1,28,353 8.12.200 22,725 105628 7 (Claimed exempt u/s 10(38) v) 2018-19 MotilalOswal 11.5.2017 4,93,675 27.4.201 5,00,000 -6325 7 (Short term capital gain) vi) 2019-20 Oil & Natural 21.2.2019 2,06,700 16.1.201 1,93,011 13,689 Gas 9 Corporation Polka Resorts 23.3.2019 1,08,00,00 23.1.201 22,95,082 85,04,918 (P) Ltd. 0 7 MotilalOswal 7.9.2018 1,10,37,986 16.5.201 98,00,000 12,37,986 7

5.5 It is also seen that the assessee has placed on

record complete documents and evidences to support

purchase and sale of shares of M/s Radford Global Ltd. The

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sale was through screen based trading and STT and all

charges were duly paid. The consideration was received

through banking channels. In such circumstances, the AO

ought to have conducted independent enquiries and

verifications with due application of mind before drawing any

adverse inference. Thus, the approach of the Assessing

authority in making the addition is also contrary to section

142(1) of the Act which provides that for the purpose of

obtaining full information in respect of income or loss of any

person, the AO may make such enquiry as he considers

necessary.

5.6 Much has been argued before us as to the

astronomical increase in price of shares of M/s Radford Global

Ltd. However, isolated fact of increase in prices of a scrip,

without evidence of any involvement of the assessee cannot be

the basis to deny the claim made by the assessee, particularly

when SEBI has specifically exonerated the assessee. The

addition has, thus, been made on surmises, conjectures and

suspicion. The transactions of the assessee are prior to any

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enquiry or order made by SEBI. Thus, when a person who has

been absolved by SEBI and, when the revenue has not placed

any material in the shape of statement or otherwise to prove

any involvement of the assessee in alleged wrong doing, then

there remains no justification to hold that the amount credited

represented unexplained credits u/s 68 of the Act. The

decision of the ITAT in the case of Karuna Garg (supra) also

supports the above wherein it was held as under:

“21. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or

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corroborated by the person during the assessment proceedings. 22. Section 142 of the Act contains the provisions relating to enquiry before assessment. 23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and reaffirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was

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restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic Food Processing Ltd - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of fact that SEBI looks into irregular movements in share prices on range and warn investor against any such

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unusual increase in shares prices. No such warnings were issued by the SEBI”.

5.7 In an identical issue, ITAT Delhi Bench had deleted

addition made u/s 68 of the Act in the case of another

assessee Smt. Krishna Devi. The Department went in appeal

before the Hon’ble Delhi High Court against such deletion. The

Hon’ble Delhi High Court upheld the order of the ITAT in PCIT

and Others vs. Krishna Devi and Others reported in (2021)

431 ITR 0361. The Hon’ble Delhi High Court observed that

ITAT being the last fact finding authority, on the basis of

evidence brought on record, had rightly come to the

conclusion that the lower tax authorities had sustained the

addition without any cogent material on record. The Hon’ble

Delhi High Court found no perversity in the order of the

Tribunal. Thus, the sum and substance of the judgment of the

Hon’ble Delhi High Court was that mere reliance on the report

of the investigation wing without further corroboration does

not justify the conclusion of treating the transaction as bogus

and sham. Identical are the facts in the present appeal before

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us and the ratio laid down by the Hon’ble Delhi High Court as

above, applies equally in this case also.

5.8 Similarly, the Hon'ble Supreme Court in the case of

Adamine Construction (P) Ltd.99 Taxmann 45 has held as

under:

“What is evident is that the AO went by only the report received and did not make the necessary further enquiries - such as into the bank accounts or other particulars available with him but rather received the entire findings on the report, which cannot be considered as primary material. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO. The assessee had discharged the onus initially cast upon it by providing the basic details which were not suitably enquired into by the AO.”

5.9 In yet another case of Odeon Builders (P) Ltd 110

Taxmann.com 64, the Hon'ble Supreme Court, while

dismissing the review petition, held as under:

“However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of Rs.19,39,60,866/- was based solely on third party

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information, which was not subjected to any further scrutiny. Thus, the Ld. CIT (A) allowed the appeal of the assessee stating: “Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for Rs.19,39,60,866/-, is directed to be deleted.” 4. The ITAT by its judgment dated 16th May, 2014 relied on the self-same reasoning and dismissed the appeal of the revenue. Likewise, the High Court by the impugned judgment dated 5 th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which

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have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT. 5. In these circumstances, the Review Petitions are dismissed.”

5.10 On somewhat identical facts, the Coordinate

Bench of ITAT Delhi in the case of Deepak Nagar 73 ITR (Trib)

74 allowed the appeal of assessee and held as under:

“22. For the sake of repetition, the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the INV Wing as well as information received from the INV Wing. It is apparent from the assessment order that the Assessing Officer has not conducted any independent and separate enquiry in this case of the assessee. Even the statement recorded by the INV Wing has not been got confirmed or corroborated by the person during the assessment proceedings. The Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the INV Wing is required to be corroborated and reasserted/reaffirmed during the assessment proceedings

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by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. 23. There is no dispute that the statement which was relied upon by the Assessing Officer was not recorded by the Assessing Officer in the assessment proceedings but it was pre existing statement recorded by the INV Wing and the same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any clinching evidence to disprove the evidences produced by the assessee. 24. Our above view is fortified by the decision of the Hon'ble Delhi High Court in the case of Fair Invest Ltd 357 ITR 146. The relevant findings of the Hon'ble Jurisdictional High Court of Delhi read as under: “6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the

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assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.” 25. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act and as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore, the judicial decisions relied upon by the ld. DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand. We, accordingly, direct the Assessing Officer to accept the LTCG of Rs.

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11,93,55,564/- declared as such. 26. Since we have accepted the genuineness of the LTCG, we do not find any merit in the consequential addition of Rs. 6,05,312/- and the same is also directed to be deleted.”

5.11 In her written submissions, the Ld. DR has referred

to various judgments and heavily relied upon the decision of

the Hon'ble High Court of Delhi in the case of Suman Poddar

ITA No. 841/2019 and in the case of Udit Kalra ITA No.

220/2019 and several other decisions of the coordinate bench,

which are clearly distinguishable from the facts of the case of

appellant, particularly having regard to the final order of SEBI

revoking the interim orders.

5.12 We are, thus, of the considered view that the

assessee has successfully discharged the onus cast upon him

by provisions of section 68 of the Act and such discharge is

purely a question of fact. We, accordingly, direct the Assessing

Officer to accept the long term capital gain of Rs.

5,76,90,819/- declared as such and allow exemption u/s

10(38) of the Act. In light of the above, we delete the

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impugned addition made of Rs. 5,76,90,819/- on account of

unexplained cash credits u/s 68 of the Act. Since we have

deleted the addition on account of unexplained cash credits

u/s 68 of the Act, we do not find any merit in the

consequential addition of Rs. 17,98,225/- and the same is

also directed to be deleted.

6.0 In the result, the appeal of the assessee is allowed.

7.0 Since, we have already adjudicated the assessee’s

appeal on merits, the Stay Application becomes in fructuous

and is dismissed.

8.0 In the final result, the appeal of the assessee stands allowed and the stay application is dismissed.

Order pronounced on 26 March,2021

S/d S/d (N.K. BILLAIYA) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26 /03/2021 *dragon* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT

41 SA No.152/Del/2020 ITA No.761/Del/2020 Sh. Mukesh Mittal vs. ITO

ASSISTANT REGISTRAR ITAT NEW DELHI