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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SUNIL KUMAR SINGH, HONBLE
ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nI.T.A. No. 1062/Mum/2019 & are\ncross-appeals by the revenue and the assessee against the very same\norder of the ld. CIT(A)-14, Mumbai (hereinafter 'the ld. CIT(A)'], dated\n28/09/2018 pertaining to AY 2014-15.\n2. The cross-appeals were heard together and are disposed off by\nthis common order for the sake of convenience and brevity.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n2\n3. The grievance of the revenue reads as under-\n“1. That on the facts and circumstances of the case and in law, the ld. CIT(A)\nerred in maintaining the disallowance u/s 14A r.w.r. 8D(2)(iii) to Rs.1,56,794/- as\nagainst Rs.84,78,409/- made by the AO as per formula laid down in the Rule\n8D(2)(iii).\n2. That on the facts and circumstances of the case and in law, the ld. CIT(A)\nerred in directing the AO to treat the amount of Rs.4,68,87,073/- as income from\nbusiness and profession and deleting the addition of Rs.6,35,23,711/- made by the\nAO on account of transactions in the shares of Sulabh Engineers & Services Ltd.\n3. That on the facts and circumstances of the case and in law, the ld. CIT(A)\nerred in deleting the addition of Rs.31,76,185/- on account of disallowance of\ncommission expenses u/s 69C with respect to share transactions of Sulabh Engineers\n& Services Ltd.\"\n4. The grievance of the assessee reads as under:-\n“The ground or grounds of appeal
are without prejudice to one another.\n1.a) On the facts and in the circumstances of the case and in law, the Id. AO erred\nin confirming the addition to the extent of 7 78,22,886/- made by the AO to the\nincome of the Appellant by way of disallowing proportionate interest of * 76,66,092/under\nrule 8D(2)(ii) and administrative expenses of r 1,56,794/- under rule\n8D(2)(iii) alleged to have been incurred relating to exempt income invoking the\nprovisions of section 14A r.w.r. 8D mechanically.\nb) The Id. CIT(A) failed to appreciate that there is no reason and basis in reaching to\ndis-satisfaction with the correctness of the claim of the Appellant that no expenditure\nother than STT of 7 1,08,791/- and Demat charges of 7 1,920/- (both were added back\nto returned income) was incurred in relation to dividend income which does not form\npart of the total income.\nc) In reaching to the conclusion and confirming such addition the ld. CIT(A) omitted\nto consider relevant factors, considerations, principles and evidences while he was\noverwhelmed, influenced and prejudiced by irrelevant considerations and factors.\nd) In any case the disallowance u/s.14A r.w.r. 8D as worked out by the ld. CIT(A)\nis excessive and unreasonable.\n2.a)On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred\nin holding that Long/Short term capital gains of ? 4,68,87,073/- on sale of shares of\nSulabh Engineers & Services Ltd., a listed company, be assessed under the head\n\"Profits and gains of business or profession\" as against claim of the Appellant that\nLong term capital gains of ≥ 4,16,73,760/- are exempt u/s.10(38) and Short term-\ncapital gains of * 52,13,313/- would be adjusted against brought forward Short term\ncapital losses and thereby he further erred in directing the AO to treat the capital\ngains of 7 4,68,87,073/- as income from business and profession.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n3\nb) The Id. CIT(A) failed to appreciate that:-\n(i) the Appellant has earned Long term capital gains of 7 4,16,73,760/-and Short\nterm capital gains of 7 52,13,313/- on sale of shares of Sulabh Engineers & Services\nLtd. and the same is supported by independent and admissible evidences;\n(ii) the shares were held as investment and purchased and sold in the open free market\nof Bombay Stock Exchange on BOLT;\n(iii) there were no off market transactions nor any preferential allotment in these\nshares;\n(iv) the payments for purchase of shares and receipts for sale of shares are through\nbanking channels;\n(v) the delivery of shares are taken and given from the Demat account of the\nAppellant; and\n(vi) the Id. AO did not provide copy of materials and statements relied upon by him\nnor allowed any opportunity to the Appellant to cross examine those parties who\nhave been suspected to provided accommodation entries to the Appellant.\nc) In reaching to the conclusion and confirming such addition, the ld. CIT(A) omitted\nto consider relevant factors, considerations, principles and evidences while he was\noverwhelmed, influenced and prejudiced by irrelevant considerations and factors.\n3. On the facts and in the circumstances of the case and in law, the Id. AO erred in\nnot disposing off the Ground No.5 raised by the Appellant disputing the addition of\n≥ 1,61,44,501/- to the book profit by way of adding back disallowance made u/s.14A\nr.w.r. 8D and thereby erred in enhancing the book profit artificially.\n4.\nThe Id. CIT(A) erred in not disposing off the Ground No.6 raised by the\nAppellant disputing levy of interest u/s.234B of the Income Tax Act, 1961.\n5.\nThe ld. CIT(A) erred in not disposing off the Ground No. 7 raised by the\nAppellant disputing initiation of the penalty proceedings u/s 271(1)(c) of the Income\nTax Act, 1961.\nThe Appellant craves leave to add, alter, amend or delete any or all of the above\ngrounds of appeal.\"\nFrom the above grievance it can be seen that both the parties are\naggrieved on the disallowance u/s 14A and the treatment of gains from\nsale of shares.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n4\n6. Representatives of both the sides were heard at length. Case\nrecords carefully perused the and the relevant documentary evidence\nalong with judicial decisions duly considered in light of Rule 18(6) of\nthe ITAT Rules, 1963.\n7. The assessee filed NIL return electronically on 22/09/2014, which\nwas selected for scrutiny assessment and accordingly statutory notices\nwere issued and served upon the assessee. The assessee is engaged in\nthe business of investing and trading activity. The assessee has shown\nincome from business at Rs.56,19,076/- and the same is set off against\nbrought forward business loss. The assessee has also shows short term\ncapital gains at Rs.52,13,313/- and the same is also adjusted against the\nbrought forward loss. Thus, the income was computed as NIL.\n8. During the course of scrutiny assessment proceedings, the AO\nnoticed that the assessee has earned dividend income of\nRs.2,98,11,715/- which was claimed exempt u/s 10(34) of the Act. The\nAO noticed that the assessee has disallowed Rs.1,920/- u/s 14A of the\nAct. The assessee has also suo moto disallowed Rs.1,10,711/-. The AO\nwas of the strong belief that the provisions of Section 14A r.w.r. 8D,\nsquarely apply and proceeded to compute the disallowance as under:-\n\n8D(2)(ii)\n(A) Interest: 78,38,255/-\n(B) Average of total investment: 169,56,81,895/-\n(C) Average Total Assets: 173,37,63,136/-\nA X B/C =\n1,10,711/-\n\n8D(2)(iii)\n0.5% of Average investments: 0.5% of Rs.\n169,56,81,895/-\n76,66,092/-\n\nTotal Disallowance u/s.14A r.w.r 8D\n84,78,409/-\n1,62,55,212/-\n\n9. The assessee carried the matter before the ld. CIT(A) and strongly\ncontended that no interest disallowance has to be made as the assessee\nhas made the investment in shares from its interest free funds. The ld.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n5\nCIT(A) found that the interest free funds available with the assessee\nwere Rs.164.29 Crores whereas the investment in shares were Rs.170.99\nCrores. Therefore, some of the borrowed capital has been invested in\nshares and accordingly, disallowed Rs.76,66,092/- on the part of\ninterest under Rule 8D(2)(ii) of the Act. Further the ld. CIT(A) found\nthat the assessee has debited administrative expenditure at\nRs.1,56,794/-, therefore, disallowance as per Rule 8D(2)(ii) was\nrestricted to this amount and gave part relief to the assessee.\n10. We have carefully perused the assessment order. We find that the\nAO has neither recorded any dissatisfaction, insofar as the suo moto\ndisallowance of Rs.1,10,711/- is concerned nor the AO has recorded any\nsatisfaction for computing the disallowance as per the provisions of\nSection 14A r.w.r. 8D, having regard to the accounts of the assessee. The\nHon'ble Supreme Court in the case of Godrej & Boyce Manufacturing\nCompany Ltd. v. Deputy Commissioner of Income-tax [2017] 394 ITR 449\n(SC), on similar facts, held as under:-\n
37. We do not see how in the aforesaid fact situation a different view could have\nbeen taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section\n14A of the Act read with Rule 8D of the Rules merely prescribe a formula for\ndetermination of expenditure incurred in relation to income which does not form part\nof the total income under the Act in a situation where the Assessing Officer is not\nsatisfied with the claim of the assessee. Whether such determination is to be made on\napplication of the formula prescribed under Rule 8D or in the best judgment of the\nAssessing Officer, what the law postulates is the requirement of a satisfaction in the\nAssessing Officer that having regard to the accounts of the assessee, as placed before\nhim, it is not possible to generate the requisite satisfaction with regard to the\ncorrectness of the claim of the assessee. It is only thereafter that the provisions of\nSection 14A(2) and (3) read with Rule 8D of the Rules or a best judgment\ndetermination, as earlier prevailing, would become applicable.\n38. In the present case, we do not find any mention of the reasons which had prevailed\nupon the Assessing Officer, while dealing with the Assessment Year 2002-2003, to\nhold that the claims of the Assessee that no expenditure was incurred to earn the\ndividend income cannot be accepted and why the orders of the Tribunal for the earlier\n Assessment Years were not acceptable to the Assessing Officer, particularly, in the\nabsence of any new fact or change of circumstances. Neither any basis has been\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n6\ndisclosed establishing a reasonable nexus between the expenditure disallowed and the\ndividend income received. That any part of the borrowings of the assessee had been\ndiverted to earn tax free income despite the availability of surplus or interest free\nfunds available (Rs.270.51 crores as on 1.4.2001 and Rs.280.64 crores as on\n31.3.2002) remains unproved by any material whatsoever. While it is true that the\nprinciple of res judicata would not apply to assessment proceedings under the Act,\nthe need for consistency and certainty and existence of strong and compelling reasons\nfor a departure from a settled position has to be spelt out which conspicuously is\nabsent in the present case. In this regard we may remind ourselves of what has been\nobserved by this Court in Radhasoami Satsang v. CIT [1992] 193 ITR 321/60\nТахтап 248 (SC).\n\"We are aware of the fact that strictly speaking res judicata does not apply to\nincome tax proceedings. Again, each assessment year being a unit, what is\ndecided in one year may not apply in the following year but where a\nfundamental aspect permeating through the different assessment years has\nbeen found as a fact one way or the other and parties have allowed that\nposition to be sustained by not challenging the order, it would not be at all\nappropriate to allow the position to be changed in a subsequent year.\"\n39. In the above circumstances, we are of the view that the second question\nformulated must go in favour of the assessee and it must be held that for the\n Assessment Year in question i.e. 2002-2003, the assessee is entitled to the full benefit\nof the claim of dividend income without any deductions.”\n11. Considering the facts of the case in totality, in light of the judicial\ndecisions discussed hereinabove, we do not find any merit in the\nimpugned disallowance made by the AO and on facts, the suo moto\ndisallowance made by the assessee should suffice. Accordingly, the\nimpugned ground in revenue's appeal is dismissed and that in the\nassessee's is allowed.\n12. Coming to the next common grievance, while scrutinising the\nreturn of income, the AO noticed that the assessee has shown short term\ncapital gains of Rs.52,13,313/- which was adjusted against the brought\nforward loss of AY 2007-08. The AO also found that the assessee has\nshown long term capital gain of Rs.4,16,73,760/- which was claimed as\nexempt u/s 10(38) of the Act. The assessee was asked to furnish the\ndetails. On going through the details, the AO noticed that the assessee\nhas dealt with the shares of Sulabh Engineers & Services Ltd. (SESL)\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n7\nfrom which it earned short term capital gains and long term capital\ngains.\n12.
1. The AO was in possession of the information that Investigation\nwing, Kolkata had recorded statements of exit providers in the scrip of\nSESL wherein they admitted that they were providing bogus\naccommodation entries. Taking a leaf out of the Investigation report and\ndrawing support from the SEBI Investigation report, the AO formed a\nbelief that the assessee has taken accommodation entries and has shown\nshort term and long term capital gains on sale of shares of SESL and on\nthis belief, added the entire proceeds of Rs.6,35,23,711/- as\nunaccounted income. The AO further added Rs.31,76,185/- as the\nalleged commission paid for purchasing accommodation entries. Both\nthe additions were challenged before the ld. CIT(A).\n13. The ld. CIT(A) was convinced that the transactions of sale and\npurchase of shares have been carried out on Bombay Stock Exchange\n(BSE) through a registered broker, namely, Samurai Securities Pvt. Ltd..\nThe transactions were supported by contract notes/bills and the\npayments have been received and made through banking channels. The\nshares were sold through Demat accounts and the AO has not brought\nany material on record to show that any of the operators involved in\nrigging the prices have named the assessee as one of the beneficiaries of\nthe transactions carried out by them. However, the ld. CIT(A) went to\ndirect the AO to treat the amount of Rs.4,68,87,073/- being capital gains\nshown by the assessee from the transactions in the shares as income\nfrom business and profession and the addition made u/s 68 of the Act\nwas deleted.\n\nINCOME TAX APPELLATE TRIBUNAL\n \nI.T.A. No. 269/Mum/2019\n8\n14. We have given a thoughtful consideration to the orders of the\nauthorities below.\n15. The facts of the case have to be understood in their true\nperspective. The assessee purchased 3,00,000 shares on 11/03/2013 and\nfurther purchased 21,506 shares on 11/03/2013 and 2,00,000 shares on\n14/03/2013. The assessee had sold 278454 shares during FY 2013-14\nrelevant to AY 2014-15. The shares were immediately dematerialized as\nper the Demat statement of Samurai Securities Pvt. Ltd., exhibited at\npage 126 of the paper book.\n15.
Thus, it is not the case of the revenue that the assessee purchased\nshares offline, held physical shares and just before the sale,\ndematerialized them. It is also not the case of the revenue that the\nassessee has purchased cheques of accommodation entries by paying\ncash to the market operators.\n15.
The entire assumption and presumption of the AO revolves\naround the report of Securities and Exchange Board of India (SEBI).\nSEBI had conducted investigation in the group of SESL based on the\nletter received from Pr. Director of Income Tax (Investigation), Kolkata\ndated 27/04/2015, alleging that certain entities generated bogus long\nterm capital gains through stock exchange mechanism and SESL is one\nof such scrips mentioned in the aforesaid letter. In view of this, it was\nalleged as follows:-\n“a. With regard to Noticee No. 1 to 8, it was alleged that these Noticees themselves\n(along with other connected Noticees) indulged in manipulation of the price of the\nscrip, created false and misleading appearance of trading in the securities market and\nalso carried out an act/practice which operated as a fraud or deceit in the market.\nFurther, they derived benefit out of the price manipulation by selling the shares at\nsuch manipulated price.\nb. With regard to Noticee No. 9 and 10, it was alleged that they being the new\npromoters of the company, acquired the company, orchestrated the scheme of\n\nINCOME TAX APPELLATE TRIBUNAL\n \nI.T.A. No. 269/Mum/2019\n9\nmanipulation and created a false and misleading appearance of trading in securities\nmarket through the connected Noticees.\nc. With regard to Noticee No. 9 to 11 and 16, it was alleged that these Noticees\n(company and its directors) were part of the manipulative scheme which included\nallotment of shares on preferential basis and were in connivance with the other\nconnected Noticees who carried out the scheme of manipulation of the price of the\nscrip and created false and misleading appearance of trading in securities market.\nd. With regard to Noticee No. 9 to 15, it was alleged they being the promoters, were\npart of the orchestrated scheme of manipulating the trading in the scrip of Sulabh\nand derived benefit out of the price manipulation by selling the shares at such\nmanipulated price. Such price manipulation was carried out by the connected\nNoticees that were also a part of the orchestrated scheme.\ne. With regard to Noticee No.17 to 22, it was alleged that these Noticees manipulated\nthe price of the scrip, created false and misleading appearance of trading in the\nsecurities market and also carried out an act practice which operated as a fraud or\ndeceit in the market. It was further alleged that these Noticees together repeatedly\nfailed to deliver shares after selling the same on market, entered into transaction in\nsecurities without intention of performing it/ without intention of change in\nownership of such security.\nf. With regard to Noticee No. 23 to 122, it was alleged that these Noticees\nmanipulated the price of the scrip, created false and misleading appearance of trading\nin the securities market and also carried out an act/practice which\noperated as a fraud or deceit in the market.\ng. With regard to Noticee No. 123 to 150, it was alleged that these Noticees were a\npart of the manipulative scheme orchestrated to derive benefit out of the manipulation\ncarried out by the connected Noticees by selling shares of substantial value of Sulabh.\nIt was also alleged that the same also resulted in false and misleading appearance of\ntrading in the securities market and an act/practice which operated as a fraud or\ndeceit in the market.\n******\n********\n******\n******\n******\n*******\n******\nConsidering the findings of Investigation, the allegations made out in the SCN and\nthe submissions made by the Noticees, I find that following issues require\nconsideration in the present case:\nIssue 1:\nWhether the Noticees were directly or indirectly connected to Sulabh or the\npromotors/directors of Sulabh?\n(b) Whether the trades carried out by connected noticees in Patch 1A, 1Band 2 of\nthe IP have resulted in violation of Regulation 3(a) (b)(c)(d), 4(1), 4(2)(a), (b), (e)\nand 4(g) of the SEBI (PFUTP) Regulations, 2003, as applicable?\n(c) Whether the company, its promoters, directors orchestrated scheme to manipulate\nthe price of scrip of Sulabh?\nIssue 2: Does the violation, if any, attract penalty under Section 15HA of the SEBI\nAct, 1992?\nIssue 3: If so, what would be the monetary penalty that can be imposed taking into\nconsideration the factors mentioned in Section 15J of SEBI Act, 1992?\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n10\n******\n********\n******\n******\n******\n******\n*******\nThe above Noticees, in order to determine their role in the present manipulative\nscheme, can be divided into the following groups:\na. Group A of Noticees who are connected to the company through its promoter\ndirectors (PDs) and being a preferential allottee, namely, Noticee Nos.1, 2, 4 to 16,\n31, 32, 83, 123 to 127, 129, 131 to 139, 142 to 148.\nb. Group B of Noticees who are connected to Subodh Agarwal and hence connected\nto the company, namely, Noticee Nos.3, 17 to 29, 34, 37 to 40, 41, 42, 43, 46, 47,\n53, 55, 56, 65, 71, 78, 88, 97, 105, 107, 108, 109, 113, 116, 122.\n128, 130, 140, 141, 149, 150\nc. Group C of Noticees who are connected with Anil Khemka and hence connected to\nthe company through Subodh Agarwal i.e. Noticee nos.45, 48 to 35 51, 57, 67, 76,\n86, 92, 94, 103, 110, 111.\nd. Group D of Noticees who are connected with other Noticees mentioned herein but\nwere not connected with either Company or PDs or Subodh Agarwal or Anil\nKhemka, namely noticees no. 52, 59, 64, 68, 69, 70, 72, 79, 81, 84, 87, 90. 93.\n95, 96, 100, 101, 118.\ne. Group E of Noticees who had no connection with either Company or PDs or\nSubodh Agarwal or Anil Khemka, namely, notices no. 30, 33, 35, 36, 44, 58, 61, 75,\n77, 80, 85, 89, 91, 92, 98, 99, 102, 104, 106, 112, 114, 115, 117, 120, 121\n28.\nFor the purpose of present proceedings, the role of Noticees in Group A, B\nand C shall be considered and adjudicated as they are directly or indirectly linked to\nthe company, its promotors and directors and shall be collectively referred as\n'Connected Noticees'. The Noticees in Group B and C are indirectly connected with\nthe company through either Mr. Subodh Agarwal or Mr. Anil Khemka. Noticees\nrelated to Mr. Subodh Agarwal are either those where Mr. Subodh Agarwal is\nholding the position of director or where the Noticee has common director with\nSubodh Agarwal's connected entity or the Noticee had an off market transfer with\nMr. Subodh Agarwal's connected entity. Considering that Mr. Subodh Agarwal is\ndirectly known to the PDs of the company, hence Noticees connected through him\nalso needs to be considered as Connected Noticees.\n29.\nWith regard to connection shown through Anil Khemka, note that, as per\nInvestigation Report (IR), Mr. Anil Khemka had made statement before the DDIT,\nKolkata that he is managing and controlling certain companies and also stated that\nthe main function of such companies was to provide the accommodation entries in\nthe guise of Long Term Capital Gains (apart from Share Capital and Unsecured\nLoans). Several entities connected to Mr. Anil Khemka, entities named by Mr. Anil\nKhemka or entities connected to the entities named by him have traded in the scrip\nof Sulabh. Considering that Mr. Anil Khemka is connected to Mr. Subodh Agarwal,\nas seen above, it becomes imperative to consider that the said Noticees were connected\nthrough Mr. Anil Khemka as Connected Noticees.\n30.\nNoticees in Group D and E are neither directly nor indirectly connected with\nthe company, PD, Mr. Subodh Agarwal or Mr. Anil Khemka, albeit they are\nconnected to other Noticees who traded in the scrip. Since the impugned\nmanipulative scheme was hatched by the company along with PDs and few other\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n11\nNoticees, it is important that the Noticee should be directly or indirectly connected\nwith the company or any PD to establish any substantial connection. In view of the\nabove, a benefit of doubt is given to Noticees of the aforesaid Group and hence they\nshall not be considered Connected Noticee.\n31.\nWith regards to the Noticees who were the Preferential Allottees and are also\npart of one of the five groups mentioned above, they can be directly considered as\nconnected noticees as held by the Hon'ble SAT in Som Prakash Goenka vs. SEBI\n(Appeal No. 323 of 2020, Date of Decision 29.04.2022). SAT held:\n\"There is no doubt that private placement of shares is rarely given to unknown\nentities and consequently it can be safely presumed that preferential allottees are\nknown to the Company. One could easily club the preferential allottees in the\npremeditated scheme to benefit them from the price manipulation which was\nlaunched by the promoter directors.\"\nHon'ble SAT in Som Prakash (supra) further held that unless these preferential\nallottees have increased the price of the scrip or contributed to Positive LTP, they\ncannot be made part and parcel of the fraudulent scheme just because they reaped in\nhuge profits by selling the shares. Hence, it is pertinent to examine the impact of\ntheir trade in the instant case.\n32.\nNoticees who received shares of the company through Preferential Allotments\nare as under: (March 2011 and March 2012):\n\nName of Allottee\nPromoter/ Non-\nPromoter\nPAN\nNo. of\nShares\nAllotted\nSantosh Kumar Agarwal\n(Noticee No. 11)\nPromoter\nΑΒΚΡΑ7972Q\n300000 + 200000\nKrishana Agarwal (Noticee\nNo. 13)\nPromoter\nACFPA8079A\n200000 + 200000\nManish Agarwal (Noticee\nNo. 12)\nPromoter\nΑΒΒΡΑ2326D\n200000\nSandhya Agarwal (Noticee\nNo. 15)\nPromoter\nACVPA1791R\n400000+200000\nRuchi Agarwal (Noticee No.\n14)\nPromoter\nADHPJ2647J\n400000 + 200000\nSantosh Kumar Agarwal\n(Noticee No. 11) Karta of\nSantosh Kumar Agarwal &\nSons HUF\nPromoter\nAADHS9036D\n100000\nSanjay Kapoor (Noticee No.\n135)\nNon-Promoter\nAGCPK3754D\n125000\nSeema Kapoor (Noticee No.\n131)\nNon-Promoter\nAERPK1243A\n125000\nSunil Kapoor (Noticee No.\n137)\nNon-Promoter\nAGCPK3755C\n125000\nSapna Kapoor (Noticee No.\n136)\nNon-Promoter\nACQPK3632A\n125000\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n12\nMahak\nMaheshwari\n(Noticee No. 146)\nNon-Promoter\nAKKPM2866N\n125000\nManish\nMaheshwari\n(Noticee No. 145)\nNon-Promoter\nAGRPM7399D\n125000\nAshok Kumar Maheshwari\n(Noticee No. 138)\nNon-Promoter\nAARPM1903H\n125000\nPraveen\nKumar\nKurele\n(Noticee No. 124)\nNon-Promoter\nADKPK9580A\n150000\nNaveen\nKumar\nKurele\n(Noticee No. 127)\nNon-Promoter\nAGUPK5822A\n150000\nArun Kumar HUF (Noticee\nNo. 143)\nNon-Promoter\nAAIHA4621B\n125000\nSanjay\nKumar\nHUF\n(Noticee No. 142)\nNon-Promoter\nAAQHS9987L\n125000\nNarinder\nKumar\nHUF\n(Noticee No. 148)\nNon-Promoter\nAAEHN5960N\n125000\nMahabir\nPershad\nHUF\n(Noticee No. 143)\nNon-Promoter\nААЕНM9343L\n125000\nSajan\nKumar Agarwal\n(Noticee No. 147)\nNon-Promoter\nΑΑΚΡΑ5957G\n75000\nSom\nPrakash\nGoenka\n(Noticee No. 126)\nNon-Promoter\nAAQPG0238C\n400000 + 70000\nSurendra\nKumar Gupta\n(Noticee No. 8)\nNon-Promoter\nAAQPG0240E\n400000 + 70000\nRaj Kumar (Noticee No.\n144)\nNon-Promoter\nAHAPK7548Q\n130000 + 70000\nManoj\nKumar Agarwal\n(Noticee No. 123)\nPromoter\nΑΒΒΡΑA2306H\n150000\nSanjeev Sanghi (Noticee\nNo. 132)\nNon-Promoter\nABTPS2464C\n65000\nVivek Karwa (Noticee No.\n139)\nNon-Promoter\nAJLPK0941J\n70000\nDivya Agarwal (Noticee No.\n2)\nNon-Promoter\nACUPG5212E\n135000\nManish\nKumar Garg\n(Noticee No. 4)\nNon-Promoter\nAFDPG9852J\n70000\nDeepak Kumar Agarwal\n(Noticee No. 134)\nNon-Promoter\nABSPA2276K\n70000\nVinay Kumar Agarwal\n(Noticee No. 125)\nNon-Promoter\nАСАРАЗ3335N\n70000\nPraveen Kumar Mishra\n(Noticee No. 7)\nNon-Promoter\nAFYPM1852K\n70000\nPranveer Singh (Noticee\nNo. 6)\nNon-Promoter\nAGIPS4486N\n70000\nSanjay Kumar (Noticee No.\n5)\nNon-Promoter\nAARPS2632K\n70000\nNarender Kumar (Noticee\nNo. 129)\nNon-Promoter\nAARPS2630M\n70000\n33. Pursuant to detailed analysis, it is established that the aforementioned\nNoticees are connected ('connected notices') to each other through a web of off\nmarket transfers, common address, email ID and preferential allotment among\nthemselves.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n13\n******\n********\n******\n******\n*******\n********\n******\n81. In view of the aforesaid observations, I found that the connected Noticee Nos.\n1 to 8, 17 to 29, 31, 32, 34, 37 to 43, 45 to 51, 53, 55 to 57, 65, 67, 71, 76, 78, 83,\n86, 88, 94, 97, 103, 105, 107-111, 113, 116 and 122 have traded in Patch 1A, Patch\n1B and Patch 2, and contributed to the positive LTP. Hence, they manipulated the\nprice of the scrip, created false and misleading appearance of trading in the securities\nmarket and also carried out an act/ practice which operated as a fraud or deceit in the\nmarket, violating the Regulation 3(a), (b), (c), (d),4(1),4(2)(a), (b) and (e) of SEBI\n(PFUTP) Regulation, 2003.\n16. The entire allegation and the investigations/enquiries and the\nSEBI report revolve around the manipulations/rigging done by the\npromoters/directors of SESL.\n17. Neither the broker of the assessee nor the name of the assessee\nappear in the investigation. As mentioned elsewhere, the assessee has\nneither purchased the shares offline nor has kept the physical shares\nwith it. All these shares were purchased online through BOLT,\ndematerialized and sold through banking channels, therefore, the\nallegations of the AO are merely assumption and presumption and\nconjectures drawn by the AO on such assumptions which do not have\nany evidentiary value.\n18. The Hon'ble High Court of Bombay in the case of Principal\nCommissioner of Income Tax vs. Ziauddin A. Siddique in Income Tax Appeal\nNo. 2012 of 2017, judgment dated 04/03/2022, was seized with the\nfollowing question of law and held as under:-\n“Whether on the facts and in the circumstances of the case and in law, the Hon'ble\nTribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s\n68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from\noff market sources and thereafter the same was demated and registered in stock\nexchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by\nthe financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the\nassessee is nothing but unaccounted income which was rightly added u/s 68 of the I.\nT. Act, 1961?\"\n******\n******\n******\n******\n*******\n********\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n13\n******\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n14\n2. We have considered the impugned order with the assistance of the learned\nCounsels and we have no reason to interfere. There is a finding of fact by the Tribunal\nthat the transaction of purchase and sale of the shares of the alleged penny stock of\nshares of Ramkrishna Fincap Ltd. (“RFL”) is done through stock exchange and\nthrough the registered Stock Brokers. The payments have been made through banking\nchannels and even Security Transaction Tax (“STT”) has also been paid. The\nAssessing Officer also has not criticized the documentation involving the sale and\npurchase of shares. The Tribunal has also come to a finding that there is no allegation\nagainst assessee that it has participated in any price rigging in the market on the\nshares of RFL.\n3. Therefore we find nothing perverse in the order of the Tribunal.\n4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal\nCommissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd.1 but that\ndoes not help the revenue in as much as the facts in that case were entirely different.\n5. In our view, the Tribunal has not committed any perversity or applied incorrect\nprinciples to the given facts and when the facts and circumstances are properly\nanalysed and correct test is applied to decide the issue at hand, then, we do not think\nthat question as pressed raises any substantial question of law.\n6. The appeal is devoid of merits and it is dismissed with no order as to costs.”\n19. In the case of CIT vs. Mukesh Ratilal Matolia [ITA No. 456 of 2007],\nthe Hon'ble Bombay High Court was seized with the following question\nof law and consequently held as under:-\n“1 Whether the ITAT was justified in deleting the amount of Rs.1,41,08,484/\nreceived by the Assessee on sale of the shares as unexplained investment under\nsection 69 of the Income Tax Act, 1961 is the question raised in this Appeal.”\n***** ************* ************ *************** ************** ************** *********\n"2 The Assessment Year involved herein is A.Y. 20012002.\n3 The Assessee was carrying on business of manufacturing handkerchiefs as the\nproprietor of Rumal Manufacturing Company. In the Assessment Year in question\nthe Assessee claimed that he had sold the shares of four companies, namely, M/s\nAlang Industrial Gases Ltd., Mobile Telecommunication Ltd., M/s Rashel Agrotech\nLtd. and M/s. Sentil Agrotech Ltd, which were purchased during the year 19992000\nand 20002001. The entire sale consideration amounting to Rs.1,41,08,484/\nwas\nutilised for the purchase of a flat at Colaba, Mumbai and accordingly benefit of\nsection 54E of the Income Tax Act, 1961 was claimed.\n4.\nThe Assessing Officer has held that neither the purchase nor sale of shares\nwere genuine and that the amount of Rs.1,41,08,484/ stated to have been received by\nthe Assessee on sale of shares was undisclosed income and accordingly made addition\nunder section 69 of the Income Tax Act, 1961. The Appeal filed by the Assessee was\ndismissed by CIT (A).\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n15\n5. On further Appeal, the ITAT by the impugned order allowed the claim of the\nAssessee by recording that the purchase of shares during the year 19992000 and\n20002001 were duly recorded in the books maintained by the Assessee. The ITAT has\nrecorded a finding that the source of funds for acquisition of the shares was the\nagricultural income which was duly offered and assessed to tax in those Assessment\nYears. The Assessee has produced certificates from the aforesaid four companies to\nthe effect that the shares were in fact transferred to the name of the Assessee. In these\ncircumstances, the decision of the ITAT in holding that the Assessee had purchased\nshares out of the funds duly disclosed by the Assessee cannot be faulted.\n6 Similarly, the sale of the said shares for Rs.1,41,08,484/ through two Brokers\nnamely, M/s Richmond Securities Pvt. Ltd. and M/s. Scorpio Management\nConsultants Pvt. Ltd. cannot be disputed, because the fact that the Assessee has\nreceived the said amount is not in dispute. It is neither the case of the Revenue that\nthe shares in question are still lying with the Assessee nor it is the case of the Revenue\nthat the amounts received by the Assessee on sale of the shares is more than what is\ndeclared by the Assessee. Though there is some discrepancy in the statement of the\nDirector of M/s. Richmand Securities Pvt. Ltd. regarding the sale transaction, the\nTribunal relying on the statement of the employee of M/s. Richmand Securities Pvt.\nLtd. held that the sale transaction was genuine.\n7 In these circumstances, the decision of the ITAT in holding that the purchase and\nsale of shares are genuine and therefore, the Assessing Officer was not justified in\nholding that the amount of Rs.1,41,08,484/- represented unexplained investment\nunder Section 69 of the Income Tax Act, 1961 cannot be faulted.\n8 In the result, we see no merit in this Appeal and the same is dismissed with no\norder as to costs.\"\n20. Considering the facts of the case in totality, in light of the judicial\ndecisions discussed hereinabove, we do not find any merit in the\nimpugned addition made by the AO. The same are directed to be\ndeleted.\n21. Since the assesse has held the shares as investment, therefore, the\ngain from sale of shares has to be treated as short term capital gain/long\nterm capital gains. Therefore, to that extent, the findings of the ld.\nCIT(A) are not accepted and the gains shall be treated as such.\nAccordingly, the impugned grievance in revenue's appeal is dismissed\nand that in assessee's appeal is allowed.\n\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 1062/Mum/2019\nI.T.A. No. 269/Mum/2019\n16\n22. Since we have accepted the genuineness of the transactions, the\ndeletion of the alleged commission for purchase of accommodation\nentries by the ld. CIT(A) cannot be faulted with.\n23. The only other issue in the assessee's appeal is the addition u/s\n14A of the Act taken to the book profit by enhancing the book profit\nartificially. Since we have directed the AO to delete the entire\ndisallowance made u/s 14A of the Act, this ground becomes redundant.\n24. In the result, appeal of the assessee is allowed and that of the\nrevenue is dismissed.\nOrder pronounced in the Court on 9th January, 2025 at Mumbai.\nSd/-\n(SUNIL KUMAR SINGH)\nJUDICIAL MEMBER\nMumbai, Dated 09/01/2025\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\n\n*SC SMPS\nआदेश की प्रतिलिपि अग्रेषित/