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Facts
The assessee claimed exemption under Section 10(38) for Long Term Capital Gain (LTCG) of Rs.4,24,91,703/- from the sale of shares of M/s. Alps Motor Finance Limited. The Assessing Officer (AO) and Ld. CIT(A) disallowed this claim, treating the total sale consideration of Rs.4,27,01,703/- as unexplained cash credit under Section 68 and adding a 5% commission of Rs.21,35,085/-, alleging the LTCG was bogus and obtained through accommodation entries.
Held
The ITAT, following its own and the Delhi High Court's previous decisions in similar cases involving the same scrip (Vipin Jain), found that the assessee had provided sufficient documentary evidence to prove the genuineness of the share transactions. The Tribunal emphasized the lack of direct evidence from the AO to implicate the assessee in bogus transactions, the failure to allow cross-examination of third-party statements, and the absence of any adverse action by SEBI against the company or broker. Consequently, the additions made under Sections 68 and 69C were deleted, and the assessee's claim for exemption under Section 10 on account of LTCG was allowed.
Key Issues
Whether the Long Term Capital Gain from the sale of shares was genuine and exempt under Section 10(38) of the Income Tax Act, or if it constituted bogus capital gain liable to addition under Section 68 and 69C, based on the Assessing Officer's reliance on general modus operandi and unconfronted third-party statements without specific evidence.
Sections Cited
10, 10(38), 68, 69C, 142(1), 143(2), 131, 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
(Assessment Year: 2015-16) Vipin Jain & Sons HUF, vs. ITO, Ward 56 (2), C/o Akhilesh Kumar, Advocate New Delhi. 206 -207, Ansal Satyam, RDC, Ghaziabad – 201 002 (Uttar Pradesh). (PAN : AADHV8042G) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Tiwari, Advocate Ms. Tanya, Advocate REVENUE BY : Ms. Harpreet Kaur Hansra, Sr. DR Date of Hearing : 11.02.2025 Date of Order : 09.04.2025 O R D E R
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-19, New Delhi[“Ld. CIT(A)”, for short] dated 12.12.2018 for the Assessment Year 2015-16 raising following grounds of appeal :-
1. Because the order of learned lower authority is bad in law & against the facts and circumstances of the case and hence is unsustainable.
2. Because ld. CIT (A) grossly erred in law in sustaining the addition of Rs.4,27,01,703/-, being total sale consideration of shares u/s 68 of the Act while said amount is neither credited to books of account in the absence of any accounts nor source of said amount is under doubt, hence addition is beyond the scope of provision.
3. Because ld. CIT (A) has erred in law in sustaining the rejection of claim u/s 10(38) on sale of listed equity shares, sale/purchase of which is duly supported with all the possible evidences without rejecting/finding any defect in evidences.
4. Because ld. CIT (A) further failed to appreciate that, addition is based on surmise and conjectures being : a) Reliance on behind the back statement for addition and reproduced in order is wrong in as much as none of party charged the transaction under question or assessee etc. b) No opportunity to cross the statements reproduced is ever provided. c) There is no evidence against the assessee except ref. to general modus operandi or ref. of unknown statement/cd. d) Because ld. AO erred in making ad hoc addition of Rs.21,35,085/- being alleged payment of commission only on the imaginative basis without any material.”
Brief facts of the case are, assessee has filed return of income showing income of Rs.10,77,180/- on 26.08.2015. The case was selected for scrutiny and notices u/s 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) along with questionnaire were issued and served on the assessee. In response, ld. AR of the assessee attended and furnished details/documents/replies which were placed on record. Besides this, assessee has also disclosed long term capital gain on sale of shares of M/s. Alps Motor Finance Limited of Rs.4,24,91,703/- which was claimed as exempt u/s 10 (38) of the Act. During assessment proceedings, assessee submitted that purchase/sale of shares and long term capital gain was normal course and was not arranged one which was evidenced and duly supported by various documents which were submitted during the assessment proceedings. However, AO after detailed discussion held that the inability of assessee to explain the same both through the statement recorded as well as response to show-cause notice clearly demonstrated that LTCG incurred by the assessee is a bogus one and accordingly made addition as under :- (i) Unexplained cash credit u/s 68 Rs.4,27,01,703/- (ii) Commission @ 5% Rs. 21,35,085/-
Aggrieved assessee preferred an appeal before the ld. CIT (A) and submitted detailed submissions. Ld. CIT (A) after going through the detailed submissions of the assessee dismissed the appeal of the assessee.
Aggrieved assessee is in appeal before us raising various grounds of appeal
reproduced in para 1 above.
5. At the outset, ld. AR of the assessee submitted that the issue under consideration is squarely covered by the decision of the ITAT in the case of Vipin Jain, individual in for AY 2015-16 vide order dated 16.03.2020 in favour of the assessee and further when Revenue went in appeal before the Hon’ble Delhi High Court, Hon’ble High Court in ITA 95/2021 vide order dated 12.03.2024 has also decided the issue in favour of the assessee and the Department has not challenged the decision of the Hon’ble High Court. He further submitted that the crux of the issue at hand, whether transactions in question are genuine or not, is fundamentally an issue of fact and in the case of Savita Jain and Vipin (supra), the ITAT has meticulously examined, analyzed and adjudicated upon each nuance of the facts and relevant documentary evidence present. The findings of ITAT are not mere declarations; they are reasoned conclusions arrived at after a comprehensive analysis of facts, document’s and statements from third parties. He further submitted that all these cases, Savita Jain and Vipin Jain as well as the present assessee, involved the same script of Alps Motor Financial Ltd. and the ITAT, in its wisdom, ruled in favour of the assessees, holding that the transactions were genuine. Ld. AR of the assessee submitted written submissions which are reproduced below for the sake of clarity :- “Date Chart Showing Timeline of Events Sr. Date Event No. 1 1/11/2012 Purchase of 1,00,500 equity shares of Alps Motor Finance Limited at Rs. 2 each from Sh. Ashvin Verma (Total: Rs. 2,01,500, Payment Mode: Cash)
2 17/01/2014 Shares were dematerialized. 3 20/06/2014 Sale of 10,000 shares at Rs. 423 each through Share Broker i.e. Century Finvest Pvt. Ltd. (Payment Mode: Banking Channels) (Refer Page 30 of PB) 4 24/06/2014 - Sale of remaining shares through Share Broker i.e. 17/07/2014 Century Finvest Pvt. Ltd. (Payment Mode: Banking Channels) (Refer Page 30 of PB)
The documents furnished before the Assessing Officer are:
1. 1. Share Purchase Documentation: Provided a photocopy of the physical share certificate, bill, and payment receipt for the purchase of 100,500 shares of Alps Motor Finance Limited for Rs 2,01,500 in cash from November 2012. Also included confirmed account details and cash abstracts related to the seller, Shri Ashvin Verma.
2. DEMAT Account Details: Submitted a copy of the DEMAT account, holding and transaction statements, delivery instructions, dematerialization request form, and Client Master List.
3. Sales Transaction Records: Included copies of bills from M/s Century Finvest Pvt. Ltd., a SEBI-registered broker, for selling the shares on the stock exchange, along with a confirmed copy of the account.
4. Bank Statement: Provided bank statement indicating payment received from the broker against the sale of shares. Factual Basis of the Case and Judicial Precedents It is submitted that the crux of the issue at hand, whether the transactions in question are genuine or not, is fundamentally an issue of fact. In the case of Savita Jain and Vipin Jain, the Hon’ble Income Tax Appellate Tribunal (ITAT) has meticulously examined, analysed, and adjudicated upon each nuance of the facts and the relevant documentary evidence presented. The ITAT's findings are not mere declarations; they are reasoned conclusions arrived at after a comprehensive analysis of facts, documents, and statements from third parties. In reinforcement of the above submission, we draw the court’s attention to two significant decisions, which were relied by the Hon’ble DHC in other group cases: 1. PR Commissioner of Income Tax -12 vs. Karuna Garg (ITA 477/2022) 2. PR Commissioner of Income Tax -12 vs. Ms. Reeshu Goel (ITA 173/2021) In the case of Savita Jain and Vipin Jain, the Hon’ble Delhi High Court addressed the issue of purported bogus capital gain. In these cases, the ITAT had upheld the genuineness of the transactions. The Revenue, nonetheless, approached the Delhi High Court, which after due consideration, dismissed the appeal of the department. Delhi ITAT Decisions and Revenue’s Tacit Acceptance It is pertinent to bring the Hon’ble court's attention to two crucial decisions and the other group cases of Savita Jain and Vipin Jain were not challenged by the Department before the Supreme Court. Notably, all these cases involved the same script of Alps Motors Finance Ltd. as is in question in the present case. The ITAT, in its wisdom, ruled in favour of the assessees, holding that the transactions were genuine. Further buttressing our case is the fact that the Revenue has refrained from challenging these decisions by not filing any appeal against them. This inaction can be reasonably interpreted as an implicit acceptance of the ITAT's judgments by the Revenue, thereby substantiating the genuineness of the transactions involving the said shares of Alps Motors Finance Ltd. As such, it would be reasonable to assert that the Revenue’s non-challenge sets a form of precedent that supports our contention in the matter at hand. Inappropriate Reliance on Unconfronted Statements and Failure to Allow Cross-Examination The Assessing Officer has leaned on certain key statements, including those from two brokers and Bikash Surekha, to build a case against the assessee. It is noteworthy that these statements were never presented to the assessee for the purpose of cross- examination, despite a formal request for such an examination being submitted by the assessee. The copy of this letter has been duly submitted before the court and can be found at page 5 of PB in the present submission. Moreover, the content of Surekha's statement conspicuously lacks any mention of the assessee, the broker facilitating the assessee's transactions, or Alps Motors Finance Ltd., the shares of which are at the center of the case. Similarly, Anil Khemka’s statement, another cornerstone of the Assessing Officer’s argument, is also devoid of any specific reference to the assessee's transactional activities or to Alps Motors Finance Ltd.
The lack of direct relevance in these statements not only undermines the credibility and applicability of such evidence against the assessee but also brings to question the propriety of invoking them as a basis for the application of Section 68 and Section 69C. Consequently, the Assessing Officer's reliance on these statements appears to be both misplaced and legally untenable, considering they do not provide substantial grounds for action against the assessee. Therefore, this reliance not only accentuates the insufficiency of credible evidence but also questions the relevancy and probative value of these statements in the case at issue. During the course of the assessment proceedings, the assessee formally requested the opportunity for cross-examination of the statements that the Assessing Officer has relied upon. This request was articulated in a written letter, a copy of which has been submitted before the court for consideration. For further reference, this pertinent piece of correspondence is included in the present submission. For the issue concerning the absence of cross-examination by the Assessing Officer, despite the assessee's specific request during the assessment proceedings, reliance is placed upon the following judicial precedents. The non-availability of cross-examination under these circumstances weakens the evidentiary value of the statements relied upon by the Assessing Officer and compromises the principles of natural justice. SEBI’s Non-Action, Regulatory Compliance, and Continued Marketability of Alps Motors Finance Ltd. Shares It is respectfully submitted that the Securities and Exchange Board of India (SEBI), the governing body overseeing securities markets in India, has never initiated any form of inquiry, suspension, or punitive action against either the assessee or Alps Motors Finance Ltd. This glaring absence of regulatory scrutiny substantiates the lawful and transparent nature of the transactions undertaken by the assessee. Moreover, the fact that trading of shares of Alps Motors Finance Ltd. has not been suspended by SEBI strongly indicates their legitimacy and compliance with relevant securities laws.
Furthermore, it is important to highlight that the shares of Alps Motors Finance Ltd. are currently marketable and actively traded on the stock exchange as of today's date. This continued marketability serves as additional compelling evidence supporting the genuineness of the transactions in question. No inquiry or action by Income Tax Department on Assessee or broker or Alps Motors Finance Limited Additionally, it is pertinent to note that no other authoritative bodies, including but not limited to the Directorate of Revenue Intelligence (DRI) and the Income Tax Department, have initiated any inquiry or investigation against the broker, the assessee, or Alps Motors Finance Ltd. This collective non-action across multiple regulatory agencies not only lends credence to the integrity of the transactions but also severely undermines any broad allegations of financial impropriety leveled by the Assessing Officer. Lack of Direct Evidence and Generalized Accusations The Assessing Officer's (AO) case against the assessee is built on broad allegations and a generalized modus operandi concerning fraudulent capital gains. Despite the sweeping allegations, the AO falls short of providing any concrete evidence linking the assessee or ALPS Motor Finance Limited to fraudulent activities. Questionable Methodology and Inconsistencies The AO bases his suspicion on trading patterns like cash purchases and dematerialization, but offers no evidence that directly implicates the assessee. Notably, third-party statements referenced by the AO don't specifically implicate the assessee's transactions, thereby creating an inconsistent and shaky foundation for the AO’s conclusions. No effective inquires by the AO The AO did not substantively inquire whether the assessee's transactions were fictitious or a colorable device. Absence of evidence suggesting violation of KYC norms or involvement of bogus entities weakens the AO’s case further.
Defense Against Misapplication of Section 68 and Section 69C Verifiable Transactions in Accordance with Regulatory Norms The assessee's transactions pertaining to the acquisition and sale of shares from Alps Motors Finance Ltd. for the financial year 2012- 2013 are firmly backed by incontrovertible documentary evidence. These include cash abstracts, DEMAT account records with Vijaya Bank, and the Depository Participant (DP). All transactions were routed through a SEBI-registered broker, and the sale proceeds were diligently credited to the assessee’s designated bank account. The evidentiary framework confirms these transactions as lawful, thereby undermining any grounds for the invocation of Section 68 of the Income Tax Act. Inadequate Factual Basis for Invoking Section 68 The Assessing Officer's application of Section 68, which pertains to unexplained cash credits, is not substantiated by any credible evidence. Significantly, there is a glaring absence of any material that would indicate the assessee used an accommodation entry provider for the purpose of creating fictitious long-term capital gains. The void in material evidence makes it patently unjust to charge the assessee under this section. Insufficiency of Nationwide Investigation for Specific Case While the Assessing Officer relied heavily on a nationwide investigation concerning bogus Long-Term Capital Gains, it is essential to state that neither the assessee nor Alps Motors Finance Ltd. were implicated in this investigation. This disjuncture further exacerbates the shakiness of the Officer's case against the assessee. The Folly of Imputing Guilt by Association Invoking a generalized modus operandi concerning bogus Long- Term Capital Gains does not suffice as a valid ground for undermining the assessee's legitimate, document-supported transactions. Without direct evidence or inquiry implicating the assessee, the application of Section 68, and consequently Section 69C, is unjustifiable.
In summary, the absence of any specific material evidence or investigative findings that could reasonably implicate the assessee renders the additional imposition under Sections 68 and 69C as fundamentally flawed. In light of these considerations, it is imperative that the Assessing Officer’s determinations be revoked, thereby validating the assessee’s claim for an exemption under Section 10 on the grounds of Long-Term Capital Gain. By consolidating these points under one comprehensive heading, we aim to present a fortified argument that substantively challenges the Assessing Officer's misapplication of Section 68 and Section 69C, thereby making a robust case for the relief sought by the assessee. Integrity and Regulatory Compliance of Assessee's Share Broker i.e M/s Century Finvest Pvt Ltd and Alps Motors Unquestioned Credibility of Share Broker It is paramount to highlight that M/s Century Finvest Pvt Ltd, the share broker facilitating all transactions for the assessee, has not been subjected to any form of inquiry, suspension, or punitive action by the Securities and Exchange Board of India (SEBI) or any other competent regulatory body. This unsullied standing serves to further substantiate the legitimate and bona fide nature of the share transactions executed by the assessee. Broker's Absence from Investigations and Third-Party Statements Notably, in the assessment order, the Assessing Officer made extensive references to a national investigation on fraudulent financial practices. However, conspicuously missing from this report, as well as the subsequent statements provided by third parties Mr. Bikash Surekha and Mr. Anil Khemka, is any mention of the assessee’s share broker. This significant absence underscores the legitimacy of the broker's operations and, by extension, those of the assessee.
Regulatory Compliance of Alps Motors Finance Ltd. Turning attention to Alps Motors Finance Ltd., the company whose shares form the subject matter of this dispute, it is crucial to note that the company has not been under scrutiny or action by any regulatory agencies, including SEBI, the Income Tax Department, or any investigative wing. The company’s unblemished record further dispels allegations of price rigging or manipulation that might otherwise cast doubt on the transactions in question. The unimpeachable status of both the share broker and Alps Motors Finance Ltd. significantly undergirds the assessee's claim for legitimacy. In the absence of any material, inquiry, or corroborative evidence implicating either the share broker or Alps Motors Finance Ltd., it would be unjustifiable to make adverse inferences against the assessee. Therefore, the Assessing Officer’s disallowance under Sections 68 and 69C of the Income Tax Act lacks merit and should be duly revoked. Subsequently, the assessee’s claim for exemption under Section 10 on the grounds of Long-Term Capital Gain deserves to be granted. This line of reasoning augments and solidifies the earlier arguments presented, laying additional weight on the necessity for setting aside the unjust additions made by the Assessing Officer under Sections 68 and 69C.”
On the other hand, ld. DR of the Revenue relied upon the orders of the authorities below.
Considered the rival submissions and material placed on record. We observed that the issue involved in the present case is exactly similar to the case of Vipin Jain (supra), individual. We have gone through the order of the ITAT in Vipin Jain, individual’s case (supra) wherein the ITAT has decided the appeal in favour of the assessee wherein the scrip Alps Motor Finance Ltd. was involved, which is also involved in the present case, and the relevant findings of ITAT are as under :- “8. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The main contention of the ld. counsel before us was that nowhere the evidences filed by the assessee have been doubted and neither the purchase made in the earlier years has been disbelieved. The Assessing Officer has taxed only the net Long Term Capital Gain and alleged commission of 5% for arranging such Long Term Capital Gain. He drew our attention to the documents refuting to purchase of 628O0 equity shares for sum of Rs.12,5,600/- in all market transaction to Shri Vishal Yadav in November 2012 and also the factum of dematerialization of shares on 17.1.2014 it was credited to the demat account with Vijaya Bank in the month of January, February 2014. It was in the Assessment Year 2014-15, the assessee had sold the shares i.e. 17500 shares on 30.07.2014 at the rate of Rs.430 per share and balance 45300 equity shares got split into 4,53,000 equity shares of Rs.1 each on 06.08.2014. And whole of the split shares were sold from August, 2014 to October, 2014 at a marker price in the range of Rs.61.05 to Rs.53.10 through M/s. Century Finvest Pvt. Ltd., a SEBI registered broker. As per the contract note and the transaction details it is seen that the shares were sold in different lots and the transaction of sale of shares is evidenced from contract notes appearing at pages 29-35 of the PB. And also the statement of the DEMAT Account. Apart from that, from the perusal of the abstract of cash account and confirmation from Vishal Yadav, it can be seen that, assessee has paid amount of Rs.1,25,500 in cash for purchase of shares and the sale proceeds have been received on various dates in the assessee's bank account with Vijaya Bank appearing at Pages 24-28 of the PB. Not only that, from perusal of the DEMAT account, it is seen that assessee also had investment in shares of other companies also and it is not that this was a solitary transaction. Further, Ld. AR for the assessee submitted that following documents and evidence goes to show and prove the genuineness of sale and purchase of shares which are as under :- A. Copy of abstract of cash evidencing the payment made against the share purchased.
B. Copy of DEMAT account, statement of holding transaction statement, delivery instructions, dematerialization request form. C. Copies of the bills issued by the M/s. Century Finvest Pvt. Ltd. (a SEBI registered Broker) for sale of shares along with duly confirmed copy of account and showing the STT paid on the sale of shares. D. Bank Statement of the assessee indicating the payment received from broker against sale of shares.
10. Further Let. AR submitted that one very important fact in the present case is that SEBI which is a regulatory authority for the smooth functioning and monitoring of the stock exchange has not suspended the scrip ALPS Motors Finance Ltd. at any point of time and the shares are still being transacted at the Market price ruling on the date of transaction on a screen based trading, therefore, the bald allegation against the assessee is wholly without substance particularly when no contrary evidence has been brought on record and the allegation is simply based upon the general modus operandi found by the Directorate of Investigation, Kolkata in various other penny stock shares.
In relation to reliance placed on the 2 broker’s statements recorded by the, he submitted that firstly, none of these statements were confronted to the assessee during the course of assessment proceedings and even in the show cause notice, and secondly, even these statements do not disseminate the evidence furnished by the assessee as in none of these statements there is any reference to the transaction carried out in the shares of Alps Motors Finance Limited and so also the transaction of the appellant assessee.
The main case of the revenue is that, Bikash Surekha has accepted in the statement reproduced in the assessment order that two entities namely, (i) Duari Marketing; and (ii) Rachak Vinmay Pvt. Ltd. who had purchased the shares of Alps Motors Finance Limited were run by him and have been used to provide accommodation entry for bogus LTCG. Entirely based or this statement, the assessee’s Long term capital gain has been disbelieved and added under section 68 of the Act. Such a statement first of all, has no direct or indirect connection with the assessee nor there is any reference that assessee was any kind of beneficiary of accommodation entry by any entry operator. So much so, there is no reference to the scrip namely Alps Motors Finance Limited. Otherwise also, such a statement cannot be the sole basis for disbelieving the transaction of the assessee for the reason that neither any cross examination has been allowed by the department nor there is any conclusive averment that all the trade of the scrip of Alps Motors Finance Limited was manipulated for bogus long term capital gain, There is no information or material on record that trading of the said scrip was ever banned by the SEBI. A general modus operandi as to how bogus entry of long term capital gain is provided by entry providers, sans any specific enquiry or material or information on record to implicate assessee cannot be the basis for disbelieving the transaction backed by all documents. AO has to conduct some kind inquiry to find out that transaction is sham or is colourable device. Here it is not the case that transaction of the assessee, both in case of purchase and sale are effected by any bogus entities controlled by any entry operator; or brokers have failed to maintain KYC norms; or there is any statement that entities involved in price movement or scrip operator or promoters of listed company have accepted their role in giving bogus entry nor there is any probe or material relating to bank account of entities involved that purchase or sale by assessee has been done through cash deposits; or there is any order from SEBI/BSE where genuineness of the scrip has been doubted. When no such inquiry or material has been found or gathered that assessee is beneficiary or was involved in any such scam of accommodation entry, then it is very difficult to discard the assessee's explanation and documents.
13. In addition, in the other statement reproduced i.e. of Anil Khemka, there is no reference to the appellant assessee's transaction or scrip namely Alps Motors Finance Limited.
14. Ld. AR further submitted that, here, in this case, purchase of shares was made in the Financial Year 2012-13 relevant to assessment year 2013-14 and is evidenced by the cash abstract and other related documents. Thus, possession of the share is not in doubt at all, because same is also reflected in DEMAT account maintained with DP and Vijaya Bank. Not only that, the sale of shares is also evidenced from transaction undertaken through SEBI registered Broker and after the sale of shares, the net receipts have been credited to the assessee's bank account. Hence, the nature of the transactions clearly purchase and sale of shares and the source of the credit, from the material facts on record are quite evident that it is from the sale of shares. Once, no material information has been brought on record to convert these transactions then it cannot be held that the sale proceeds of the shares as unexplained cash credit to be added under deeming provisions of section 68. Further, there is no finding or any whisper in the impugned orders that some unaccounted money has been routed through some accommodation entry provider or getting the bogus long-term capital gain. 15 In addition, one very important fact brought on record by the Ld AR is that the very same scrip was subject matter adjudication in the case of Shri Vìshal Kumar Vijay vs ITO Order dated 28.11.2018 and in the case of Akita Vijay vs ITAT dated 08.02.2019 and the Hon’ble tribunal after examining the transaction statement of the stock broker, Contract Note for sale of shares, transaction statement of the DEMAT Account and other documentary evidences had held that the transaction was genuine.
On the other hand, ld. DR strongly relied upon the order of the Assessing Officer and submitted that here in this case the facts and circumstances clearly indicates that assessee has taken an accommodation entry for bogus Long Term Capital Gain for which all paper work has been done like in all such bogus entries. It is a solitary transaction of the shares and the financial credibility of Alps Motor Finance Ltd clearly indicates the fact that this company did not had worth to justify such a higher share price, which means that the price were manipulated in the stock exchange only to provide accommodation entry for bogus Long Term Capital Gains / Loss. In support, he strongly relied upon the judgment of Hon'ble Delhi High Court in the case of Udit Kalra v/s. ITO. and decision of Tribunal in the case of Udit Kalra vs. ITO, ITA No.6717/Del/201 7. He further relied upon the judgment of ITAT Delhi 'SMC' Bench in the case of Anip Rastogi and Anju Rastogi in ITA No.3809 /Del/2018 and 3801/Del/2018. Relying on these Judgments, he submitted that even the Hon’ble High Court have frowned upon such bogus Long Term Capital Gain.
After considering the entire gamut of facts and material on record and the submissions made by the parties, one important fact Assessment Year 2012-13 for sum of Rs.1,25,000/- which has been sold in the impugned assessment order for Rs.3,20,57,034/- and Long Term Capital Gain of Rs.3,18,92,584/- has been declared which has been disallowed by the Assessing Officer and has been taxed u/s.68. This inter alia shows that the purchases made in the earlier years regarding shares have not been disputed at all, only Net LTCG has been added. Major part of the discussion in the assessment order is show how the Director of Instigation Calcutta carried out countrywide investigation wherein the modus operandi were providing Long Term Capital Gain / Short Term Capital Loss were unearthed and Assessing Officer has given sample of cash trail and how the mechanism works which has been illustrated by him in detail. He has given a master table and cash trail showing name of 18 broker companies/persons and concern jama kharchi companies and also name of various persons who were involved as share broker, promoter, beneficiaries or otherwise who were indulged in malpractices and whose case search and survey were carried out and submissions were recorded. From the bare perusal of these exhaustive list and information, it is seen that none of the shareholders or jama kharchi companies were involved in scrips of Alps Motors Finance Ltd. or nowhere the assessee’s transaction or the name of assessee’s broker or assessee being beneficiary has been mentioned. From the statement of the assessee also, nothing adverse can be inferred except that he has bought the shares from one Mr Vishal Yadav who met him in some marriage ceremony from whom assessee had made the purchases and assessee had sold the shares on the advice of brokers M/s Century Finvest Pvt. Ltd. Further, it has been mentioned that assessee had purchased 62800 equity shares for sum of Rs.1,25,600/- in off-market transaction and assessee requested the depositor for materialization of shares on 17.01.2014 and these shares were credited to his demat account with Vjaya Bank on 10.02.2014 thereafter shares have been sold on two lots on two different prices, one of 17500 shares on 30.07.2014, Rs.430per shares and balance of 45300 shares between August 2014 to October 2014 at a market price ranging from Rs.61.05 to Rs.53.10 through registered stock broker, M/s Century Finvest Pvt. Ltd. The shares have been sold to recognized stock exchange BSE on quoted price on the date and thereafter the money has been credited into the account of the assessee.
18. Further, the Assessing Officer has strongly referred to two statements, one of Mr. Bikash Surekha and other of Mr. Anil Khemkha. Though Mr. Bikash Surekha have accepted that they were used to provide accommodation entry for bogus Long Term Capital Gain, but nowhere he has said that they have provided accommodation entries in Alps Motor Finance Ltd. Further in the statement of Anil Kumar Khemkha also and in the list of various jama kharchi companies wherein the name of Alps Motors Finance Ltd. has not been figured. Further, in reply to question no. 18, Mr. Anil Kumar Khemkha mentions the list of scrips, and stated that, he has provided accommodation entry but nowhere the name of Alps Motor Finance Ltd. is appearing in his statement. Once again from the bare perusal of the list captioned as Annexure-B annexed alongwith the statement which contains names of 106 companies are mentioned, wherein he has said that he was providing accommodation entry through various scrips, it is seen that, scrip of Alps Motor Finance Ltd. is not appearing and nowhere it has surfaced that scrip was used for providing accommodation entry. We are unable to appreciate as how these statements have any relevance on transaction or there is something to implicate assessee that he was involved in accommodation entry fur taking bogus Long Term Capital Gain.
Another important factor here in this case is that, the ld. counsel has placed various orders of SEBI which is a regulatory authority for smooth functioning or monitoring of stock exchange to point out that at no point of time, the trading of Alps Motor Finance Ltd. was suspended or there was any finding that the prices of the Alps Motor Finance Ltd. were rigged or there was any kind of manipulation. In the present case, the shares have been transacted at a market price quoted on the date of transaction in the Stock exchange and on screen based trading, and therefore, to infer that the price have been rigged in violation of SEBI rules or guidelines may not be correct. There has to be some iota of evidence or incriminating material that, either Alps Motors Finance Ltd. was suspended or trading of its shares were banned by the SEBI for manipulating or rigging of the share price in the stock exchange or any action has been taken by the SEBI against the said company or against the brokers. Simply because the prices have risen in a short span of two years, that does not mean there is some kind of manipulation unless some authority have found so or there is any material or inquiry from it has been unearthed that the price Alps Motor Finance Ltd. was manipulated for purpose of providing accommodation entry. Here in this case, there is neither any direct or indirect evidence made through inquiry from assessee’s broker or from Directors of Alps Moto Finance Ltd. or otherwise.
One of the point harped upon by the Revenue is that, Mr. Rikash Surekha has accepted in the statements reproduced in the assessment order that two entities, namely, Durai Marketing and Rochak Vinay Private Lid. who have purchased the shares of Alps Motor Pvt. Ltd. were run by him and were used to provide accommodation entry for bogus long Term Capital Gain, First of all, such statement has no direct or indirect connection with the assessee or the transaction of shares that these two companies have purchased the shares of Alps Motor Finance Ltd. from, assessee; nor there is any reference that assessee was beneficiary of any kind of accommodation entry by the said entry operator. Nowhere there is any reference of the scrip of Alps Motor Finance Ltd. in his statement. To draw any adverse inference against the assessee based on such statement would be wholly erroneous, because, firstly, assessee has not been implicated in such statement; and secondly, if the said statement is the sole basis for disbelieving the transaction, then on the principle of natural justice, cross examination has to be provided to the assessee, In any case, there is no conclusive averment that all the trading of scrip of Alps Motor Finance Ltd. was manipulated for bogus Long Term Capital Gain. Prima facie there has to be some kind of information or material on record that the trading of Alps Motor Finance Ltd. was ever banned by SEBI.
A general modus operanedi cannot be resorted to hold in all such cases that assessee must have entered into bogus Long Term Capital Gain provided by any entry provider. At best it could be a good ground for making prima facie inquiry to scrutinize the transaction and then draw any inference But sans any inquiry or investigation or material on record to implicate the assessee, cannot be the basis for disbelieving the transaction. There has to at least some kind of prima facie inquiry by the Assessing Officer or some information or material has been gathered or found in some inquiry or investigation to indicate that transaction undertaken by the assessee is sham or is a colourable device, If the shares are recorded in the books and are appearing in physical form and then Stock Exchange at a quoted price cannot be held to be unexplained cash credit within the meaning of Section 68, Once a Capital asset has been acquired, reflected in the accounts of the assessee and has been sold, for which necessary evidences have been filed and there is no adverse material or information or inquiry to prove that nature and source of credit as explained by the assessee is false, no adverse inference cannot be drawn and the evidences and explanation given by the assessee cannot be discredited. We again reiterate that though the accommodation entry of bogus Long Term Capital Gain is a menace which has been unearthed through investigation but general perception and general modus operandi sans any evidence or material or any kind of prima facie inquiry cannot render the transaction as sham bogus. In such cases, even if preponderance of probability is taken into consideration, then also the material and evidence adduced by the assessee have to rebutted by some kind of tangible material coming on record. Otherwise the evidences and explanation of the assessee cannot be discredited. Thus, on the facts and circumstances of the case as well as material available on record, we do not find any reason to sustain the addition made by the Assessing Officer. Accordingly, the said addition made u/s.68 and consequently u/s 69C is deleted. Accordingly, Assessee's claim for exemption u/s. 10 on Long Term Capital Gain is allowed.
In the result, the appeal of the assessee is allowed.
Against the order of ITAT in Vipin Jain’s case, the Department filed an appeal before the Hon’ble High Court and Hon’ble Court has decided the issue against the Department by observing as under :- “11. We have heard the learned counsel appearing for the parties and perused the record. 12. It is seen from the facts of the present case that it was the astronomical increase in the price of the shares purchased by the respondent-assessee which has, inter alia led to the additions in the income for the concerned AY under Section 68 of the Act. Admittedly, the purchase and sale of shares and the source of credit therein is not in doubt at all. In fact, the concerned amounts have been considered to be added by the AO on account of preponderance of probabilities and human behaviour.
A perusal of the impugned order of the ITAT would indicate that the additions in question have also been based on the statement of a person namely, Mr. Bikash Surekha. However, the ITAT has concluded that the said statement neither has any direct or indirect connection with the respondent-assessee nor does the same mentions that his entities have provided accommodation entries in the Company. In any case, it is also discernible from the said order that no opportunity of hearing was extended to the respondent-assessee at any relevant point of time to cross-examine the person in question if any claim adverse to the interests of the respondent-assessee was made.
The ITAT order further records that there was no material which could signify that either the Company was suspended, or its shares were barred from trading or the price of the scrip of company was manipulated for the purpose of providing accommodation entry. It has been held by the ITAT that purchases made in the earlier years regarding the shares also remained undisputed and the exhaustive list containing the concerned individuals or companies indulged in malpractices pertaining to LTCG, which has been heavily relied upon by the Revenue, does not mention the given transaction of the respondent-assessee. Notably, it is seen from the impugned order that the AO has failed to corroborate its conclusions on the basis of any cogent material available on record before forming an opinion that the sale transaction was sham and a pre-planned arrangement to claim exemption under the guise of LTCG.
An upshot of the above findings of the ITAT, coupled with the fact that no irregularity was highlighted by the Securities and Exchange Board of India pertaining to the transaction of the scrips of the Company, would lead us to the conclusion that there is nothing adverse against the respondent-assessee which could establish a fictitious LTCG to claim exemption at the behest of the respondent- assessee. Rather, the arguments put forth by the Revenue are mere findings of fact.
16. In any case, the issues raised by the Revenue in the present appeals already stand covered by the decision of this Court in the case of PCIT v. Krishna Devi [2021 SCC OnLine Del 563], wherein, under similar facts and circumstances, it was held that the preponderance of probabilities cannot be a ground to reject the evidence put forth by the parties. The relevant paragraphs of the said decision read as under: - “11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from 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.
12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13. 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.” [Emphasis supplied] 17. The view taken in the case of Smt. Krishna Devi (supra) was subsequently followed in another decision of this Court in PCIT v. Karuna Garg [2022 SCC OnLine Del 4079].
In view of the aforesaid, we find that the present appeals do not raise any substantial question of law.
19. Consequently, we do not find any reason to interfere with the decision of the ITAT and thus, the appeals stand dismissed. Pending application(s), if any, are also disposed of.”
Respectfully following the aforesaid decision of ITAT and Hon’ble Delhi High Court, we are inclined to allow the grounds taken by the assessee. Accordingly, the appeal filed by the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 9th day of April, 2025.