KAMLESH GUPTA ,MUMBAI vs. DCIT - 13(3)(1),MUMBAI, MUMBAI

ITA No. 1462/Mum/2020 A.Y. 2011-12 1 Kamlesh Gupta Vs. Dy.CIT-(13)(3)(1)

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “H” MUMBAI BEFORE SHRI S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA No.1462/MUM/2020 (Assessment Year: 2011-12)

Kamlesh Gupta Dy. Commissioner of 59, Mount Unique 62-A, Vs. Income-tax (13)(3)(1) Peddar Road, Room No. 229, Aayakar Bhavan, Mumbai – 400 026 M.K. Road, Mumbai – 400 020 PAN No. AEGPG6788R

(Assessee) (Revenue)

Assessee by : Shri Hitesh Shah, A.R Revenue by : Shri Vivek Kanandan, D.R Date of Hearing : 11/10/2021 Date of pronouncement : 25/11/2021

ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-21, Mumbai, dated 31.10.2019, which in turn arises from the order passed by the A.O u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 27.12.2016 for A.Y 2011- 12. The assessee has assailed the impugned order on the following effective grounds before us:

“GROUND NO. 1 - AGAINST REOPENING THE ASSESSMENT FOR THE YEAR UNDER APPEAL AND ORDER PASSED PURSUANT THERETO. a) The Commissioner of Income-tax (Appeals) - 21, Mumbai [hereinafter referred to as "the CIT (A)"] has erred in upholding the reassessment proceedings initiated and conducted by the Assessing Officer ("the AO") on the basis of "borrowed satisfaction" and the order passed by

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him, though there was no failure on the part of the appellant to disclose fully and truly all material facts. b) The appellant respectfully submits that the AO initiated reassessment proceedings on the basis of suspicion, conjectures and surmises, without any concrete material or evidence to support the same and also without satisfying himself about reliability of the investigation report received by him from the Director of Investigation, Kolkata and applicability of the same to the facts in the case of the appellant. c) The appellant, therefore, prays that the very basis of initiating the reassessment proceedings, being vague and unreliable, the said proceedings be held as void ab initio and order passed pursuant thereto be quashed as bad in law.

GROUND NO. 2 - AGAINST DENIAL OF S. 10 (38) EXEMPTION FOR LONG-TERM CAPITAL GAINS OF Rs.5,93,45,030/- FROM SALE OF QUOTED SHARES OF JMD TELEFILMS LIMITED

a) The CIT (A) has erred in confirming denial of exemption under Section 10(38) of the Act claimed by the appellant, though all the conditions stated in that section are satisfied, by alleging "bogus and manipulated" share prices without leading any evidence in support of such assumption and/or suspicion. b) The appellant humbly submits that the transactions of investment in the shares of JMD Telefilms Limited were genuine and real ones, carried out on the recognised stock exchange and executed through proper and valid D'Mat Accounts. Therefore, there can be no doubt about genuineness of such transactions, much less on the basis of any vague and general report. c) The appellant prays that since the capital gain had arisen from sale of the shares in which the appellant had actually invested and the transactions were supported by various third party evidences, it can by no stretch of imagination be regarded as bogus or manipulated and since all the conditions of section 10 (38) of the Act are satisfied, the capital gain of Rs.5,93,45,030/- earned from such sale be held as eligible for exemption under that section. GROUND NO. 3 - AGAINST ADDITION OF Rs. 6,06,49,780/- UNDER SECTION 68 OF THE ACT RELATING TO PROCEEDS FROM SALE OF SHARES IN JMD TELEFILMS LIMITED

a) The CIT (A) has erred in confirming the addition made by the AO for the entire amount of proceeds received by the appellant from sale of shares in JMD Telefilms Limited as unexplained cash credit under Section 68 of the Act. b) The appellant vehemently submits that the addition under Section 68 can be made only if the appellant offers no explanation or the explanation offered by him is not satisfactory. The view taken by the AO is purely based on suspicion, conjecture and surmises, which is not supported by any concrete evidence and without proper appreciation of the explanation offered by the appellant. c) The appellant, therefore, prays that the addition of Rs. 6,06,49,780/- for the proceeds received on sale of shares in JMD Telefilms Limited be deleted, as the same are properly explained and the assumption of the AO is not sustainable on facts and in law.

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GROUND NO. 4 SECTION 69C OF THE ACT IN RESPECT OF ALLEGED "COMMISSION PAID" FOR SALE OF THE SHARES IN JMD TELEFILMS LIMITED a) The CIT (A) has erred in disallowing Rs. 36,38,987/- as alleged commission for sale of shares in JMD Telefilms Limited, though no such commission is actually paid by the appellant nor has he claimed any such deduction. b) The appellant very respectfully submits that the AO has disallowed an "imaginary commission payment" for sale of the shares based on suspicion, conjectures and surmises. The sale transactions were carried out by the appellant through Motilal Oswal Securities Limited, the well-known broker registered with recognised stock exchanges and their brokerage/commission is duly charged in their bills which fact is totally ignored. The appellant has not paid any other amount to them or any other party as alleged. Since there is no valid basis or concrete evidence for his assumption about payment of commission for sale of the said shares, such disallowance is not sustainable - on facts and in law. c) In the above background, the appellant prays that the disallowance of Rs.36,38,987/- as the imaginary expenditure (by way of commission for sale of the shares in JMD Telefilms Limited), which is neither paid nor claimed by the appellant, be deleted.

GROUND NO. 5 - AGAINST LEVY OF INTEREST OF Rs.1,60,35,802/- UNDER SECTION 234B OF THE ACT a) The CIT (A) has erred in confirming interest charged under Section 234B of the Act. b) The appellant politely submits that the denial of exemption under Section 10(38) of the Act and additions made by the AO and sustained by the CIT (A) could never have been imagined or predicted by the appellant. Hence, the appellant could not have made payment of advance tax with reference to those amounts. c) The appellant further submits that commission, if paid, would have been subject to deduction of income-tax at source under Section 194H of the Act and, consequently, the tax relevant to that amount cannot constitute default in payment of advance tax. Therefore, interest under Section 234B on the amount of tax relevant to that amount cannot be levied. d) Further, the appellant is confident that the issues taken up by him in this appeal will be decided in his favour. In that case there will not be any default in payment of advance tax on his part. Consequently, there will be no case for levy of interest under section 234B of the Act. e) The appellant, therefore, prays that since the appellant has not defaulted in payment of advance tax, which has to be paid on the estimated "current income" as contemplated in section 209 of the Act {such denial of exemption and additions/disallowances, being not possible to estimate when the advance tax was payable), the charge of interest under section 234B, charged by the AO, be kindly deleted.” 2. Briefly stated, the assessee had filed his return of income for A.Y 2011-12 on 30.01.2012, declaring an income of Rs.41,17,920/-. The return of income filed by the assessee was processed

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as such u/s 143(1) of the Act. Subsequently, on the basis of information gathered by the A.O that the investigations undertaken by the Directorate of Investigation, Kolkata, inter alia, revealed that the assessee, viz. Shri Kamalesh N. Gupta as a beneficiary had obtained bogus entries of Long Term Capital Gain (LTCG) of a scrip viz. M/s JMD Telefilms Industries Ltd., a penny stock company, the case of the assessee was reopened u/s 147 of the Act. Notice u/s 148 was issued by the A.O on 31.03.2017. In response, the assessee vide his letter dated 25.04.2017 stated that his original return of income filed on 30.01.2012 may be treated as a return filed in response to the aforementioned notice issued u/s 148 of the Act. As requested by the assessee, the A.O vide his letter dated 30.05.2017 made available to him the copy of the „reasons to believe‟ on the basis of which his case was reopened u/s 147 of the Act. Objecting to the validity of the jurisdiction assumed by the A.O for reopening of his case the assessee vide a letter dated 16.06.2017 filed his objections. However, the A.O not finding favour with the objections raised by the assessee qua the validity of the reassessment proceedings dismissed the same vide his letter dated 05.07.2017.

Name of security Oty Date of Purchase Date of Qty Sales LTCG purchase amount sales amount JMD Telefilms Inds. Ltd. 35000 26.02.09 59500 01.04.10 35000 2280950 2221450 (Avtar Finance) JMD Telefilms Inds. Ltd. 60000 26.02.09 102000 06.04.20 6000 3695400 3593400 (Avtar Finance) JMD Telefilms Inds. Ltd. 50000 26.02.09 85000 21.04.10 50000 2487500 2402500 (Avtar Finance) JMD Telefilms Inds. Ltd. 110000 26.02.09 187000 20.05.10 110000 9845000 9658000 (Avtar Finance) JMD Telefilms Inds. Ltd. 120000 26.02.09 204000 25.05.10 120000 10650000 10446000 (Avtar Finance) JMD Telefilms Inds. Ltd. 54376 26.02.09 92439 03.06.10 35000 3586800 3527300 (Avtar Finance) JMD Telefilms Inds. Ltd. 35000 26.02.09 59500 08.06.10 35000 3586800 3527300 (Avtar Finance) JMD Telefilms Inds. Ltd. 20000 26.02.09 34000 12.06.10 20000 2089400 2055400 (Avtar Finance) JMD Telefilms Inds. Ltd. 15000 26.02.09 25500 14.06.10 15000 1673100 1647600 (Avtar Finance) JMD Telefilms Inds. Ltd. 10 26.02.09 17 21.06.10 10 1185 1168 (Avtar Finance) JMD Telefilms Inds. Ltd. 41490 26.02.09 70533 22.06.10 41490 4976726 4906193 (Avtar Finance)

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JMD Telefilms Inds. Ltd. 37000 26.02.09 62900 09.07.10 37000 4449250 4386350 (Avtar Finance) JMD Telefilms Inds. Ltd. 100000 26.02.09 170000 21.10.10 100000 5089000 4919000 (Avtar Finance) JMD Telefilms Inds. Ltd. 89624 26.02.09 152361 22.10.10 89624 4397260 4244899 (Avtar Finance) Total 767500 1304750 767500 60649780 59345030

The A.O vide his notice issued u/s 142(1), dated 13.09.2017 called for certain details w.r.t the LTCG on sale of shares of M/s JMD Telefilms Industries Ltd. that was claimed by the assessee as exempt u/s 10(38) of the Act. Also, notices u/s 133(6), dated 02.11.2017 were issued by the A.O to the so called exit providers i.e the parties who had purchased the scrip of M/s JMD Telefilms Industries Ltd. from the assessee through broker on the floor of BSE, details as regards which a/w the compliance effected by the said respective parties is culled out as under:

Sr. No. Name of the Parties Remarks 1. M/s BP Fintrade P. Ltd. Reply received on 10.11.2017 stated therein that “We had been dealing through BP Equities P. Ltd.” 2. Shri Dipak Kumar Agarwal Reply received on 09.11.2017 stated therein that “I do not have any transaction with Shri Kamlesh N. Gupta in shares/securities or otherwise before, during and after A.Y. 2011-12” 3. M/s Navdurga Investment Reply received on 04.12.2017 stated therein that Consultants P. ltd. “Purchased from the stock exchange and no such purchases were made on personal level. No transaction of any sort or means has been carried out with the said individual in respect of whom the notice is sent to us therefore the said point is not applicable to us.” 4. M/s North Eastern Publishing Served on the party but till the finalization of the & Advertising Co. Ltd. assessment reply was not filed. 5. Harsh Dhanuka (HUF) Served on the party but till the finalization of the assessment reply was not filed. 6. M/s Zodiac Commotrade P. Sent through Postal authorities and same were returned Ltd. back remarked as “Left”. 7. M/s Neelanchal Mercantile P. Sent through Postal authorities and same were returned Ltd. back remarked as “Not Known”. 8. M/s Ranisati Dealer P. ltd. Sent through Postal authorities and same were returned back remarked as “Not Known”. 9. M/s Runicha Construction Co. Sent through Postal authorities and same were returned P. Ltd. back remarked as “Left”.

Further, the A.O issued summons u/s 131 of the Act for personal attendance of two of the aforementioned exist providers, viz. (i). M/s Runicha Contructions Co. P. Ltd; and (ii). M/s BP Fintrade P. Ltd., which were complied with by the said parties as under:

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Sr. No. Name of the Persons Remarks 1. M/s Runicha Construction Co. P. Ltd. Called for personal attendance on 11.12.2017 and produce the documents and sent through postal authorities and same were returned back remarked as “Left”. 2. M/s BP Fintrade P. Ltd. Called for personal attendance on 11.12.2017 and produce the documents but reply received on 22.12.2017 stated therein that “We reiterate that the said Kamlesh Gupta is not known to us and we have never dealt with him ever.”

Also the A.O summoned the assessee u/s 131 of the Act and recorded his statement on 18.12.2017.

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30.03.2015. Backed by the aforesaid facts, the A.O after carrying out an analysis of the scrip in question, viz. M/s JMD Telefilms Industries Ltd., therein observed that the market price of its share which was Rs.7.93 in October, 2008 was jacked up to Rs.145 in 8 months i.e till June, 2009. It was noticed by the A.O that within a time span of 16 months the price of the share of the aforementioned company in question was jacked up nearly 19 times. As observed by the A.O, the price of the share was thereafter maintained in the range of Rs. 62 to Rs.145, which as per him was with a purpose that the interested beneficiaries were able to book the LTCG on sale of the shares held by them. Thereafter, as noticed by the A.O, the price of the share of the aforementioned company was made to fall freely so that the interested beneficiaries who had purchased at a high market price could avail bogus Short Term Capital Loss. It was observed by the A.O that the price of the shares had thereafter gone down to merely Rs.7.50/-. It was inferred by the A.O that in the course of the aforesaid exercise the LTCG beneficiary would pay cash to exit entry provider or a person who wants to book a loss and in return would get a cheque. The A.O was of the view that the operator would thereafter take his commission qua the aforesaid accommodation entry in cash. Also, he was of the view that thereafter as price of the share would crash the loss taking beneficiary would sell his holding that was purchased at a high value for a small price which would result in an artificial loss. In order to fortify his conviction that the price of the scrip in question viz. JMD Telefilms Industries Ltd. was artificially rigged to facilitate provision of bogus LTCG/STCL the A.O referred to the financials of the assessee company as were gathered by him from the data available in the public domain, as under:

F.Y. Share Gross Expenses PAT Earnings Per capital Turnover Share 2009-10 7.01 84.65 84.34 1.55 0.22 2010-11 7.21 99.79 99.99 2.86 0.40 2011-12 7.21 248.39 247.15 1.87 0.26 2012-13 7.21 249.73 250.09 0.71 0.10 2013-14 7.21 381.97 382.06 0.68 0.95 2014-15 14.43 802.79 501.80 0.84 0.06

In the backdrop of the aforesaid „net worth‟ of the assessee company which as per the A.O was negligible, it was therein inferred by him that the share prices had been artificially rigged by the group of the operators to accommodate beneficiaries seeking LTCG and STCL. It was observed by

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the A.O that no prudent businessman and particularly a trader who was investing in stock would have invested in the scrip of such a company which was defunct and inoperative. Further, the A.O referred to certain infirmities which had emerged from the statement of the assessee that was recorded u/s 131 of the Act on 18.12.2017, viz. that the assessee had no understanding of the company in which he had claimed to have made the investment; that the assessee had never in the past invested as a preferential share allottee; that the assessee did not understand the meaning of preferential allotment and stock split; that the assessee had invested only in a few shares besides M/s JMD Telefilms Industries Ltd and; that the gains claimed by the assessee to have earned from the purchase/sale of shares of M/s JMD Telefilms Industries Ltd. were abnormal. Backed by his aforesaid deliberations, the A.O was of the view that the LTCG shown by the assessee in his return of Income from sale of shares of M/s JMD Venture Ltd. was a result of a pre- arranged method that was employed by him in connivance with the operators/brokers/promoters etc. with the sole intent to evade taxes. The A.O in order to substantiate his aforesaid conviction culled out the reasons for stamping the purchase/sale of shares of M/s JMC Ventures Ltd. as an artificially arranged transaction which was carried out by him in connivance with operators/brokers/promoters etc to evade taxes, as under :

“a. Mode of acquisition of share: Assessee had purchased 100000 equity shares on preferential basis of M/s JMD Telefilms Industries Ltd. for sRs.17,00,000/- on 26.02.2009. This was an off-market transaction and these shares were later dematerialized. Owing to share split, the number of shares with assessee swelled to 10,00,000 on 13.07.2009. Subsequently, the assessee sold 767500 of these shares on BSE through broker in F.Y. 2010-11. b. Sale of shares and unusual rise in the price: Further the assessee has sold 767500 shares for sale consideration of Rs.6,06,49,780/- which is 4543% gain and as discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: The findings of the Directorate of Investigation as discussed above have proved that several share brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of operators by routing the cash, shares were sold at high price to arrive at tax free capital gains.

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d. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a view to evade taxes:- i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators. ii. The assessee resorted to a preconceived scheme to procure long-term capital gains by way of price difference in share transactions not supported by market factors. iii. Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bonafide and, hence, impugned long term capital gain is not allowable. e. Failure of Assessee to discharge his onus: The assessee has not been able to explain the unusual rise and fall of share prices to be natural and based on the market forces. It is evident that such share transactions were closed circuit transactions and clearly structured one. f. Ignorance of the assessee about shares and penny stock companies: Assessee has failed to show of having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies. g. Financial analysis of the penny stock companies: The net worth of the penny stock company is negligible. Even though the net worth of the company and the business activity of the company is negligible the share prices have been artificially rigged to unusual high.”

Observing, that considering the findings of the search/survey inquiries conducted in the case of assessee, broker/operators and the entry providers a/w the nature of transaction entered into by the assessee, the A.O was of the view that the LTCG of Rs. 5,93,45,030/- that was claimed by the assessee as exempt u/s 10(38) of the Act did not merit acceptance. Backed by his aforesaid observations, the A.O held the sale proceeds of shares of Rs. 6,06,49,780/- as an unexplained cash credit u/s 68 of the Act. Also, the A.O holding a conviction that the assessee would have paid commission for facilitating the aforesaid transaction of bogus LTCG, thus, made a further addition of Rs.36,38,987/- i.e @6% of the impugned sale proceeds of Rs.6,06,49,780/-. Accordingly, the AO vide his order passed u/s 143(3) r.w.s 147, dated 27.12.2017 assessed the income of the assessee at Rs.6,84,06,690/-.

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“10 Decision:

I have considered the facts of the case and submissions made by the appellant. Crux of the matter taken up in the ground of appeal no. 5 to 18 is whether the amount of long term capital gains of Rs.6,06,49,780/- claimed as exempt under Section 10(38) of the Act I. T. Act, 1961 are taxable as unexplained cash credits u/s 68 of the I.T. Act, 1961 and a sum of Rs.36,38,987/- is taxable as unexplained commission u/s 69C of the I.T. Act, 1961 or not in facts of the case and in law. It appears from the records that assessee became owner of 1700000 equity shares of JMD Telefilms by subscription and by splitting up of shares by the company form F.Y. 2009 onwards as follows:

Documentation in support of the transaction undertaken:

Event Date Back up document Annexure a) 1,00,000 equity shares of JMD Telefilms Ltd. 26.02.2009 1) share application form along 1 (JMD) Rs.10/- each at premium of Rs.7/- per with copy of cheque payment shares total consideration of Rs.17,00,000/- and bank statement; (1,00,000 shares + Rs.17/-) purchased asa 2) Share allotment letter preferential allotment in physical form 3) share certificate b) 1,00,000 shares were converted into demat 30.06.2009 Extracts of transaction 2(i) form via Motilal Oswal Securities. statement c) The said shares were split in the ratio of 10:1 13.07.2009 Extracts of transaction 2(ii) and hence total number of shares were then statement 10,00,000 d) Out of the above 10,00,000 shares 1,32,500 March 2010 1) Contract notes for 2(iii) shars wee sold on which long term capital gain relevant shares sold. (LTCG) of Rs.1,08,60,974 was earned which was 2) Transaction exempt under Sec. 10(38) of the Act. statement (extracts) from broker. 3) Copy of bank statement reflecting payment received from against sale of such shares e) Out of balance shares 8,67,500 shares 21.10.2010 4) - - 1,00,000 shares were transferred to his spous Mridulla Gupta (MG) (during financial year 2010- 11) through an unregistered gift deed. f) Balance 7,67,500 shares were sold during the June 1) Contract notes for the Refer financial year 2010-11 9assessment year 2011-12) October, relevant period. Annexure on which assessee has earned LTCG of 2010 2) Transaction 2(iii) Rs.5,93,15,038/- which was exempt under Sec. statement for the said 10(38) of the Act. period

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10.2 Analysis of the purchase and sale of shares reveals that th eassessee upplied for the shares in January 2009, paid for the shares and wsa issued shares in February 2009 and dematted the same in June/July 2009. Assessee started selling his shareholding from March 2010 and initially sold 132500 shares in march 2010, transferred 100000 shares to his wife Mrudula Gupta on 31 October 2010 and sold of the balance 767500 shareds from April 2010 to October 2010 and claims to have earned sale proceeds of Rs.6,06,49,780/- and derived profits of Rs.5,93,45,030/- which were claimed as exempt under Sec. 10(38) of the I.T. Act. 1961. 10.3 Assessee company and its CAs were specifically informed to file details and documents relating to the bank account copies and copies of utilization of funds, however, the CAs have not filed details and documents, especially copies of bank accounts for the entire financial year 2010-11 relevant to AY 2011-12, however these are not filed till date. 10.4 It appears from the details of share trading account that assessee traded and/or invested in shares of Justdial Company in 2014, that is, two and a half years after the last transaction in the share of JMD Telefilms Limited in October 2010. 10.5 Assessee has not revealed the user of the funds derived from the sale of shares of JMD Telefilms Limited. 10.6 Prima facie it would appear that the share market prices were going up in the shares of JMD Telefilms Limited for persons like the assessee and others who were lucky and fortunate enough to visualise the potential in shares of JMD Telefilms Limited which started going up from March 2010 and collapsed in October 2010 to its original levels, Assessee is a director of several West Coast Group Companies and invested in JMD Telefilms Ltd, Moreover it also appears that ' assessee did not invest his surplus funds during FY 2009-10 relevant to AY 2010-11 in any of the companies in which he was a director but only in this specific company whose antecedents were not even known to him. It is claimed and seen that, assessee and his family members have always invested in the West Group Of Companies and/or in Private Limited Companies promoted by the West Coast Group Companies and/or by the three family members, namely himself, his wife and his son1 and this policy has continued even after these so called transactions in purchase and sale of shares of JMD Telefilms Limited by the assessee. It appears from the records and internet that assessee and his family members were/are directors of nearly 17 public limited and private limited companies, either promoted by them and/or promoted by their relatives as on the date of this appellate order. Thus this investment of Rs.17 lakhs made in January/February/March 2009 appears to be an aberration where assessee appears to have derived phenomenally abnormal profits by selling share at average prices of 3800% higher than the purchase price within a period of nearly one to one and a half year. Assessee does not appear to have derived such abnormal profits in any of the other investments and in/from any of its West Coast Group / Private Companies till date except in AY 2010-11 and during AY 2011-12. 10.7 Prima facie it appears that assessee wanted funds in bank accounts for either investing in shares of other companies and/or in investing in immoveable properties and/or for some other purposes from March 2010 onwards till October 2010 and hence went ahead with this plan jointly with persons like Purohits and/or others persons/ companies to derive the benefit of availing of claiming tax exemption for long term

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capital gains u/s. 10 (38) of the I.T. Act, 1961 and executed it with finesse and hence converted his unexplained income as 'long term capital gains through so called share market operations in shares of JMD Telefilms Limited and claimed tax exemption u/s. 10 (38) of the l.T. Act, 1961. Assessee does not appear to have derived such benefits in later and/or earlier assessment years. This is further confirmed by the statements of the Purohits, the directors and persons associated with the JMD Telefilms limited and the investigations made by the investigation wing of the income tax department at Kolkata. In nutshell, the entire profits of Rs.5,93,45,030/- derived from the so called sale of JMD Telefilms Limited were derived from bogus and manipulated share prices and were nothing but unexplained investments/income of the assessee which was converted under the garb of share market investments and purchase/sale and hence the profits of Rs. 5,93,45,030/-were correctly and legally taxed as income u/s.68 of the l.T. Act, 1961. Assessee does not have any case in this regard and hence its appeals from grounds of appeal no. 5 TO 18 are dismissed. Similarly, all such transactions must have been executed at a cost and hence the addition of Rs. 36,38,987/- at the rate of 6% of Rs. Sale price of Rs.6,06,49,780/- u/s, 69C of the l.T. Act, 1961 are also confirmed and assessee's appeal is dismissed on this count as well. 10.8 It is noteworthy to rely on the following judicial pronouncements to decide on the assessee's involvement in the scam of bogus LTCG unearthed by the Kolkata Investigation Wing. Ratnakar M Pujar Vs ITO [ITAT Mumbai] ITA No. 995/Mum/2012 dated 03.08.2016. The assessee has purchased 4000 shares of M/s. Shiv Om Investments on 11th May, 2004 for a consideration of Rs.4,080/- and out of the same, 1000 shares were sold on 16lh May, 2006 and 2500 shares were sold on 27th January, 2006 for a total consideration of Rs.6,89,750/- and claimed exemption u/s 10 (38). The AO denied the exemption. The ITAT upheld the decision. Usha Chandresh Shah Vs. ITO [Mumbai ITAT] IT. A. No.6858/Mum/2011 dated 26.09.2014. The assessee purchased shares of Rs.5.1/- each and sold for Rs.279.57- each. The AO could not verify the purchase transactions as the notice issued to the person from whom the shares are purchased by the assessee returned unserved. The ITAT held that the test of human probabilities was applied to reject the claim of profit realized on sale of penny stocks. 10.9 Bombay High Court in the case of Sanjay Bimalchand Jain Vs. Pr.CIT [ITA 18/2017] recently held; "The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs.5 had jumped to Rs.485 in no time. The fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise. The assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s. 68". 10.10 In view of the facts mentioned above and also the case laws cited above, the additions of Rs.5,93,45,030/- made by the AO u/s.68 and Rs.36,38,987/- u/s.69C are confirmed and the grounds of appeal of the appellant no. 5 to 18 are dismissed.”

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“2. The Directorate of Investigation, Kolkata, has undertaken an in-depth investigation into the accommodation entry activity that has taken place in Long Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on a larger scale. As a result, numerous beneficiaries of bogus transactions have been identified who have altogether availed the benefit of huge value of bogus entries of LTCG/STCL. In the investigations carried out by the Investigation Directorates, the approach was to target the individuals and thereafter identify the penny stocks and eventual beneficiaries. This method yielded substantial results and penny stocks were identified. The data which was procured during the course of Search and Survey action conducted on various penny stocks at several locations all over the country has been processed painstakingly and it was found that the entry operators pre-arranged the bogus LTCG to evade tax for various beneficiaries. During the course of such search and survey, the operators of the penny stocks companies are found to have devised a modus operand to reap the bogus LTCG to evade tax. 3. All such data related to bogus LTCG/STCL and its beneficiaries have been uploaded by the Directorate of Systems. From a perusal of the same, it is noticed that the name of assessee KAMLESH NEMICHAND GUPTA figures in this data. Further, a company, namely M/s JMD Telefilm, is declared to be a scrip in which bogus trade was carried out for availing bogus LTCG/STCL.The transactions shown against the assessee in the same data are that the assessee has sold the shares of M/s JMD Telefilm. During the assessment year under consideration, the assessee has sold the shares of M/s JMD Telefilm. During the assessment year under consideration, the assessee has sold the shares of M/s JMD Telefilm. During the assessment year under consideration, the assessee has sold the shares of aforesaid scrip amounting to Rs. 6,09,55,512/- and claimed Long Term Capital Gain amounting to Rs. 5,95,15,091/- in his return of income for A.Y 2011-12. M/s JMD Telefilm is scrip listed on BSE/NSE and was established that

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the same is a „Penny Stock‟ and was used for artificial trading. This finding has been given by the Investigation Directorate after recording statements of various persons like promoters/operators/brokers connected with transactions of this scrip at various places located across India. 4. Taking into consideration the investigation done by the Investigation wing of Income-tax department and in depth analysis of data by undersigned, I believe that KMLESH NEMICHAND GUPTA has availed bogus entry of long term capital gain through unfair means. 5. In view of the above facts, I have reason to believe that the income of at least Rs. 5,95,15,091/- chargeable to tax has escaped assessment for A.Y 2011-12 by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year and it is fit case for issuing notice u/s 148 of the Income Tax Act, 1961.” Before us, the ld. Authorized Representative (for short “A.R”) for the assessee has assailed the validity of the jurisdiction assumed by the A.O for reopening the case of the assessee on two fold reasons, viz. (i) that the case of the assessee had been reopened on the basis of borrowed satisfaction of the Directorate of Investigation, Kolkata; and (ii). that the reassessment proceedings had been initiated on the basis of suspicion, conjectures and surmises, without there being any concrete material or evidence to support the same. Per contra, it is the claim of the ld. Departmental Representative (for short “D.R”) that as the A.O had after duly applying his mind to the information pertaining to bogus LTCG/STCL as was uploaded by the Directorate of Systems arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment, therefore, no infirmity emerges from the assumption of jurisdiction for reopening of the assessee‟s case by the A.O. Ld. D.R in order to drive home his aforesaid claim took us through the „reasons to believe‟ on the basis of which the case of the assessee was reopened by the A.O u/s 147 of the Act.

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uploaded by the Directorate of Systems (wherein the assessee‟s name had figured as one of the beneficiaries) and, arriving at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. Insofar the claim of the ld. A.R that the case of the assessee had been reopened on the basis of a „borrowed satisfaction‟, we find the same to be devoid and bereft of any substance. On a perusal of the „reasons to believe‟, we find that the A.O after referring to the information pertaining to bogus LTCG/STCL that was uploaded by the Directorate of Systems, which in turn was based on the in-depth investigations carried out by the Directorate of Investigation, Kolkata, had observed, that the name of the assessee figured as one of the beneficiary of the bogus LTCG/STCL. Backed by the aforesaid information and analyzing the data, we find that the A.O had arrived at a bonafide belief that at least the LTCG of Rs. 5,95,15,091/- which the assessee in his return of income had claimed to have earned from sale of shares of M/s JMD Telefilm Industries Ltd., had escaped assessment, by reason of the failure on his part to disclose fully and truly all material facts necessary for assessment. In the backdrop of the aforesaid factual position, we are unable to comprehend as to on what basis it is claimed by the ld. A.R that that A.O had reopened the case of the assessee on the basis of a borrowed satisfaction and/or on the basis of suspicion, conjectures and surmises, de hors any concrete material. As observed by us hereinabove, the A.O had before him sufficient material/information on the basis of which he had arrived at a bonafide belief that the income of the assessee chargeable to tax had escaped assessment. We may herein observe that at the stage of reopening of a case u/s 147 of the Act, the A.O is only required to have a cause or justification to know or suppose that income of the assessee chargeable to tax had escaped assessment and, no obligation is cast upon him to have finally ascertained the said fact by legal evidence or conclusion. Our aforesaid view is as per the mandate of the judgment of the Hon‟ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500, wherein the Hon‟ble Court had observed as under :

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ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. vs. ITO (1991) 98 CTR (SC) 161 : (1991) 191 ITR 662 (SC), for initiation of action under s. 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction [see ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996) 217 ITR 597 (SC); Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC)]”.

On the basis of the facts of the case before us read a/w the settled position of law, we are of the considered view that the A.O had validly assumed jurisdiction u/s 147 of the Act and reopened the case of the assessee. We, thus, finding no infirmity in the validity of the jurisdiction assumed by the A.O for reopening the case of the assessee u/s 147 of the Act, uphold the same. The Ground of appeal No. 1 is dismissed.

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Information was gathered by the A.O from the data related to bogus LTCG/STCL that was uploaded by the Directorate of Systems, which in turn was based on the in-depth investigations as regards accommodation entry activities qua bogus LTCG/STCL carried out by the Directorate of Investigation, Kolkata, wherein the name of the assessee is stated to have figured as a beneficiary of such bogus transactions. Backed by the aforesaid information the case of the assessee was reopened by the A.O u/s 147 of the Act. After deliberating at length on the facts of the case, the A.O in the course of the reassessment proceedings dubbed the assessee‟s claim of LTCG as an accommodation entry and added the entire sale consideration of Rs. 6,06,49,780/- as an unexplained credit u/s 68 of the Act. Also, the A.O made a further addition u/s 69C of Rs. 36,38,987/- i.e @6% of the amount of the sale proceeds of shares towards unaccounted commission which as per him the assessee would have paid for obtaining the aforesaid accommodation entry. Accordingly, the A.O vide his order u/s 143(3) r.w.s 147, dated 27.12.2017 assessed the income of the assessee at Rs. 6,84,06,690/-.

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said notices and either declined of having carried out any transaction with the assessee ; or stated that they had purchased the shares from the stock exchange and had not made any purchase on any personal level from the assessee. The replies furnished by the aforementioned three parties in compliance to notices issued to them u/s 133(6), read as under :

Sr. No. Name of the Parties Remarks 1. M/s BP Fintrade P. Ltd. Reply received on 10.11.2017 stated therein that “We had been dealing through BP Equities P. Ltd.” 2. Shri Dipak Kumar Agarwal Reply received on 09.11.2017 stated therein that “I do not have any transaction with Shri Kamlesh N. Gupta in shares/securities or otherwise before, during and after A.Y. 2011-12” 3. M/s Navdurga Investment Reply received on 04.12.2017 stated therein that Consultants P. ltd. “Purchased from the stock exchange and no such purchases were made on personal level. No transaction of any sort or means has been carried out with the said individual in respect of whom the notice is sent to us therefore the said point is not applicable to us.”

The A.O further issued summons u/s 131 of the Act to two of the aforementioned parties who had purchased the scrip of M/s JMD Telefilms Industries Ltd. from the assessee, viz. (i). M/s Runicha Construction Co. P. Ltd; and (ii). M/s BP Fintrade P. Ltd. Although, the notice u/s 133(6) sent to M/s Runicha Construction P. Ltd. was as in the past returned unserved, however, the other party, viz. M/s BP Fintrade P. Ltd. vide its reply dated 22.12.2017 reiterated that the assessee was not known to it and it had never dealt with him ever. In fact, to the extent information was gathered by the A.O from some of the purchasers of the scrip of M/s JMD Telefilms Industries Ltd., the same revealed that they had purchased the aforesaid shares from the stock exchange and had no link with the assessee. In the backdrop of the aforesaid facts, we find, that it remains as a matter of fact borne from the record that the A.O had failed to establish any nexus between the aforementioned parties who through their broker had purchased the scrip of M/s JMD Telefilms Industries Ltd. from the assessee on the floor of BSE. Although the A.O while referring to the modus operandi that was adopted by the entry providers for providing bogus LTCG/STCL, had observed, that a LTCG beneficiary pays cash to an exit entry provider or a person who wants to book a loss and in return gets the cheque and, as prices crash, the loss taking beneficiary sells these shares bought at high value for small value resulting in artificial loss, but then, as observed

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by us at length hereinabove, he had failed to establish any nexus between the assessee and the parties who had purchased the shares from the assessee through a broker on the floor of BSE, which allegedly as per the A.O were exit providers or loss taking beneficiaries. In sum and substance, as the A.O had failed to prove that the assessee was a part of a chain, wherein he as a beneficiary had obtained an entry of bogus LTCG, while for the party who had purchased the shares from him was either a loss taking beneficiary or an exit provider, therefore, the very foundation of his allegation that the assessee as a beneficiary had obtained bogus LTCG does not hold ground.

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(A) Shri. Pravin Kumar Aggarwal : Statement of Shri. Pravin Kumar Aggarwal, stated by the A.O to be an entry operator, was recorded in the course of the survey proceedings conducted u/s 133A of the Act. It was admitted by him that he in lieu of commission was engaged in providing bogus share capital, bogus billing, bogus sub-contract, bogus commission, accommodation entries, purchase and sale of un-quoted shares .

(B). Shri. Dhruv Narayan Jha : Statement of Shri. Dhruv Narayan Jha, Promoter of JMD Telefilms Industries Ltd. was recorded by the DDIT(Inv.), Kolkata on two occasions on 21.01.2015, viz. (i). In the course of survey conducted u/s 133A on M/s Warner Multimedia Ltd, Kolkata; and (ii). In the course of the survey conducted u/s 133A on M/s Blue Circle Services Ltd. It was stated by him that he was working as an accountant with the group companies of B.C Purohit & Company which were controlled and managed by S/sh. Jagdish Prasad Purohit & Sushil Kumar Purohit and was in receipt of salary of Rs. 15,000/- p.m from M/s Warner Multimedia Ltd., a company in which he was a director. It was further stated by him that he was as per the directions of Shri. Jagdish Purohit made a dummy director in M/s Warner Multimedia Ltd. and also many other companies. On being queried as regards the use of his e-mail id for filing of the returns in ROC/Income-tax department of 259 companies (including JMD Telefilms Industries Ltd.), he had stated that the same was done as he was working as an employee with the group companies of S/shri. Jagdish Purohit & Sushil Purohit.

(C). Shri. Kailash Prasad Purohit : Statement of Shri. Kailash Prasad Purohit, Director of JMD Telefilms Industries Ltd. was recorded in the course of the search proceedings u/s 132(4) of the Act on 21.01.2015. It was stated by him that he was director in 22 companies (including JMD Telefilms Industries Ltd). It was further stated by him that he was looking after the audio/video CD & DVD business of JMD Telefilms Industries Ltd. In fact, it was stated by him that except for financial activities he was looking after the other business activities of JMD Telefilms Industries Ltd. On being queried as regards the modus operandi that was adopted for providing accommodation entries a/w the beneficiary companies to

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whom the same were provided, he refrained from answering the same and stated that the same would be explained by Shri. Jagdish Purohit.

(D). Shri. Anuj Aggarwal : Statement of Shri. Anuj Aggarwal, broker, was recorded u/s 131 of the Act on 21.03.2015 by the DDIT(Inv.), Kolkata during the course of the survey conducted u/s 133A on certain concerns, viz. M/s Korp Securities Ltd.; M/s Divyadrishti Traders Pvt. Ltd; and M/s Divyadrishti Merchants Pvt. Ltd. It was stated by him that he was engaged in the business of share trading & share broking through Korp Securities Ltd. On being queried as regards the nature of the business activities carried out by the companies in which he was a director, viz. Korp Securities Ltd; Asteroids Infra LLP; and Silky Moon Infra LLP, it was stated by him that while for Korp Securities Ltd. was a share trading company, no actual business was being carried out by the other companies which were created for the sole purpose of providing accommodation entries in form of LTCG to various beneficiaries. On being further queried about the names of the listed companies/scrips in which he was providing accommodation entries of LTCG, he gave names of 20 companies which also included the name of JMD Telefilms Industries Ltd.

On a perusal of the aforesaid statements of the abovementioned promoters/broker/entry operator a common aspect that emerges therefrom, as stated by the ld. A.R, and rightly so, is that neither of them had at any stage ever alleged that the assessee, viz. Shri. Kamlesh Nemichand Gupta had taken any accommodation entry of bogus LTCG. In fact, the name of the assessee had not even figured at all in the statements of either of the aforementioned persons. In the backdrop of the aforesaid facts, we are of the considered view that the specific observation of the A.O recorded in the assessment order, i.e “the findings of the Directorate of Investigation, Kolkata, proved that several share brokers, entry operators and the assessee had worked out an arrangement as per which shares were acquired by the assessee, the share prices were rigged and then with the help of operators by routing the cash the shares were sold at a high price to arrive at tax free capital gains” remain seriously unproved and is nothing less than an allegation raised in the thin air. Alternatively, we may herein observe, that insofar the statements of Shri. Anuj Agarwal (supra) and Shri. Jagdish Purohit, promoter (though retracted on 30.01.2015), are concerned, wherein they had

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stated that JMD Telefilms Industries Ltd. was used for providing accommodation entries to the beneficiaries, we find substance in the contention of the ld. A.R that as the said respective statements were recorded in the year 2015 and there was no mention of the period when the said company was used for providing accommodation entries, therefore, no adverse inferences could safely be drawn as regards the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee which were purchased by him on 26/02/2009 under the SEBI approved process of preferential issue, at the rates arrived at a formula laid down by SEBI, and were thereafter sold by him way back between the period 01/04/2010 to 22/10/2010. Be that as it may, we may herein observe, that though nothing incriminating in context of the assessee emerges from the statements of the aforementioned persons, however, as stated by the ld. A.R, and rightly so, the said statements could not have been pressed into service by the A.O for drawing of adverse inferences against the assessee without confronting the same to him a/w affording of an opportunity to cross-examine the said persons. In this regard, it would be relevant and pertinent to point out that the assessee vide his letter dated 18.03.2020 (Page 71 of „APB‟) had specifically requested for full legible copies of the statements of all the 32 parties that were relied upon by the A.O. Our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC). In its aforesaid judgment, it was observed by the Hon‟ble Apex Court that not allowing the assessee to cross-examine witnesses by the Adjudicating Authority though statements of those witnesses were made as basis of the impugned order amounted to a serious flaw which rendered the impugned order nullity as it amounted to violation of principles of natural justice.

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the assessee vide account payee Cheque no. 168253, dated 15.01.2009 drawn on his Saving Bank A/c No. 06130100003249 with Bank of Baroad, Branch: Mittal Tower, Nariman Point, Mumbai in favour of JMD Telefilms Industries Ltd. Our attention was drawn by the ld. A.R to the copy of the share application form, copy of the bank account a/w the copy of the cheque vide which payment of the purchase consideration of the aforementioned shares was made. Also, the assessee had filed before the lower authorities the copy of the share allotment letter and share certificate as regards allotment of one lac shares bearing distinctive nos. 3214601 to 3314600. On 30.06.2009 the one lac shares were dematerailzed by the assessee via Motilal Oswal Securities. Thereafter, the aforesaid shares were split in the ratio of 10:1 and the assesee had 10 lac shares. Out of the 10 lac shares the assesee had in March, 2010 i.e in the period relevant to the immediately preceding year sold 1,32,500 shares and the LTCG arising on the same was claimed by him as exempt u/s 10(38) of the Act. On a specific query by the bench as regards the treatment given by the department to the LTCG on sale of 1,32,500 shares of JMD Telefilms Industries Ltd. by the assessee in the immediately preceding year i.e A.Y 2010-11, it was submitted by the ld. A.R that the department had on a similar footing declined the assessee‟s claim for exemption u/s 10(38) of the LTCG arising from the sale of shares during the said year and, had added the sale consideration of shares as an unexplained cash credit u/s 68 of the Act. It was submitted by the ld. A.R that the assessee had challenged the said assessment order and the same as on date is pending before the CIT(A). Out of the balance 8,67,500 shares the assessee had transferred 1,00,000 shares to his wife Mrs. Mridulla Gupta through an unregistered gift deed. The balance 7,67,500 shares were sold by the assessee during the year under consideration i.e over the period June, 2010 to October, 2010 and the LTCG of Rs. 5,93,15,038/- arising therefrom was claimed by him as exempt u/s 10(38) of the Act. Copies of the contract notes and the transaction report of Motilal Oswal Securities Ltd. evidencing the aforesaid transaction of sale of shares was filed by the assessee before the lower authorities. As regards the initial off-market purchase of one lac shares of JMD Telefims Industries Ltd. by the assessee, we may herein observe that an off-market transaction for purchase of shares is not illegal. As observed by us hereinabove, the purchase transaction of shares was carried out by the assessee vide account payee cheque and the sale of shares have suffered STT, service tax, total turnover tax, stamp duty charge etc. As is discernible

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from the orders of the lower authorities, we find that neither of them had dislodged the authenticity of the aforesaid documentary evidence that was filed by the assessee to support his claim of having carried out genuine transactions of purchase/sale of shares of JMD Telefilms Industries Ltd.

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same on a standalone basis in the absence of any material/evidence proving that the assessee had colluded with the promoters/brokers/operators for laundering his unaccounted money in the garb of tax exempt LTCG, cannot justify drawing of any adverse inferences as regards the transaction of purchase/sale of shares in question by the assessee. As is discernible from the assessment order, one of the major aspect that had weighed in the mind of the A.O for stamping the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee as a structured transaction with a purpose of facilitating tax evasion in the garb of a bogus claim of tax exempt capital gain u/s 10(38) of the Act and laundering of his ill-gotten money; was the fact that within a short span there was a steep rise in the price of shares of JMD Telefilms Industries Ltd., i.e by 19 times in 8 months i.e from Rs. 7.93 in October, 2008 to Rs. 145 in June, 2009, which trade pattern of the aforesaid company as per the A.O did not move along with the commercial principles and market factors; and the financials of the company also did not show any reason for the extraordinary performance of its stock. In our considered view, though the aforesaid data gathered by the A.O being based on the facts cannot be faulted on our part, but we are unable to persuade ourselves to concur with him that for the said reason the assessee is to be held to have evaded taxes and laundered his unaccounted money by booking a bogus claim of LTCG that is exempt u/s 10(38) of the Act. Although, the A.O had at length discussed in his order the information that was shared with him by the Investigation wing of Kolkata i.e the modus operandi adopted by beneficiaries with the help of entry operators to obtain tax free capital gains, however, we are afraid that nothing concrete has been brought on record which would prove to the hilt the falsity of the assessee‟s claim of having carried out genuine transactions of purchase/sale of shares under consideration, and therein prove that he in the garb of a bogus transaction had only procured a bogus entry of capital gain. On the contrary, we find that the assessee had duly substantiated the purchase of shares under consideration on the basis of supporting documentary evidence. Admittedly, the assessee had paid for the purchase consideration of the shares to the company, viz. JMD Telefilms Industries Ltd. through account payee cheque, and the said fact had duly been substantiated by him by placing on record the copy of the cheque a/w copy of his bank account reflecting the said transaction. Further, we find that the aforesaid one lac shares of JMD Telefilms Industries Ltd which were purchased by the assessee by way of a preferential allotment on the

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basis of an off-line transaction were thereafter dematerialized by him on 30.06.2009 via Motilal Oswal Securities Limited and were thus credited in the said account much prior to their sale. Thereafter, the aforesaid one lac shares were split in the ratio of 10:1 and the total number of shares increased to 10 lac. Out of the 10 lac shares, the assessee after selling 1,32,500 shares in the immediately preceding year was left with 8,67,500 shares. Out of the 8,67,500 shares the assessee had during the year under consideration gifted 1,00,000 shares to his wife Smt. Mridulla Gupta. The balance 7,67,500 shares were sold by the assessee on the floor of BSE through his broker Motilal Oswal Securities Limited for a consideration of Rs. 6,06,49,780/-. Backed by the substantial documentary evidence filed by the assessee which beyond doubt substantiates the genuineness of the transaction of purchase and sale of shares of JMD Telefilms Industries Ltd. by him, we are afraid that the unsubstantiated claim of the A.O that the assessee had converted his unaccounted money by taking fictitious LTCG in a pre-planned manner cannot be accepted. At this stage, we may herein observe, that the very basis adopted by the CIT(A) for sustaining the view of the A.O that the assessee had obtained a bogus entry of LTCG, viz. that the assessee had only after a period of 2 ¼ years i.e in the year 2014 invested in shares of another company, i.e Justdial company; that the assessessee had not revealed the user of the sale proceeds of the shares of JMD Telefilms Industries Ltd; that the assessee did not derive such gain from purchase/sale of shares in the preceding/succeeding years; that why did the assessee not invest the surplus funds in the any of the companies in which he was a director and had invested the same in a company whose antecedents were not even known to him, are observations wherein the CIT(A) had tried to put himself in the arm chair of the assessee and indirectly had called for an explanation as to why the investments were not made by him or; if they were so made, then, why they were not made in a desired manner. At this stage, we may herein observe that the prudence of the assessee qua the manner of making of investments remains his sole prerogative and cannot be interfered with by the department. Insofar the invoking of the principle of preponderance of human probability is concerned, the same, in our considered view would come into play after disproving and dislodging to the hilt the documentary evidence that had been placed on record by the assessee to substantiate the genuineness of the transaction of purchase/sale of shares in question. Our aforesaid view that in the absence of any evidence, whatsoever, to allege that money had changed

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hands between the assessee and the broker or any other person, or that some person provided the entry to convert unaccounted money for getting benefit of LTCG, the unsubstantiated claim of the department that the assesseee had taken recourse to a structured transaction for evading his taxes and laundering his unaccounted money in the garb of exempt LTCG u/s 10(38) of the Act, cannot be accepted, is supported by the judgment of the Hon‟ble High Court of Delhi in the case of Pr. CIT & Ors. Vs. Krishna Devi & Ors. (2021) 110 CCH 9 (Del). In its aforesaid order it was observed by the Hon‟ble High Court, as under :

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onus cast upon it under the provision 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 de-mat 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.”

Also, a similar view had been taken by the Hon‟ble High Court of Bombay in the case of CIT Vs. Shyam R. Pawar (2015) 229 Taxman 256 (Bom). In its aforesaid judgment, the Hon‟ble High Court referring to the facts of the case before them observed, that while for the department had extensively referred to the correspondence and the contents of the report of the Investigation, what was however important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. It was observed by the Hon‟ble High Court, that if the purchase and sale of shares that were reflected in the assessee‟s de-mat account were to be termed as arranged transactions, and projected to be real, then, such conclusion of the CIT(A) and the A.O required a deeper scrutiny. It was further observed that the Tribunal had rightly concluded that there was something more which was required, which would connect the assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. Observing,

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that the Tribunal after extensively referring to certain facts/documents, viz. the sale of 20,000 shares of Mantra Online Ltd for a total consideration of Rs.25,93,150/- by the assessee a/w the details as to how they were sold, on what dates and for what consideration, and the fact that the sale consideration was received vide account payee cheques; copy of de-mat account of the assessee showing the share transactions; contract notes of the brokers (which are system generated documents prescribed by the stock exchange) giving details of transactions; the Hon‟ble High Court observed that the Tribunal had rightly concluded that the transaction of purchase/sale of shares was not an accommodation transaction for conversion of cash into accounted or regular payment. Insofar the discrepancy as pointed out by the stock exchange as regards the client code was concerned, the Hon‟ble High Court upheld the view taken by the Tribunal that the same would not suffice to prove that the share transactions were bogus or sham. 13. We, thus, in the backdrop of our aforesaid deliberations are of the considered view that de hors any cogent material made available on record by the department which would prove to the hilt that the assessee had not carried out any genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. and, in the garb of bogus entry of a tax exempt LTCG u/s 10(38) of the Act, laundered his unaccounted money, the assessee‟s duly substantiated claim of having carried out genuine transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. which is duly supported by him on the basis of documentary evidence, could not have been dislodged. Accordingly, for the reasons discussed at length by hereinabove, not finding favour with the view taken by the lower authorities, we herein set-aside the orders of the lower authorities qua treating the transaction of purchase/sale of shares of JMD Telefilms Industries Ltd. by the assessee as a bogus transaction and, consequently vacate the addition made by the A.O under Sec. 68 of Rs. 6,06,49,780/-. The Grounds of appeal Nos. 2 & 3 are allowed in terms of our aforesaid observations

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facilitating the bogus transaction of purchase/sale of shares has to meet the same fate and, is resultantly vacated. The Ground of appeal No. 4 is allowed in terms of our aforesaid observations

Order pronounced in the open court on 25/11/2021.

Sd/- Sd/- (S.Rifaur Rahman) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 25.11.2021 PS: Rohit Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy//

(Sr. Private Secretary) ITAT, Mumbai