LALITA RAMNIRANJAN AGARWAL,VADODARA vs. THE INCOME TAX OFFICER, WARD-1(2)(4), VADODARA

2.2. In response, the assessee replied that 10,000 shares of KPL was purchased on 10-10-2012 then dematerialized and sold the shares and earned Long Term Capital Gain of Rs. 52,75,306/- through recognized stock exchange and also paid appropriate Security Transaction Tax (STT). Further the assessee received the payment through cheque/RTGS. Hence the genuineness of the transaction cannot be doubted and the claim of deduction u/s. 10(38) of the Act should not be denied and relied upon various case laws.

2.3. The Ld. A.O. considered the above submissions and held that the Director of M/s. Kappac Pharma Ltd. and M/s. Sankeshwar Metals Pvt. Ltd. are the same namely Shri Anand Ramanlal Trivedi who was actively involved in off-market transactions of shares in fraudulent ways and SEBI has also initiated action against them for fraudulent activities. Further the assessee is not regular investor in shares and the purchase of shares of KPL is the first transaction of shares done by the assessee and therefore the claim of exemption u/s.10(38) is not accepted as genuine. Therefore the AO treated the amount of Rs.52,75,306/- as not genuine and added as the total income of the assessee u/s. 68 of the Act and demanded tax thereon.

“1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.52,75,306/- on account of LTCG earned from share transactions done through stock exchange treated as alleged unexplained cash credit u/s.68 of the Income Tax Act, 1961.

2. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper.

3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”

5.2. Ld. Counsel drawn our attention to the recent Hon’ble Supreme Court Judgment in the case of PCIT vs. Kuntala Mohapatra reported in [2024] 160 taxmann.com 608 wherein dismissed the Revenue’s SLP, by holding that shares were purchased via Account Payee cheques, held in a Demat Account for over 12 months and sold through a recognized stock exchange after payment of Security Transaction Tax (STT) then the assessee was eligible to claim exemption u/s. 10(38) for long-term capital gains. Similarly Hon’ble Supreme Court dismissed Revenue’s SLP in the case of PCIT vs. Renu Aggarwal [2023] 153 taxmann.com 579 (SC). Thus Ld. Counsel relied upon various other case laws as cited in Case Laws Compilation: (i) Pr. CIT Vs. Kuntala Mohapatra [2024] 160 taxmann.com 608 (SC) (ii) Pr. CIT Vs. Kuntala Mohapatra [2024] 160 taxmann.com 567 (Orissa) (iii) Pr. CIT Vs. Renu Aggarwal [2023] 153 taxmann.com 579 (SC) (iv) Pr. CIT Vs. Affluence Commodities (P.) Ltd. (2024) 161 taxmann.com 476 (Gujarat) (v) Pr. CIT Vs. Affluence Commodities (P.) Ltd. (ITA No. 593/AHD/2020) (vi) Pr. CIT Vs. Sandipkumar Parshottambhai Patel [2023] 150 taxmann.com192 (Gujarat) (vii) Swati Luthra Vs. ITO [2020] 115 taxmann.com 167 (Delhi - Trib.) (viii) Farzad Sheriar Jehani Vs. ITO [2024] 159 taxmann.com 9 (Mum-Trib.) (ix) Ketan Harilal Mehta HUF Vs. ITO (ITA No.770/MUM/2023) (x) Shri Prakash Javia HUF Vs. ITO (ITA No.464/IND/2019) (xi) Arpit Mahendrabhai Shah Vs. DCIT (ITA No.112/SRT/2023) (xii) Shri Arnav Goyal Vs. ITO (ITA No.275/JP/2020) (xiii) Suresh M. Jain HUF Vs. ITO (ITA NO.6614/MUM/2019) (xiv) DCIT Vs. Saurabh Mittal (ITA No. 16/JP/2018) (xv) Navneet Agarwal Vs. ITO [2018] 97 taxmann.com 76 (Kolkata - Trib.)

7.1. The Jurisdictional High Court in the case of Affluence Commodities Pvt Ltd. (cited supra) held that where assessee purchased and sold KPL shares and incurred loss, since assessee had proved genuineness of transactions and moreover assessee had no control whatsoever on share prices, addition made by Assessing Officer on account of disallowance of losses booked in penny stocks was liable to be deleted by observing as follows:

“….

7. Being aggrieved, the Revenue has preferred appeal before the Tribunal and the Tribunal has held as under: 9. The 3rd ground namely losses booked under penny stocks of Rs. 73,12,905/- on sale of Alang Industrial Gases Ltd. Shares. The assessee has proved the genuineness of the transactions beyond doubt by furnishing contract notes, ledger accounts, bank transactions from books of brokers whereas the AO without any material evidence disallowed the losses of in scripts of Alang Industrial Gases Itd. And the valuation of the closing stock in Kappac Pharma just bases on the SEBI general information and Investigation Wing. Kolkatta. The AO made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares of Alang Industrial Gases Ltd. It is the case of the assessee that it sold only part of the shares and remaining shares have been held by the assessee in subsequent assessment year also. Thus following Jurisdictional High Court Judgement, the Ld. CIT(A) deleted the addition.

11. Respectfully following the above Jurisdictional High Court judgements and also the fact that the assessee is a retaining Kappac Pharma shares as stock-in-trade and the closing stock is valued at the market rate. Since the market rate is lower it has incurred a business loss of Rs. 53,02,455/- though the shares are not sold. The difference is only because the valuation of shares which is as per the Accounting standard and the share of Kappac Pharma are still forming part of closing stock of the assessee company as on 31.03.2019. Thus, we have no hestiation in deleting the disallowance made by the AO which was correctly deleted by the 1d. CIT(A). Thus the grounds raised

by the Revenue is without any basis and the same is liable to be rejected. The remaining ground Nos. 4 to 6 are general in nature, which does not require specific adjudication."

8. We have considered the concurrent findings of fact arrived at by the CIT(A) and Tribunal and are in complete agreement with such findings to the effect that the assesse has proved the genuineness of the transactions and established on online trading platforms that it had no control what so ever on share prices and thus, incurred losses in shares of Alang Industries Gas Ltd. It was also found by both the authorities that the assessee sold only the part of the shares and remaining shares have been held by the assessee in the subsequent assessment year also. With regard to shares of Kappac Pharma Ltd., it was rightly held by the Tribunal that since the market rate was lower, the assessee had incurred business loss though the shares are not sold.

9. In view of the above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, the appeal, being devoid of any merits, is dismissed.” 7.2. Similarly the Jurisdictional High Court in the case of PCIT vs. Sandipkumar Parsottambhai Patel (cited supra) held that since payments were received through account payee cheques and transactions were done through recognized stock exchange, and there was no evidence that assessee had paid cash in return of receipt through cheque, therefore the Tribunal rightly deleted addition holding that transactions were genuine by observing as follows:

“…..6. Being aggrieved and dissatisfied by the aforesaid, the assessee approached the Income-tax Appellate Tribunal, Surat by way of and 9/SRT/2019 for the Assessment Year 2013-14 and 2014-15. The learned ITAT, Surat having considered the submissions, allowed the said Appeal by observing as under: “22. We note that all evidences of sales including contract notes were submitted by the assessee, as noted by us above. The Assessing officer has not found any fault in the documents, as noted by us above. The payments were received through account payee cheques and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled. The assessee is not a party to alleged price rigging. He has no nexus with the company, its directors or operators. He is not concerned with the activity of broker and has no control over the same. Even there is no evidence that directors of company or broker were involved in price rigging. The Assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains in a short period, does not mean that the transaction is bogus, as all the documents ---and evidences have been produced before assessing officer. The shares were sold in piece meal on tate through recognized stock exchange at quoted price.

23. Regarding the statement of Shri Anil Khemka, alleged entry provider, which is reproduced in Assessment Order at Page 8, we note that said statement recorded neither implicate Sun & Shine Worldwide Ltd nor the broker Trade bulls Securities Pvt. Ltd and nor the assessee. We note that physical delivery of shares is proved by the memorandum of transfer of shares stated in the share certificate being registered on 30-10-2012. Regarding the escalation of prices of shares of M/s Sun & Shine Worldwide Ltd., that is, the prices have increased by 140 times over the period of 17 months. At this juncture, it is submitted by Id Counsel that prices of shares are determined by the market forces and not solely on the basis of financial statements.

24. We also note that Assessing officer and CIT(A) has relied on the case of Sumati Dayal vs. CIT (214.LIB 8011(SC). We are of the view that said decision is not applicable to the assessee under consideration, as the assessee has successfully demonstrated with help of evidences on record to have made the transaction of purchase and sale of alleged shares. No single material was brought on record indicating name of any of the entry provider taking assessee's name or assessee's broker name. We note that assessee has submitted enough evidences such as: (a) Ledger Account of Jainam Share Consultancy Securities Pvt. Ltd. (8) Contract Notes of Jainam Share Consultancy Securities Pvt. Ltd. (c) Relevant Bank Statement showing that all transactions were through banking channel. (d) Contra confirmation of broker M's Corporate Commodity Broker Private Ltd. (e) Share Certificate, (f) Share Transfer Form, (g). Debit Note and (4) Cash Receipt etc. Therefore, addition in assessee's case cannot be made on generalization, human probabilities, suspicion, conjectures and surmises.

26. In the light of the documents and evidences submitted by the assessee, we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/ unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that Id. DR could not controvert the facts which are supported with material evidences furnished by the assessee. We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidences in the form of bills, contract notes, demat statement and bank account to prove the genuineness

of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the Id. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidences clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s.10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s Alipine Investments in of 2008 dated 26th August, 2008 where in the High Court held as follows: "It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also fled in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed a side on suspicion and surmises. However, it was held that the transactions of the shares are genuine. Therefore, we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being is dismissed."

8. We are of the considered opinion that question of law formulated by the Revenue is more on facts rather than on law. It cannot be said to be a substantial question of law.

“Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 Capital gains -Income arising from transfer of long term securities (Illustrations) - Assessment year 2014-15-Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing Officer's reliance on statements from entry operators' to support additions under sections 68 and 69 as those statements were recorded in unrelated proceedings before survey on assessee, and assessee was not afforded an opportunity to challenge or cross-examine providers of those statements - On revenue's appeal, High Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed Held, yes [Para 3] [In favour of assessee]” 7.4. The Hon’ble Supreme Court in the case of PCIT vs. Renu Aggarwal (cited supra) dismissed the SLP filed by Revenue by observing that no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted as follows:

Section 69A, read with section 10(38), of the Income-tax Act, 1961- Unexplained moneys (Share dealings) High Court by impugned order held that where Assessing Officer disallowed exemption claimed by assessee under section 10(38) and made additions, alleging involvement in penny stock which were being misused for providing bogus accomodation of LTCG, however, there was lack of adverse comments from stock exchange and officials of company involved in these transactions and no material relating to assessee was found in investigation wing report, additions made by Assessing Officer had rightly been deleted Whether SLP filed by revenue against said impugned order was to be dismissed Held, yes [Para 2) [In favour of assessee)

“….16. It was further argued by the Ld. Counsel appearing for the assesse that the scrip of M/s. Kappac Pharma Ltd. was found to be genuine in very many cases in appeal by the ITAT itself. One of such matter is Shri Prakash Javia Huf vs. ITO & Ors. in & Ors. and ACIT vs. M/s. Affluence Commodities Pvt. Ltd. in ITA No.593/Ahd/2020. In that view of the matter as scrip of the said company has been held to be genuine, the addition on surmises and conjunctures is found to be not sustainable and liable to be set aside as is the crux of the case made out by the assessee.

“21. We have heard rival contentions and perused the records placed before us and carefully gone through the submissions, paper book and plethora of judgments referred and relied by both sides. Common issue raised in all three appeal is genuineness of claim of Long Term Capital Gain as exempt income u/s 10(38) of the Act arising out of the transactions of sale of equity shares of Kappac Pharma Limited.

made u/s 10(38) of the Act made by the respective assessee(s) and also delete the disallowance of brokerage expenses of Rs.61,380/- made in the case of Prakash Javia. 35. In the result, all grounds raised by the assessee(s) are allowed and appeals filed by the assessee in ITANo. 464,465 & 466/Ind/2019 are decided in favour of the assessee and against the revenue.”

18. We have carefully considered the judgment passed in case of ACIT vs. M/s. Affluence Commodities Pvt. Ltd. in wherein deletion of addition under Section 10(38) of the Act in respect of the LTCG out of the sale of scrip of M/s. Kappac Pharma Ltd. was upheld. The Co-ordinate Bench while dealing with the same observed as follows: “9. The 3rd ground namely losses booked under penny stocks of Rs. 73,12,905/- on sale of Alang Industrial Gases Ltd. shares. The assessee has proved the genuineness of the transactions beyond doubt by furnishing contract notes, ledger accounts, bank transactions from books of brokers whereas the A.O. without any material evidence disallowed the losses of in scripts of Alang Industrial Gases Ltd. and the valuation of the closing stock in Kappac Pharma just based on the SEBI general information and Investigation Wing, Kolkatta. The A.O. made the disallowance without documentary proof whereas the assessee proved the genuineness of the transactions and established on online trading platforms and it had no control whatsoever on share prices and thus incurred losses in shares of Alang Industrial Gases Ltd. It is the case of the assessee that it sold only part of the shares and remaining shares have been held by the assessee in subsequent assessment year also. Thus following Jurisdictional High Court Judgment, the Ld. CIT(A) deleted the addition. 9.1. The Ld. D.R. could not produce any contra judgments in support of its case, whereas Ld. Counsel for the assessee submitted before us the following case laws: 10. The Jurisdictional High Court of Gujarat in the case of Himani M. Vakil (cited supra) held as follows: “Assessee filed her return declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer taking a view that share transactions were bogus, added amount of capital gain to assessee's taxable income as unexplained cash credit - Tribunal, however, concluded that genuineness of transactions was duly proved by contract notes for sale and purchase, bank statement of broker, demat Account showing transfer in and out of shares, as also abstract of transactions furnished by CSE - accordingly, addition made by Assessing Officer was deleted - Whether since finding recorded by Tribunal was based on appreciation of material on record, no substantial question of law arose therefrom.” 10.1. In the case of Ramniwas Ramjivan Kasat (cited supra) held as follows: “Assessment year 2006-07- During relevant year, assessee sold certain shares owned by him - Assessing Officer opined that purchase of shares in question itself was bogus and, thus, there was no question of sale of same He thus added amount of sale proceeds of shares to assessee's taxable income Tribunal noted that shares had been purchased in previous assessment year - It was further found that assessment for previous assessment year had been taken in scrutiny and in assessment order purchase of shares had been accepted as genuine - Tribunal thus concluded that no addition could be made with aid of section 68 when such shares were sold in relevant assessment year - Whether on facts, impugned order passed by Tribunal did not require any interference.” 10.2. In the case of Maheshchandra G. Vakil (cited supra) held as follows: “Assessment year 2006-07 - Assessee filed return of income declaring certain amount as short term capital gain arising from sale of shares - Assessing Officer framed assessment treating short term capital gain as explained cash credit - Tribunal, however, opined that genuineness of transactions was proved by contract notes for sale and purchase, bank statement of broker, Demat Account Showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange - Accordingly, Tribunal deleted addition made by Assessing Officer - Whether since impugned order of Tribunal was based on appreciation of evidence on record, it did not require any interference.”