AMIT MAFATLAL SHAH ,MUMBAI vs. ACIT CIRCLE 19 (1) MUMBAI, MUMBAI

आदेश / O R D E R राजेश कुमार, लेखा सद�य / PER RAJESH KUMAR, AM:

2. The ground raised by the assessee are as under

1. On the facts and in the circumstances of the case and in law the Ld- CIT(A) erred in confirming order made under section 143(3) of the Act by the Ld. AO which is illegal , bad in law, ultra vires and without providing opportunity of cross examination , without appreciating the facts, submission and evidences in their proper perspective, without providing copies of material used against the appellant is liable to be annulled.

2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming total sales consideration of Rs. 3,43,62,880/- as unexplained cash credit u/s 68 of the Act and rejecting genuine Long

2 | P a g e Shri Amit Mafatlal Shah. term capital gain of Rs, 3,32,77,358/-and Rs.9,30,375/- cost of acquisition of the shares sold.

3. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming commission paid of Rs.6,87,257/- by treating it as unexplained expenditure under sec 69C of the Income Tax Act, 1961.

4. The Ld.CIT(A) erred in confirming the charging of interest under section 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 5. The Ld.CIT(A) erred in confirming the initiation of the penalty proceeding under section 274 r.w.s. 271(1)(c) of the Income Tax Act, 1961. 6. The Assessee craves leave to add further grounds or to amend or alter the existing grounds of appeal on or before the date of hearing.

4. The facts in brief are that the assessee filed his return of income on 31.10.2015 declaring a income of Rs.64,34,450/-. The assessee was deriving income by way of business, capital gain, house property and other sources. During the year, the assessee has earned long term capital gain on sale of shares of M/S Premier Capital Services Ltd. to the tune of Rs. 4,23,74,991/- which was claimed as exempt u/s 10(38) of the Act. . The case of the assessee was selected for scrutiny under CASS and statutory notices were duly issued and served on the assessee. During the course of assessment proceedings, the Assessing Officer

3 | P a g e Shri Amit Mafatlal Shah. called for the details of sale of shares. The Assessing Officer had also received information from the investigation wing of the department which conducted investigation on 84 penny stocks and M/S Premier Capital Services Ltd was one of them.In the said investigation it was revealed and brought to light that illegal transactions of bogus LTCG/STCG for the benefit of large beneficiaries. A detailed modus operandi of the operators, intermediaries and the beneficiaries has been given in the said investigation. In the said report it has been reported that the prices of the penny stocks companies were rigged and are raised through circular trading and manipulation. As per the said report the shares of these penny stocks are closely held by the promoters of penny stock companies and operator who controls the affairs on the stock exchange , arranges the bogus LTCG/STCG or loss for beneficiaries. The public has no interest in these companies as these companies have no financial credentials movements of shares are strictly controlled through connivance and manipulation.

5 | P a g e Shri Amit Mafatlal Shah. of the Act. Aggrieved, assessee went in appeal before the first appellate authority challenging the order of the Assessing Officer.

5.5.1 The appellant declared long term capital gains of Rs.3,32,77,358/- from sale of shares of M/s Premier Capital Services Ltd. and claimed this as exempt u/s 10(38). The appellant had purchased 20,000 shares of M/s Premier Capital Services Ltd. through preferential allotment @Rs.75/- per share with face value of Rs.10/- with one year lock in period on 04.09.2012 and lock in release on 04.09.2013 and the company split the shares from us 10/- to Rs 1/- paid up on 21.03.2014 and the resultant shares were 2,00,000 shares as on 2l.03.2014 due to stock split. 1,24,050 shares were sold through share broker M/s. P-P.J. Shroff Securities Pvt. Ltd. during the period 04.06.2014 to 19.08.2014 with price ranging from Rs 229/- to Rs 297/- per share for salt; consideration of Rs 3,42,07,733/-. The appellant declared long term capital gains of Rs 3,32,77,358/- as against sale consideration received of Rs 3,43,62,880/-. The paid up capital as on issue of preferential allotment is Rs 71,46,000/- for 7,14,600/- shares. Thus, there is no basis for the payment of premium of Rs 65/- per share by the appellant The demat statement on preferential allotment and on spilt of shares is at pp 11 and pp 20 of the paper book filed by appellant and placed at annexure. The details at pp 20 reveal 2,00,000 shares as on 21.03.2014 on split with FV of Rs. 1/- and total value of Rs.2,20,00,000/-. This demat statement cannot be relied on as the value can only be Rs 2,00,000/- and not Rs 2,20,00,000/-. The appellant has not been able to explain to the satisfaction of the Ld. AO nor during appellate proceedings as to how he was allotted equity on a preferential basis - that is which of the promoters allotted the same or if it was part of the non-promoter's group , how he had access for purchase of the same. No application of the appellant for issue of preferential shares and approval of the Board has been furnished. 5.5.2 In view of the aforesaid facts, the purchase of the shares is held to be bogus/sham transaction. The appellant has not adduced any evidence in support of how he was allotted these shares on a preferential basis, that is which of the promoters allotted the same or it was part of the non-promoter's group, how he had access for purchase of the same. No application of the appellant for issue of preferential shares or reason why he was willing to invest at such a premium of Rs.65/- per share etc. The spectacular gain in the price of shares from 6 | P a g e Shri Amit Mafatlal Shah. Rs. 9,30,375 (purchase price) in Dec. 2012 to Rs. 3,43,62,880/- (sale price) in June-August 2014 is unexplained. Reliance is further placed on the decisions cited in para 5 supra. A sale transaction against which no purchase ever took place, does not satisfy the test of human probability. This challenges the test of human probability. The Hon'ble Supreme Court in the case of Sumnati Dayal (214 ITR 801 SC) and Durga Prasad More ([1971)82 ITR 540 SC) has held that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. In this case, the surrounding circumstances, as detailed above, establish that the purchase is not real. Thus, the entire transaction is a sham transaction and the Ld AO has rightly held so. Addition of Rs. 6,87,257/- u/s 69C of the Act, being 2% commission paid for the accommodation entries is also held to be reasonable and is upheld. Therefore, all the grounds of appeal are dismissed.

6. In the result, for the statistical purposes, the appeal filed for the A.Y. 2015-16 is treated as dismissed.”

7. The learned AR submitted before the Bench that the assessee is a regular trader in securities. The learned AR submitted that assessee has purchased 20000 shares of M/s Premier Capital Services Limited through preferential allotment of 75 per share with face value of 10 each on 04.09.2012 and these shares were transferred into assessee’s Demat account with standard chartered securities limited copy of which is filed at page no. 55 of the paper book. The said shares were split from the face value of Rs. 10 each to shares of Rs.1 and thus the total number of shares held by the assessee after split were 2 lacs shares. Thereafter, the assessee sold 124050 of these shares through broker M/s PPJ Shroff Securities Pvt. Ltd during the period commencing from 04.06.2014 to 19.08.2014 at a total consideration of Rs. 3,43,62,880/-and the Long Term Capital gain of Rs. 3,32,77,358 was made. The learned AR submitted that even the STT and Service Tax was paid on the sale of shares. The ldAR also referred to copies of the said contract notes at page No.51 to 89 of the paper book. The learned AR submitted that the 7 | P a g e Shri Amit Mafatlal Shah. Assessing Officer has primarily relied on the report of investigation wing and thus came to the conclusion that the assessee also alleged bogus transaction/ accommodation entries. The learned AR submitted that the assessee is a genuine purchaser and seller of shares and has purchased and sold shares at the prevailing market prices. The learned AR also submitted that the assessee has filed various documents before the Assessing Officer in order to substantiate the purchase and sale of shares comprising payments proof by account payee cheques, copies of contract notes, copy of Demat Account evidencing the purchase and sale of shares duly supported with contract notes, bank statements, evidencing the movement of funds through banking channel and proof of payment of STT etc. The learned AR submitted that the Assessing Officer has used the report of the investigation wing against the assessee without offering any opportunity to the assessee to controverting the said report. The ld AR stated that the Assessing Officer has only discussed the said report in the assessment order and modus operandi of the operators on the stock exchange qua these penny stocks companies. The learned AR also submitted the Assessing Officer has not provided any cross examination to the assessee and went head with the passing of assessment order . The ld. AR contended that on this count alone the assessment order passed by the Assessing Officer cannot be sustained. The learned AR submitted that Assessing Officer has not issued any notice for conducting cross examination, mainly relied on the report of the investigation and so much so that no further investigations were carried out to find out the truth. The learned AR therefore submitted that the order passed by the Assessing Officer needs to be quashed. In defence officer arguments the learned AR’s specific decision as under: -

1. CIT vs. Mukesh Marolia ITA 456 of 2007-Bmbay HC 2. Muksh R Morolia Vs Add CT(2006) 6 SOT 247 3. ITO vs. Mrs. Rasila N Gala ITA No.1773/Mum/2010 8 | P a g e Shri Amit Mafatlal Shah.

1. M/s. Andaman Timber Industries vs. CCE Civil Appeal No.4228 of 2006.

2. Lalchand Bhagat Ambica Dav vs. CIT (37 ITR 28) (SC) 3. Dhakeswari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 777 4. Seth Gurumukh Singh v. CIT (1944) 12 ITR 393 5. Jai Karan Sharma vs. DCIT (2012) 23 taxmannc.com 300 (Delhi) 6. Hamish Engineering Industries (P) Ltd. vs. DCIT (2009) 120 ITD 166 (Mum. Trib.) 7. Kishinchand Chellaram vs. CIT (1980) 4 Taxman 29 (SC) 8. C Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC)

14 | P a g e Shri Amit Mafatlal Shah. during the assessment proceedings. In other words, the AO has merely relied on the investigation report and did not try to collect further evidences by conducting further investigation to prove that the assessee own funds have changed hands.. Under these circumstances, we are not in a position to subscribe to the conclusion by the authorities below. The case of the assessee is squarely covered by a series of decisions referred and relied by the Ld. A.R. during the course of hearing as reproduced hereinabove a few of which are discussed below:-

- In the case of CIT vs. Mukesh Ratilal Marolia (supra). In this case, the issue is whether the amount received by the assessee on sale of shares can be treated as unexplained investment under section 69 of the Act. The Tribunal deleted the addition by allowing the appeal of the assessee by holding that the purchase of shares were duly recorded in the books of accounts and the source of funds is also explained and the shares were in fact transferred in the name of the assessee and thus the purchases of the assessee can not be fault with. Similarly, the sale of shares was effected can not be disputed because the amount received by the assessee is not in dispute and it is not the case of the Revenue that shares are still lying with the assessee or amount received by the assessee on sale of shares is more than the declared value by the assessee. Under these circumstances, the Hon’ble High Court has held that AO is not justified in holding that sale proceeds of Rs.1,41,08,484/- represented unexplained investment under section 69 of the Act and thus the order of the Tribunal was upheld by the Hon’ble High Court. The Hon’ble Supreme Court also dismissed the appeal of the Revenue filed against the Hon’ble Bombay High Court order. -Similarly, in the case of CIT vs. Mrs. Kesar A. Gada (supra) the ITAT deleted the addition by holding that the transaction of purchase and sale of shares made by the assessee were genuine and no addition under section 68 was called for by relying on the decision of Hon’ble Bombay High Court in the case of CIT vs. Mukesh Ratilal Marolia (2005) 12 TMI 457 ITAT, Mumbai. The High Court also dismissed the appeal of the Revenue by holding that no substantial question of law arises for reconsideration. -In the case of CIT vs. Sham R Pawar (supra) the Hon’ble Bombay High Court has decided the issue against the Revenue by upholding the order of ITAT wherein the Tribunal has held that the assessee has declared the capital gain on sale of shares and mere

15 | P a g e Shri Amit Mafatlal Shah. observation of the AO that transactions were done through brokers at Kolkata and the performance of the concerned company was not satisfactory as it would not justify the increase in share prices and thus held the transaction as bogus as assessee converted his own unaccounted money into accounted income and thus made the addition under section 68 of the Act. The Tribunal deleted the addition by observing that D-Mat account and contract notes showed the details of shares, transactions and Revenue stopped enquiry at particular point and did not carry forward it to discharge the basic onus and High Court has upheld the order of ITAT. - Ramprasad Agarwal vs. ITO (supra) wherein assessee has produced all the relevant records to show the allotment of shares by the company on payment of consideration by cheque and subsequent dematerialization of shares in the D-mat account. The Tribunal reversed the order of AO wherein the AO has made addition by not allowing cross examination to the assessee and also not providing the information to the assessee which were used against the assessee while making addition.The tribunal followed the decision of coordinate bench in the case of Meghraj Singh Shekhawat Vs DCIT AY 2013-14 and 2014- 15 which in turn has followed apex court decision in the case of M/s. Andaman Timber Industries vs. CCE Civil Appeal No.4228 of 2006. In the case of Fara Marker vs. ITO (supra) the similar issue has been decided under the similar set of facts by holding that the long term capital gain is genuine as the assessee has fully discharged its onus and AO has not done any further verification. In the case of Kamaladevi vs. Doshi vs. ITO the similar issue has been decided by the Tribunal in favour of the assessee by observing and holding as under: “14. We have given a thoughtful consideration to the facts of the case and are of the considered view that the assessee had placed on record substantial documentary evidence to substantiate the genuineness and veracity of the purchase and sale of 10,200 shares of M/s Talent Infoways Ltd., viz. copy of the Contract note, dated. 15.04.2004 evidencing the purchase of shares; Copy of the contract note, dated. 06.04.2004 as regards the speculation income, and the copy of the cash receipt for Rs. 168/-; Copy of her account in the books of account of M/s MSPL; Copy of the letter from M/s Talent Infoways Ltd., dated. 29.05.2004, therein confirming the transfer of shares; Copy of the contract notes for sale of shares in the months of September and October, 2005; Copy of the bank statement evidencing receipt of 16 | P a g e Shri Amit Mafatlal Shah. payment for sale of shares; Copy of STT paid statements on the shares of M/s Talent Infoways Ltd ; Copy of its account as appearing in the books of account of M/s Alliance Intermediateries & Network Pvt. Ltd. evidencing the sale of the shares of M/s Talent Infoways Ltd.; Copy of delivery instructions of shares to the depository for dematerialization of the shares; and Copy of the return of income alongwith the computation of income for A.Y. 2005-06, which revealed the speculation income of Rs. 15,975/-, and the fact of purchase of 10,200 shares of M/s Talent Infoways Ltd, alongwith the source of purchase. We find that the aforesaid substantial documentary evidence placed on record by the assessee, which as a matter of fact supported the entire chain of events of purchase and sale of 10,200 shares of M/s Talent Infoways Ltd. by the assessee, was however never rebutted by the A.O on the basis of any concrete and irrebutable evidence which could go to inescapably disprove the genuineness of the said documents which were brought on record by the assessee We find that the A.O had rather chosen to merely rely on the stand alone statement of Sh. Mukesh Choksi (supra) and taking the same as gospel truth, had therein drawn adverse inferences in the hands of the assessee by merely referring to the said statement of Sh. Mukesh Choksi (supra). We though do not approve of the reliance placed by the A.O on the stand alone statement of Sh. Mukesh Choksi (supra) for drawing of adverse inferences in respect of the share transactions carried out by the assessee during the year under consideration, but rather find that even no cross examination of Sh. Mukesh Choksi (supra), whose statement was so heavily being relied upon by the A.O, was ever provided to the assessee. We find that the failure on the part of the A.O to provide cross examination of the person, relying on whose statement adverse inferences are drawn in the hands of the assessee goes to the very root of the validity of such adverse inferences drawn in the hands of the assessee, had been looked into by the Hon'ble High Court of Bombay in the case of : CIT-13 Vs. M/s Ashish International (ITA No 4299 P a g e | 26 of 2009; dated. 22.02.2011), wherein the order of the Tribunal was affirmed by the Hon'ble High Court. We thus in the backdrop of our aforesaid observations, are neither able to persuade ourselves to subscribe to the adverse inferences drawn by the lower authorities in respect of the share transactions of the assessee by referring to the stand alone statement of Sh. Mukesh Choksi, as the same as observed by us hereinabove, suffer from serious infirmities, and as such cannot be summarily accepted, nor are able to dislodge the genuineness of the purchase and sale of shares of the aforesaid 10,200 shares of M/s Talent Infoways Ltd., which we find had been duly substantiated by the assessee on the basis of material made available on record, which we find had not been dislodged by the lower authorities. We thus in the backdrop of the totality of the facts of the case are unable to find ourselves to be in agreement with the view arrived at by the lower

17 | P a g e Shri Amit Mafatlal Shah. authorities. We thus set aside the order of the CIT(A), and delete both of the additions of Rs. 9,36,164/- and Rs. 46,808/- made by the A.O, which thereafter were sustained by the CIT(A). The appeal of the assessee is allowed. “ 13. We have also gone through other decisions cited by the Ld. A.R. and observed that the case of the assessee is squarely covered by the various decisions. We therefore respectfully following the same set aside the order of CIT(A) and direct the AO to delete the addition of Rs.3,43,62,880/- under section 68 of the Act.

Ground No.1 & 2 are allowed.

Order pronounced under rule 34(4) of the I.T. Rules on 20.04.2020.