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Income Tax Appellate Tribunal, ‘’A’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad, dated 06/11/2019 arising in the matter of assessment order passed under s.
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143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2014-2015.
The only effective issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 1,04,55,043.00 on account of bogus long term capital gain.
The assessee is an individual and partner in the firms namely M/s Patel Jewellers and M/s Patel Gold Center. The assessee on 18th October 2012 purchased 13000 equity shares of M/s Transcend Com Pvt Ltd at a face value of Rs. 10 per share. Subsequently, the company M/s Transcend Com Pvt Ltd got merged with M/s SRK Industries Ltd w.e.f. 21st December 2012 and the assessee was allotted 28860 shares of M/s SRK Industries Ltd at a face value of Rs. 10 each as a result of amalgamation. Thereafter, the shares of M/s SRK Industries Ltd were split into 2 share of Rs. 5 each and accordingly, 28860 share held by the assesse were converted into 57720 shares.
The assessee in the year consideration dated 21st November 2013 sold 3.1 entire shares of M/s SRK Industries Ltd for Rs. 1,05,90,173/- and thereby earned long term capital gain of Rs. 1,04,55,043/- which was claimed as exempted under section 10(38) of the Act.
3.2 The assessee in support of genuineness of the long term capital gain, during the assessment proceedings, submitted that he came to know about investment opportunity in the company M/s Transcend Com Pvt Ltd by some mouth publicity and accordingly he made investment for which amount was paid through banking channel out of the fund available in his bank account. Upon acquisition of shares, the same were immediately dematerialized through the broker M/s Shah Investor Home Ltd. However, due to amalgamation of M/s Transcend Com Pvt. Ltd by virtue of the order passed by Hon’ble Bombay High
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Court, he became shareholder of M/s SRK Industries Ltd. Subsequently, the assessee found the opportunity of earning long term capital gain and thus he sold the shares at the stock exchange and received proceeds in the form of ECS through broker.
However, the AO found that the Directorate of Investigation Kolkata carried out countrywide enquiry/ investigation with respect to organized racket of generating bogus long term capital gain by entry providers in collusion with various brokers/ companies. The Directorate of Investigation Kolkata found some 84 penny stock companies whose script was rigged up and were utilized for providing bogus long term capital gain to the beneficiaries who are running in thousands of numbers. The scrip of M/s SRK Industries Ltd also includes in such list of 84 Companies. Based on the finding of the DIT Investigation Kolkata, SEBI also carried out investigation and found allegation true in several cases and in several other cases investigation are still going on. The AO also discussed the modus operandi of the racket of providing bogus long term capital at length in his order. The AO based on the modus operandi as discussed above held that the documentary evidences provided by the assessee are always part of such modus operandi which were generated to mask up the actual transaction. Accordingly, the AO held that assessee is required to proof genuineness of his claim of exempted income beyond these mask up documentary evidences based on preponderance of probability and circumstantial/ surrounding evidences but the assessee failed to prove the genuineness of such exempted capital gain. The AO also referred the judgment of Hon’ble Supreme Court in case of Sumati Dayal reported in 214 ITR 801 and Durga Prasad More reported in 82 ITR 540.
4.1 The AO in addition to the above also found that price movement in the scrip of the M/s SRK Industries was very abrupt, unrealistic and without the support of any financial base which is beyond human probability. The shares were purchased in off market and dematerialized just a week ago before sale. There
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was no other evidences of purchase of share except bill issued by one M/s Saikat Trade Link Pvt ltd. which does not bear the mode of receipt for consideration. The family member of the assessee also earned similar capital gain on sale scrip of SRK Industries whereas the assessee and family member were not involved in the investment activity in shares before and after. Therefore, the principles of human probability should also be applied to find out the real intent of the transaction. The AO also referred numerous judicial pronouncement. Thus, the AO in view of the above held the long term capital gain of Rs. 1,04,55,043/- on sale of scrip of M/s SRK Industries Ltd as sham or bogus transaction and treated same as income of the assessee under section 68 of the Act.
4.2 In addition the AO also made addition of Rs. 2,09,100/- being commission expenses incurred for taking accommodation entry in guise of long term capital as discussed above.
Aggrieved, assessee preferred an appeal before the learned CIT(A).
5.1 The assessee before the learned CIT (A) besides reiterating his submission, contended that capital gain earned on penny stock does mean that the same is not genuine. It was further submitted that share were duly dematerialized and a kept in Demat account and sale was made on stock exchange which is supported by the documentary evidences. Further, no material brought on record by the AO where his or her broker name is appearing. Furthermore, the AO has also not provided the materials or investigation report for rebuttal and cross examination.
The learned CIT(A) after considering the fact in totality deleted the addition made by the AO by observing as under:
The perusal of information in table above indicates that the shares were purchased in the year 2012 for an amount of Rs.1,30,000/- through cheque and the assessment year is 2013-14. Thereafter, the shares were dematerialized and credited to the account of appellant on 08.11.2012 for a few months before they are sold on 21.11.2013 to
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28.11.2013 through BOLT of recognized stock market. As per record the appellant was not promoter of the company of which shares have been purchased, hence the shares can be held in physical form which were dematerialized only on OB.11.2012. The payments for sale of shares have also been received through banking channel. Therefore, no question can be raised on the timeline of the transaction.
4.1 It is also noticed that the Assessing Officer has not brought on record to prove that any of the evidences of share transactions filed by the Appellant are false or untrue. The AO has basically gone on the contents of Investigation report wherein it is stated that certain persons of Kolkata are involved into the business of providing accommodation of bills. However, she was not made available the copy of statement or the witness of department for cross-examination. This issue has cropped up through the judgments relied by the appellant. So the addition made was based merely on the self serving contention in the form of statement without any further corroborative evidences which do not have any evidentiary value in the eyes of law. In view of above facts of the case, it is amply clear that the facts of the case are squarely covered by the decision of Ahmedabad Tribunal in the case of Chartered Motors Pvt. Ltd. vs. ACIT in IT(SS)A Nu.26/Ahd/2012 which has been upheld by Hon'ble Gujarat High Court. In another case of CIT vs. Mukesh R. Marolia in ITA No.456 of 2007, ITAT, Mumbai wherein the shares were not recorded on the floor of stock exchange but effected through off-market trade held to be valid and Hon'ble Bombay High Court while confirming the decision held that off-market trade is no unlawful activity. It is further seen that SLP filed by the department against the said decision has been dismissed by the Apex Court - CIT vs. Mukesh R. Marolia in SLP (Civil) No.20146/2012 (SC) dated 27.01.2014. When share purchase transactions were off-market transactions, the same cannot be held to be bogus even if any attempt is made to get details from stock exchanges. *n
I hold that any evidence collected behind the back of appellant and not provided the opportunity of cross examination, the same cannot be used as evidence against the Appellant to make impugned addition. Even in absence of the statement, I find that (he AO has not brought on record any other material collected through independent inquiries to show that the amount in question should be treated as undisclosed income of the Appellant when the Appellant furnished all the documents which were available to establish that the LTCG claimed by the Appellant was genuine. On the other hand, the shares are in the appellant's demat account from 08.11.2012 onwards which is credible and independent evidence, therefore, shares are held by the appellant for a period of more than 12 months from the date of cheque debited in his bank account i.e. 18-12.2012. AR discussed that this was shown as investments in the books of accounts. The relief to the appellant has recently been given by Hon'ble Rajasthan High Court in the case of CIT vs. Pooja Agarwal.
"Bogus capital gains from penny stocks: If the transaction is supported by documents like contract notes, demat statements etc and is routed through the stock exchange and if the payments are by account payee cheques and there is no evidence that the cash has gone back to the assessee's account, it has to be treated as a genuine transaction and cannot be assessed as unexplained credit."
In view of above, the contention of LTCG is proved beyond doubt, hence accepted.
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4.2 The second limb of the controversy is technical ground such as the evidences have been collected behind back and not fully disclosed to the appellant and opportunity to cross-examine has not been accorded, therefore the addition is unsustainable as per ratio laid down by different case laws. The appellant has relied on various case laws for this proposition and the same have been perused. For this proposition, reliance is placed on the following decisions of Hon'ble Gujarat High Court:
(a) Decision of Hon'ble Gujarat High Court in the case of Heirs and Legal
Representatives of Late Laxmanbhai S. Patel Vs. CIT (2008) 174 taxman 206 (Guj.) wherein it was held as under:
' "In the instant case, the finding was arrived at by the authorities below while denying an opportunity of cross-examining the important witness, namely 'R' and the legal effect of that finding was certainly a question of law which required to be reviewed by the Court, The legal effect of the statement recorded behind the back of the assesses and without furnishing the copy thereof to the assessee or without giving time an opportunity of cross examination, if the adcition was made, the same was required to be delete on the ground of violation of the principles of natural justice."
(b) Decision of Hon'ble Gujarat High Court in the case of CIT Vs. Indrajit Singh Suri - (2013) 33 taxmann.com 281 (Guj.).whereh the Hon'ble High Court held as under:
"Where additions were made on basis of statements of persons who were not allowed to be cross examined by assessee, additions were not sustainable." -** (c) Decision of Hon'ble Gujarat High Court in the case DCIT Vs. Mahendra Ambalal Patel Tax Appeal No. 462 of 1999' 13th April, 2010 40 DTR (Guj.} 243 wherein the Hon'ble High Court held as under:
"Though the AO has placed reliance upon the statements of Shri Manoj Vadodana and Shn G. C Patel for the purpose of taxing the amount in the hands of the assessee, despite specific request being made by the assessee for cross-examining both the said persons, the AO has not permitted the assessee to cross-examine them. In the circumstances, no reliance could be placed upon the statements of the said persons as the respondent assessee had no opportunity to cross-examine them. The statements made by the aforesaid persons would have no evidentiary value and as such, would not be admissible in evidence. "
(d) Decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Kantibhai Revidas Patel Tax Appeal No. 910 of 2013 wherein it was held as under:
"The Ld. A.O. had used this statement without allowing cross examination of Vikas A. Shah which is against the principle of natural justice.
Hon'ble Supreme Court judgment in the case No. Civil appeal No. 4228 of 2006 in the case of M/s. Andaman Timber Industries Vs. CCE, Kolkata dated 02.09.2015 has clear ratio to be followed by subordinate judicial officers. The operative portion of this un-published judgment is reproduced as under:-
As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the adjudicating authority simply relied upon
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the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross- examination. Therefore, it was not for the adjudicating authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeals No.2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
In view of the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notices.
We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal,"
Further Departmental SLP was rejected by Hon'bte Supreme Court vide order dated 31.07- 2017 in the case of CIT, Central Jaipur vs. Sunita Dhadda wherein the addition •tfaserJ on third party was deleted for want of cross-examination by the appellant.
4.3 I observe an order of Hon'bte ITAT, Ahmedabad in the case of Chartered Motors Pvt. Ltd. vs. ACIT in (T(SS)A No.26/Ahd/2012, wherein also, the addition was made relying on the statement of Shri Mukesh Chokshi, without granting an opportunity of cross- examination and also ignoring the evidences placed on record by the appellant. The facts of this case are similar to the facts of the appellant with a difference that in the cited case the allegation was in respect of share application money while in appellant's case it pertains to LTCG.
I have gone through order of the Hon'bte ITAT, Ahmedabad Bench in the case of. Chartered Motors (supra) and it is seen that in that case the share application money was received by that assessee through various companies including Buniyad Chemicals and Ale/nbic Securities Pvt. Ltd. allegedly operated by Shri Mukesh Choksi. It was the I case of the AO that Shri Mukesh Choksi was involved in providing accommodation i. entries and he had provided entries of share application money through various companies to the said assessee. The assessee has placed on record various, . evidences, however the AO did not consider such evidences and made addition merely relying on the statement recorded of Shri Mukesh Choksi. It is further seen that the assessee had asked for the cross-examination of such statement, which was effectively not provided by the AO. After considering such factual aspects of the case, the Hon'ble Tribunal has held that in the absence of opportunity being granted to the assessee to cross-examine the statement of Shri Mukesh Choksi being used against the assessee, ' such statement is not admissible evidence against the assessee and therefore addition made relying on such statement cannot be made. The relevant findings of the Hon'ble Tribunal is as under:
" 17. We find that in the instant case, the addition is made u/s. 68 of the Act on the ground of unexplained cash credit. As per the provisions of section 68, the initial onus lies upon the assessee to prove the nature and source of amount credited in his books of account. We find that this initial onus was discharged in the instant case by the assessee by furnishing documents like MOA, AOA share application & board resolution, Certificate of Incorporation, Certificate of Commencement, acknowledgements of ITRs, audited accounts etc. of concerned companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record relevant material to
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show that why inspite of the above stated documents, the addition is still to be made in the hands of the assessee. In the instant case, the Department has endeavoured to discharge its burden on the basis of statements recorded by it -* of the persons mentioned above.
We find that the assessee requested for cross-objection of the maker of the statement. Further, we find that the Assessing Officer also made an attempt to allow the assessee opportunity to cross-examine the makers of the statement by issuing summons to them. However, the cross-examination could not take place because of failure on the part of the makers of the statements to appear on the appointed date. But strangely, thereafter, the Assessing Officer did not take any step to allow effective opportunity to the ' assessee Jo cross-examine the makers of the statements. The Assessing Officer did not pursue the matter further. Thus, we find that the assessee was not allowed any real opportunity to cross-examine the persons who made the statement at the back of the assessee. In our considered view, in the I circumstances, the statement of those persons cannot be read against the assessee Our above view finds support from the decision of the Hon 'ble Jurisdictional High Court in the case of (i) Heirs and Legal Representatives of Late Laxmanbhai S. Pate! Vs. Commissioner of Income Tax (supra) ' (ii) CIT Vs. Indrajit Singh Suri (supra) (iii) DCIT Vs. Mahendra Ambalal Patel (supra) (iv) CIT vs. Kantibhai Revidas patel(supra)
In view of the above settled position of law, we find force in the argument of the assesses that the statements of the persons mentioned above are not admissible evidence against the assesses. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assesses when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s. 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based on the inadmissible and unreliable material and therefore addition so made cannot be sustained. We, therefore, delete the addition of Rs 2,00,00,000/- made in the case of M/s Charted Motors Pvt. Ltd. as well as addition of Rs 70,00,00/- made in the case of M/s. Chartered Speed Private Limited.
In the result, both the appeals of the assessee are allowed-"
4.4 Further I came across Hon'ble Gujarat High Court decision in Tax Appeal Nos.126 and 127 of 2015 in the case of Pr.CIT vs. Chartered Speed Pvt Ltd. and Chartered Motors Pvt. Ltd., whereby the order of the Ahmedabad Tribunal in the case of ChrrtF"^ Motors (supra) is confirmed. I have gone through the said order of the Hon'ble Gujarat High Court and the relevant findings is as under: „
"As recorded by the Tribunal, the Tribunal found that the initial burden was discharged by the assessee. In our view, once the Tribunal upon the appreciation of the material found and recorded the finding of the fact that the assessee had discharged initial burden, such a finding of fact would be outside the judicial scrutiny in the appeal before this Court unless the finding of fact is perverse to the record. It is an undisputed position that the statement of the persons concerned which were recorded by the department, those persons were not made available for cross examination, may be for one reason or another inspite of the attempts made by the department. Therefore the Tribunal has rightly found that the statement of those persons cannot be read against the assessee."
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In view of legal position as held by the Hon'ble ITAT and subsequently confirmed by the Hon'bie Gujarat High Court, it is a settled position that the Appellant should have been provided the opportunity to cross-examine the witness of the department and such- opportunity was not accorded to the Appellant and therefore no valid addition could have been made. 4.5 In view of above facts & ratio laid down by jurisdictional ITAT and jurisdictional High Court, the impugned addition made by the AO is found not justified and the same is hereby deleted. The conditions to invoke the provisions u/s.68 are not prevalent in this case. As the appellant has proved through independent evidences such as payment through bank account for purchase of shares that the shares were held for more than 12 months therefore, is eligible for deduction u/s.10(38) of LTCG of Rs.1,04,55,043/- 4.6 Having held that the share transaction is genuine and eligible for deduction u/s.10(38), there is no justification of making addition on account of alleged commission paid of rs.2,09,200/- by the appellant. Grounds No.2,3 4 is allowed.
Being aggrieved by the order of the learned CIT, the revenue is in appeal before us.
The learned DR contended that shares were purchased off market for Rs. 130000.00 which were materialized on a later day before sale of shares. According to the learned DR, there is no human probability for rise in the share price of non- working company. The learned DR vehemently supported the order of the AO by reiterating his findings contained in the assessment order.
On the contrary the learned AR before filed a paper running from pages 1 to 357 and contended that the assessee was never supplied the investigation report or any other document suggesting that the script of M/s SRK industries Ltd was manipulated. There was no action by the SEBI against the impugned company. According to the ld. AR, the script of the impugned company was never delisted from the stock exchange and remained active all over. The learned AR vehemently supported the order of the learned CIT-A.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the long term capital gain declared by the assessee on sale of shares of M/s SRK Industries Limited for ₹ 1,04,55,043/- was treated as bogus and manipulated, leading to the addition by
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the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph. However, the ld. CIT-A, subsequently, was pleased to delete the addition made by the AO, holding the impugned long term capital gain as genuine.
10.1 The 1st controversy arises before us whether the name of the script M/s SRK industries Ltd is appearing in the investigation report carried out by Kolkata investigation wing. Indeed, it has been alleged by the AO that the name of impugned script is appearing in the list of penny stock and this fact was also found to be true by the SEBI in its investigation. In this regard, we note that the allegation by the revenue has not made any reference to any such report except merely a bald statement recorded in the assessment order. The dominant basis of treating the impugned long-term capital gain as bogus was based on the investigation carried out by investigation wing of income tax Kolkata. Thus it was the onus upon the revenue to bring such facts on record before alleging against the assessee. In the present case the learned CIT-A after detailed verification has reached to the conclusion that the transaction carried out by the assessee was genuine and based on the documentary evidence. At the time of hearing, the learned DR has not brought any iota of evidence against the finding of the learned CIT-A. At the same time, we also note that there was no allegation against the broker through whom the assessee has purchased and sold the impugned script. What has been adopted by the AO for making the addition was the modus of operandi highlighted by the investigation wing of Kolkata. To our understanding, the mere modus of operandi cannot the basis of making the addition or treating the capital gain as bogus until and unless it is supported by the material documents. On analyzing the facts of the present case, we note that the AO on one hand has alleged that the entire transaction was bogus but on the other hand the AO himself has allowed the cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales go hand in hand. In simple words, sales is not
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possible without having the purchases. Thus, once purchases has been admitted as genuine, then corresponding sales cannot be doubted until and unless some adverse materials are brought on record. As such, we note that the AO in the present case has taken contradictory stand. On one hand, the AO is treating the entire transaction as sham transaction and on the other hand he’s allowing the benefit of the cost of acquisition for the shares while determining the bogus long- term capital gain. It is important to note that the AO in assessment order has also made the addition of Rs. 209200/- being 2 percent of the long-term capital gain which the assessee incurred in arranging alleged bogus long-term capital gain. Admittedly, the same was deleted by the learned CIT-A, the revenue has not challenge the same before the ITAT. Thus, it is transpired is this that such expenses were not bogus in nature. Certainly, the impugned expenses have direct nexus with the alleged so-called bogus long-term capital gain but the revenue has not challenge the deletion of the same. Thus, it is construed that the impugned amount was admitted as genuine which is again contradictory to the stand taken by the AO.
10.2 It was also alleged that the price of the share of M/s SRK Industrires Ltd. was increased manifolds in a short period of time which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having no financial base/business activity/profitability certainly gives rise to the doubt about such increase in the price. But in our considered view, this cannot be a sole criteria for reaching to the conclusion that the price were rigged up to generate the long-term capital gain which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides reasons to investigate the matter in detail and the same cannot take the place of the evidence. But in the case on hand, there was no enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of share price of M/s SRK Industries Ltd. by the assessee or his broker. Similarly, there was no complaint
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filed by any of the party either to the SEBI or the stock exchange about the assessee or brokers impleading that they were involved in the activity of rigging up the price of the shares. Similarly, the AO has not conducted an enquiry from the SEBI or BSE about the assessee whether he was engaged in the frivolous activities as alleged.
10.3 We also note that the AO has referred to the investigation carried out by the investigation wing of Kolkata wherein it was unearthed that the certain broker or entry provider have accepted that they have used the script of the several paper companies to provide bogus exempted long term capital gain to certain class of beneficiaries in consideration of cash. However, there was no name of the broker namely M/s Shah Investor Home Ltd. in the list of the brokers provided by the AO through whom the assessee has carried out the transactions. Thus the assessee cannot be alleged for the involvement in price manipulation. Nevertheless, there was no information available on record whether the name of the assessee was appearing in the investigation carried out by the investigation wing of Kolkata or any other investigation carried out by the Income Tax Department. It was also not brought any material that those brokers or entry providers have taken the name of the assessee or the broker of the assessee and provided their services either to the assessee or assessee broker.
10.4 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this arrangement. The chain of events and the live link of the assessee’s action that he was involved in such rigging up of share price should be established based on cogent materials. The allegation as discussed above implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. This allegation that cash had changed hands, has to be brought on record by the Revenue but we find that there is no such whisper in the order of
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the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary documentary evidence in support of the identity, genuineness of transaction and creditworthiness of the parties. Therefore the same cannot be made subject to tax under the provisions of section 68 of the Act.
10.5 We also note that there was no dispute raised by the Revenue with respect to the following facts:
Purchase consideration of share was made through cheque 2. Share was duly dematerialized in demat account 3. Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payment are received through ECS through demat account 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyer are not know top the assessee. 6. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer. 7. The assessee has no nexus or any relation with company, its director or entry operator 8. The assessee may have got only incidental benefit of price rise 9. The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee.
10.6 From the above, conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand.
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10.7 In our view, the income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation.
10.8 Now the controversy also arises whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of SRK Industries Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith.
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10.9 In holding so we draw support and guidance from the judgment of Hon’ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under:
On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from 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.
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
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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.
10.10 Respectfully following the judgment of Hon’ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s SRK Industries is concern.
10.11 We also note that this Tribunal in the case of Parasben Kasturchand Kochar Mehta Lodha & Co. Chartered Accountant vs. ITO bearing ITA No. 549/Ahd/2008 involving identical facts and circumstances has held as under:
We have gone through the relevant record and impugned order and heard both the parties. Assessee submitted that he is a customer of ICICI Bank and having demat account of ICICI Securities Ltd. and he has purchased shares through ICICI Securities Ltd. and money has been paid through banking channel. Copies of bank statement and Demat account have been submitted before the lower authorities. 8. Ld. A.R. also drawn our attention towards the statement of Edelweiss Broking Ltd. through the said company shares were sold and also shown us copy of the Contract Note and all these details were furnished before the lower authorities. The assessee has earned long term capital gain from the sale of companies share i.e. Alpha Graphic India Ltd. and Blazon Marbles. 9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10.Ld. A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee.
10.12 At this juncture we also feel pertinent to refer the order of coordinate bench of Indore in case of Shivnarayan Sharma & Ors bearing ITA Nos.
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889/Ind/2018, 474,206,60,987/Ind/2019, where in identical fact and circumstances held as under:
Since we are adjudicating the above stated common issue on the basis of above assessee namely Shri Shivnarayan Sharma, we note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of Rs.1,50,000/- . There is no restriction under the law to purchase equity shares on off line mode. Vide order dated 22.3.2013 of the Hon’ble Mumbai High Court M/s Conart Traders Limited was merged with M/s SAL and in lieu there of 6000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months since purchased on 22.10.2011, assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through a registered broker and all the transactions of sale of shares took place on the recognised stock exchange. Sale consideration was received in the bank account attached with the Demat account. The detail of the persons purchasing the shares is not provided on the portal of SEBI and all the transactions of purchase and sale took place on the portal through registered brokers under the control of SEBI. M/s SAL has not been striked off as a shell company. Trading of shares of M/s SAL was permitted by SEBI. Prime facie, all the conditions provided u/s 10(38) of the Act seems to have been fulfilled by the assessee. 17. As regards the second issue raised is that assessee was not provided opportunity of cross examination, we observe that Ld. A.O has referred to some investigation carried out by the Department in the case of some brokers and other assessee(s) located at Kolkata and other places and there is a reference of the company M/s SAL. However it is not disputed that name of the assessee is not appearing in such report nor any evidence was found by the Ld. A.O which could indicate that assessee was also a part or connected to the alleged racket of providing accommodation entry of bogus LTCG nor any proof of any agreement between the assessee and other persons mentioned in the report has been found. So the basis of addition is primarily on the statement of third party as well as the information gathered from other sources. Perusal of the records shows that the assessee has not been provided any access to such report nor any opportunity was provided to cross examine those persons who accepted to have provided accommodation entries for the bogus LTCG, to the assessee. 18. We observe that all the above stated facts and the issue of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended. The assessee also deserves to succeed on the legal ground as no opportunity was awarded to cross examination the
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third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that “not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected”. 24. We accordingly in view of our above discussions, facts and circumstances of the case and respectfully following judicial precedents and the decisions of Co-ordinate benches squarely applicable on the instant cases, are of the considered view that in the case of the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF), the claim of exempt income u/s 10(38) of the Act of Long Term Capital Gain from sale of equity shares deserves to be allowed and no addition is called for the estimated brokerage expenses made in the hands of the assessee(s). Thus finding of Ld. CIT(A) is set aside and the Grounds raised by the assessee(s) in ITA Nos.889/Ind/2018, 474/Ind/2019, 206/Ind/2019, 60/Ind/2019, 61/Ind/2019 and 987/Ind/2019 are allowed.
10.13 It is also important to note that the addition was made by the AO based on the statements/information received from the 3rd party but no opportunity was afforded by the revenue for the cross-examination which is against the principles of natural justice as held by the Hon’ble Apex Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006.
10.14 We also note that various Tribunals involving identical facts and circumstances have decided the issue on hand in favour of the assessee. The list of such cases for ready reference are enumerated as under:
Sr. No. ITA No. Case 1 17/JP/2018 ITO vs. Kapil Mittal 2 2966/CHNY/2018 Mrs Madhu V Jhaver 3 4267/Mum/2018 & Smt. Geeta Khare & Anr. 694/Mum/2018 4 1775/Mum/2019 Shri Rakesh Shantilal Shah vs. ITO 5 3740/Mum/2019 Smt. Bhavna B. Kothari 6 80/PUN/2019 Dnyandeo Laxman Rajale 7 1413 to 1420 /CHNY/ M/s. Pankaj Agarwal & Sons (HUF) & 2018 Ors. vs. ITO
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10.15 In view of the above discussion we hold that the capital gain earned by the assessee cannot be held bogus merely on the basis of some report finding unearthed in case of third party/parties unless cogent material is brought against particular assessee on record. Therefore, we don’t find any reason to disturb the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of Revenue’s appeal are dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 16/08/2022 at Ahmedabad.
Sd/- Sd/- - (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER True Copy (True Copy)True Copy Ahmedabad; Dated 16/08/2022 Manish आदेश क� ��त�ल�प �े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण / DR, ITAT, 6. गाड� फाईल / Guard file.
आदेशानुसार/BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad