NISHA,CHENNAI vs. DCIT NON CORP CIR-9(1), CHENNAI

All these assessees have purchased shares of M/s. CCL International Limited / M/s GCM Securities Ltd, as the case may be, by cash, for a nominal price, off market, from certain brokers Subsequently, each of them sold shares on huge price, earned a huge profit of LTCG and claimed it as an exempt income U/s.10(38). The respective Assessing Officer, on the basis of the report of investigations done by the Revenue in Kolkatta in which one of the brokers named the respective assessee as a beneficiary of bogus LTCG or named the shares held by the company as a paper/shell/bogus 3 & 875/Chny/2019 company and on the basis of suspicious sale transaction in shares and exempt LTCG shown in return (Penny Stock) report, etc, scrutinized the respective assessment. During the course, the respective Assessing Officer after considering the respective assessee’s explanation, material etc., on the basis of investigations done by the Revenue and after analyzing these transactions in detail, treated, inter alia, that the purchase and sale of those shares as penny stock, the assessees have manipulated the transactions with the brokers to convert their unaccounted income etc and hence treated the entire sale consideration as an unexplained credit and refused each of the assessee’s exemption claim under section 10(38). Aggrieved, each of the above assessee carried the matter on appeal before the respective CIT(A). The respective Ld. CIT(A), inter alia, relying on the decisions in the cases of ITO, 19(3) (4) Mumbai Vs Shamim M Bharwani, reported in 69 taxmann.com 65 (Mumbai –Trib) and Sanjay Bimalchand Jain v PCIT-1, Nagpur reported in 89 taxmann.com 196 (Bomb HC) etc dismissed the appeal of each of the above assessee. Aggrieved against those orders, the above assessees have filed the above appeals before the Tribunal.

4 & 875/Chny/2019 3. It was submitted by Ld. AR that the issue in this appeal in each of the above assessee’s case was against the action of the Ld. CIT(A) in confirming the addition made by the respective Ld. Assessing Officer in treating the purchase and sale of shares by the respective assessee, as penny stock transactions. The Ld.AR submitted on the lines of grounds of appeal and relied on the order of this Tribunal in the case Mr Sunil Kumar Lalwani Vs ITO & others, Non Corporate Circle 9(4), Chennai in ITA No 659 & 660/ CHNY/2018 dt. 09.01.2019. Per Contra, the Ld DR submitted that the respective assessee has claimed deduction u/s 10. (38) but he/she has not proved the genuineness, therefore, reiterating the facts and circumstances of these cases from the orders of the lower authorities the Ld. DR supported the orders of the lower authorities and relying on this tribunal decision in the case of Shri Heerachand Kanunga, for assessment years 2010-11 & 2011- 12 in ITA Nos. 2786 & 2787/Mds/2017 dated 03.05.2018, the Ld. DR pleaded that these appeals be decided accordingly.

Further, perusal of assessee’s case shows that it is similar to the facts in the case of Shri Heerachand Kanunga, a decision of the Co-ordinate Bench of this Tribunal made for assessment years 2010-11 & 2011-12 in & 2787/Mds/2017 dated 03.05.2018 . The relevant portions from that order is extracted as under :- “9. A perusal of the facts in the present case admittedly given room for suspicion. However, assessments are not to be done on the basis of mere suspicion. It has to be supported by facts and the facts are unfortunately not forthcoming in the Assessment Order, in the order of the Ld.CIT(A) nor 7 ITA Nos.406,407 & 875/Chny/2019 from the side of the assessee. The main foundation of the assessment in the present case is the statement of one Shri Ashok Kumar Kayan who has admitted to have provided bogus Long Term Capital Gains to his clients. The said Shri Ashok Kumar Kayan also allegedly seems to have provided the assessee’s name and PAN as one of the beneficiaries. However, this statement given by Shri Ashok Kumar Kayan cannot be the foundation for the purpose of assessment in so far as Shri Ashok Kumar Kayan has not been provided to the assessee for cross-examination. In the absence of opportunity of cross-examination, the statement remains mere information and such information cannot be foundation for assessment.

Admittedly, the assessee has claimed to have purchased 15000 shares from M/s.BPL @ Rs.20/- per share totaling into Rs.3,00,000/-. The assessee claims to have paid cash for the purchase of these shares. The primary question would be as to where the purchase was done? If the purchase has been done in Kolkata, how was the cash transferred? When did the assessee received the share certificates and the share transfer forms? How did the assessee overcome the provisions of Sec.40A(3)? Was there adequate cash availability in the books of the assessee on 24.04.2008? Did the assessee travelled to Kolkata? How was the transaction done? Who applied for the demating of the shares? When were they demated? When were the shares transferred to the demat account of the assessee? To whom were the shares sold during the Assessment Years 2010-11 & 2011-12? When were the cheques received by the assessee? From whom did the assessee received the cheques? Was there any cash deposit immediately prior to the issuing of the cheque from the bank account of the purchaser of the shares of the assessee?

A perusal of the Assessment Order at Para No.7.1 shows that in the Written Submissions, the assessee states that he has purchased 15000 shares of M/s.BPL from M/s.ABPL, Kolkata. However, in Para No.8.3, it is mentioned that the assessee in good faith has purchased the shares of M/s.BPL from a sub-broker in his friends circle. What is the true nature of the transaction? From whom did the assessee actually purchase the shares? Did the assessee take possession of the shares in its physical form? In Para No.8.1 of the Assessment Order, it is mentioned that the assessee is an investor and has been regularly trading in shares. If this is so, does the demat account show such transactions being done by the assessee or is this the only one of transaction. Thus, clearly the facts required for adjudicating the appeals are not forthcoming. There is no evidence whatsoever to show that the assessee has held the shares for more than 12 months. This is because assuming that the demat has been done and the shares of M/s.BPL has come into the assessee’s demat account and has immediately flown out. Then the factum of the possession of the shares for more than 12 months have to be proved by the assessee. This is also not forthcoming. In reply to a specific query, as the date of the 8 & 875/Chny/2019 demat of shares, it was submitted by the Ld.AR that the demat was done on various dates. Then the question rises as to why there is so much of difference in the dates of demating when 15000 shares have been purchased together on 24.04.2008. No details in respect of M/s.BPL company is known, what is the product of the company which had lead to the share value of the company to go up from Rs.20/- to Rs.352/- in a period of two years. This would clearly be a case where the share value of the company was hitting the circuit breaker of the stock exchange on a daily basis and obviously it would have drawn attention. This being so, as the facts are not coming out of the Assessment Order nor the order of the Ld.CIT(A) nor from the side of the assessee, we are of the view that the issues in this appeal must be restored to the file of the AO for re- adjudication after granting the assessee adequate opportunity to substantiate its case and we do so.

The statement recorded by the Revenue from Shri Ashok Kumar Kayan cannot be used as an evidence against the assessee in so far as the statement has not been given to the assessee nor has Shri Ashok Kumar Kayan been provided to the assessee for cross-examination. However, the assessee shall prove the transaction of the Long Term Capital Gains in respect of which the assessee has claimed the exemption u/s.10(38) by providing all such evidences as required by the AO to substantiate the claim as also by producing the persons through whom the assessee has undertaken the transaction of the purchase and sale of the shares which would include the sub-broker, friend and the broker through whom the transaction has been done, before the AO for examination.

In the result, the appeals filed by the assessee in & 2787/Chny/2017 are partly allowed for statistical purposes.”

Respectfully following the above orders, on the facts and circumstances of these cases, we deem it fit to remit the issue of exemption in these appeals back to the file of the respective Assessing Officer for re-adjudication on the lines indicated above. Therefore, the Assessing Officer concerned shall require the assessees; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned 9 & 875/Chny/2019 transactions are actual, genuine etc. The assessees shall comply to the concerned Assessing Officer’s requirements as per law. On appreciation of all the above aspects, the Assessing Officer concerned would decide the matter in accordance with law. The Assessing Officer concerned is also free to conduct appropriate enquiry as deemed fit, but shall furnish adequate opportunity to the assessee on the material etc., to be used against him/ her, as the case may be, and decide the matter in accordance with law.

In the result, each of the above assessee’s appeal is treated as partly allowed for statistical purposes.