NIRMALA DEVI SURESH KUMAR,CHENNAI vs. ITO NON CORPORATE WARD 5(2), CHENNAI

3 to 2663/Chny/2018 2. All these assessees have purchased shares, by cash, for a nominal price, off market, from certain brokers. Subsequently, each of them sold those shares on huge price, earned a huge profit of LTCG and claimed it as an exempt income u/s. 10(38) as per the following table. Name of the assessee No. of shares sold Assess- Amount Long Term ment year received on Capital Gain sale of claimed under shares Section 10(38) ₹ ₹ Smt. Kushbhu Jain 2010-11 2100 shares of M/s 7,40,250/- 6,94,752/- Bakra Prathisthan Ltd. 2012-13 6,13,900/- 5,92,670/- Smt. Nirmala Devi 3500 shares of M/s Suresh Kumar Blue Print Securities Ltd. Smt. Sangeetha 2010-11 10,57,500/- 10,54,320/- 3000 shares of M/s Bakra Prathisthan Ltd. Shri Jugrajji Babulal 2012-13 6,13,900/- 5,92,670/- 2000 shares of M/s Blue Print Securities Ltd. 1500 shares of M/s 2013-14 4,60,425/- 4,44,502/- Blue Print Securities Ltd. 2010-11 10,57,500/- 9,92,865/- Shri H. Kishore Jain 3000 shares of M/s (HUF) Bakra Prathisthan Ltd. Smt. Nita Devi 2011-12 10,74,500/- 10,35,001/- 3500 shares of M/s Blue Print Securities Ltd. 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 company etc, reopened the respective assessment . During the re- assessment, the respective AO issued a letter to the seller of shares which was returned by the postal authorities marking not known or insufficient 4 ITA Nos.2657 to 2663/Chny/2018 address or as unserved, as the case may be. Thereafter, the respective Assessing Officer 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 impugned transactions are not genuine, the respective assessee has not proved that the impugned transactions were genuine, the sale and purchase of those shares as penny stock, assessed the entire sale consideration as an unexplained credit under section 68 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 CIT(A). The 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) dismissed the appeal of each of the above assessee. Aggrieved against that order, the above assessees have filed the above appeals before the Tribunal.

It was submitted by ld. A.R that the issue in the 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. representative further submitted that 5 to 2663/Chny/2018 the Assessing Officer mainly placed his reliance on the investigation report of Investigation Wing of the Department at Kolkata and a copy of the said investigation report was not furnished to the assessees. Therefore, the Ld.representative submitted that an opportunity may be given to the assessees by remitting back the matter to the file of the Assessing Officer. Per Contra, the Ld DR submitted that the respective assessee has claimed deduction u/s 10 (38) but she/ he/ it, as the case may be, 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.

We have considered the rival submissions. It is noticed that each of the above the assessee has not been given a fair opportunity to prove the genuineness but the assessment has been made based on the evidences collected by the Revenue in the course of the investigation conducted by them on the brokers / share broking entities etc. This is not permissible. This being so, in the interests of natural justice, the issue of the genuineness of the transactions require re-adjudication. Since, the right to exemption must be established by those who seek it, the onus therefore lies on the assessee. In order to claim the exemption from payment of income tax, the assessee had to put before the Income Tax authorities proper materials which would enable them to come to a 6 to 2663/Chny/2018 conclusion. (35 ITR 312 (SC)). Thus, the AO must keep in mind that the onus of proving the exemption rests on the assessee. If the AO does have any evidence to the contrary, it is to be put to the assessee for his rebuttal. The internal communications of the Revenue are evidences for drawing an opinion on possible wrong claims but they are not the final evidence. This Tribunal in the case of Kanhaiyalal & Sons (HUF) v. ITO in I.T.A. No.1849/Chny/2018 dated 06.02.2019, has remitted back the matter to the file of the Assessing Officer for reconsideration. This Tribunal has observed at para 4 of its order as under:-

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 8 to 2663/Chny/2018 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? 11. 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 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 9 to 2663/Chny/2018 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 ITA Nos.2786 & 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 AO for re-adjudication on the lines indicated above. Therefore, the AO concerned shall require the assessee; to establish who, with whom, how and in what circumstances the impugned transactions were carried out etc., to prove that the impugned transactions are actual, genuine etc. The assessee shall comply to the AO’s requirements as per law. The AO is also free to conduct appropriate enquiry as deemed fit. The Assessing Officer shall also bring on record the role of the assessee in promoting the company and 10 to 2663/Chny/2018 relationship of the assessee with other promoters, role of the assessee in inflating the price of shares, etc. as had been held by the Co-ordinate Bench of this Tribunal in the case of Kanhaiyalal & Sons (HUF) v. ITO in I.T.A. No.1849/Chny/2018, dated 06.02.2019 referred to supra. The AO shall furnish adequate opportunity to the assessee on the material etc to be used against her/him/ it and on appreciation of all the aspects, the AO would decide the matter in accordance with law. Thus, the issues of exemption claim u/s 10(38) are restored to the file of the respective Assessing Officer for re-adjudication on the lines indicated above.

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