KAMAL SINGH KUNDALIA,SILIGURI vs. I.T.O., WARD - 1(4), SILIGURI, SILIGURI

O R D E R

PER S.S.Godara, Judicial Member:

Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 2 2. The assessee’s sole substantive grievance challenges correctness of both the lower authorities’ action treating its Long Term Capital Gains (LTCG) amounting to ₹76,68,565/- arising from sale of shares after payment of Security Transactions Tax (STT); as bogus unexplained cash credits u/s 68 of the Act. The CIT(A)’s detailed discussions to this effect reads as under:- “Perusal of fact shows that the assessee is not regular investor in shares. The shares were purchased on one single day of 17.02.2014 and were sold on 14.03.2014. The appellant earned a phenomenal return of 50 times within a short span of period which is extremely unusual./ the paste records of the assessee for the preceding years show that the assessee has been not active in the stock market. The shares in which the assessee has claimed to have made a deal, are identified as Penny shares by the investigation wing of the department because rates of these shares are not based on business results of the companies but some are fluctuated by insider’s trading from zero value (negligible price) to very high price and vice versa without any reason or basis to accommodate or generate bogus capital gain or loss. There was specific information about the script for indulgence in non-genuine & bogus capital gain entry from the transactions of purchase and sale of shares of M/s Cressanda Solutions Pvt. Ltd. Company from the above facts, it was observed by the AO that the so called purchase of shares of Cressanda Solutions Pvt. Ltd. are sham and bogus. It is also a matter of record that no detail has been filed by the appellant to establish him as a regular investor. The in exorbitant increase of price in the share were also not supported by the company’s net worth. Basically it was structured transactions made in order to bring unaccounted money into the books without paying any tax under the guise of Long term Capital Gain. Though dealing in penny stock is not illegal but once the transactions are structured and the same are with motive to defraud the revenue under the color of bogus transactions then the same are subject to be treated as sham and colourable. In this case, it is pertinent mention here that the appellant purchased share of “Smartschamps IT and infra Limited” of Rs.1,50,000/- which subsequently got merge to M/s Cressenda Solution Pvt. Ltd. Perusal of the fact shows that the statement of Sh. Narendra Jain and Sh. Pankaj Agarwal provided to the appellant. The appellant has simply relied on the agreement that the duo have not taken the name of the appellant for bogus entry. The aforesaid argument of the appellant has not give in credence as the appellant was not regularly dealing in shares and he had shown very meager income from his business. It is also beyond human probability that appellant has earned only profit in his share transactions. Dealing and no loss has been incurred by the appellant in the case of share dealing. The Hon'ble Supreme Court in the case of CIT v.Durga Prasad More (1971) 82 ITR 540 (SC) has categorically held that the revenue is entitled to look into the surrounding circumstances, to find out the reality of the recitals made in the documents. The relevant observations and findings of Hon'ble Supreme Court, in the matter of discharge of ‘on of proof’ and the relevance of surrounding circumstances of the case are “that though an appellant’s statement must be considered real unit it was shown that there were reasons to believe that the appellant was not the real, in ca case where the party relied on self-serving recitals in respect to the documents, it was for the party to establish the transfer of those recitals, the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and the Tribunals Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 3 have to judge the evidence before them by applying the test of human probability. Human minds may differ as to the reliability of piece of evidence, but, in the sphere, the decision of the final fact finding authority is made conclusive by law.” The above ratio laid down by the Hon'ble Supreme Court has been reiterated and applied by the Hon'ble Apex Court in the case of Sumati Dayal V CIT 214 ITR 801 (SC). Perusal of fact shows that the price of share of M/s Cresaanda Solution Pvt. Ltd. in 2011-12 was Rs.10/- and after that it was substantially increased. Now, as on date September 2017 it has come to the price of Rs.2.71/- per share. As on date the credence of Cresanda Solution Ltd. is that its face value of share remains Rs.1/- average equity is (-) 1.43 and PE Ratio is (-) 0.16, which shows that the company has no net worth as such. Recently, the honourable ITAT Kolkata has given decision co bogus share application money on the basis of net worth and treated it as bogus and held that if the net worth share are not up to the mark then there is no basis for receiving share of application money. On similar line of action, the structured transactions share have of appreciated imaginary price, but the net worth of the company is negative which shows that it is nothing but bogus and same transactions particularly when the appellant has never dealt with share. In case of Sh. Avtar Singh, Sirsa vs Department of Income Tax on 8 November, 2012 IN THE INCOME TAX APPELALTE Tribunal CHANDIGARH BENCH ‘A’ CHANDIGARH Assessment Year: 2008-09 has held such transactions as structure and colorable. The gist of the decision is reproduced as under:- ‘It is the duty of the Court in every case, where ingenuinity is expended to avoid taxing and welfare legislation to get behind the smoke screen and discover the true state of affairs. The Court is not to be satisfied with form and leave alone the substance of the transactions. This view has been upheld by the Hon'ble Supreme Court, in Workman of Associated Rubber Industries Ltd. (1986) 157 ITR 77 (SC) and in Ess Ess Kay Engg. Co (p) Ltd. V CIT (1985) 15 ITR 636 (P&H). The Hon'ble Kerala High Court in Onam Agarbati Co. V Dy.cit (2009) 310 ITR 56 (Ker) has held that though a taxpayer may resort to a device to divert the income before it accrues to him, the effectiveness of advice depends upon its genuineness. The substance of the transactions has to be assessed by applying the taxing Statute so as to ascertain whether it is a sham or make-believe transactions or one which is genuine.

is dismissed.”

3. Both the parties reiterate their respective stands against and in support of the impugned addition arising from treatment of assessee’s LTCG from sales of share held in M/s Creassanda Solutions Pvt. Ltd. as bogus unexplained cash credits. The Revenue places strong reliance on both the lower authorities’ findings quoting search / survey statement(s) of the two entry operators, Shri Narendra Jain and Shri Pankaj Agarwal in light of hon'ble apex court’s landmark decisions in Sumati Dayal vs. CIT (1995) 80 Taxmann.89/2014 ITR 801 (SC) and CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC).

4. We find no merit in Revenue’s instant arguments. The fact remains that neither the department had supplied copy of alleged entry operator statement nor there is any material on record that they have named this taxpayer as the beneficiary of the impugned capital gains derived by rigging scrip’s share prices. Both the Assessing Officer as well as CIT(A) are fair enough in observing that the said two persons have named the scrip rather than the assessee in their respective search statement. We therefore quote this tribunal’s decision in Prakash Chand Bhutoria vs. ITO in ITA No.2394/Kol/2017 decided on 27.06.2018 deleting identical addition for lack of any evidence against the concerned assessee as follows:- “8. A perusal of the order of the AO demonstrates that this addition was made merely on “suspicion” and in a routine and mechanical manner. This is clear from the fact that the AO refers to some ‘Sharp Trading Company’ as one of the main manipulated company and whereas the assessee sold scrips in Unno Industries Ltd. The AO refers to various enquiries made by “The Directors of Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 6 Income Tax”, Kolkata on project basis and that this resulted into unearthing of a huge syndicate of entry operators and share brokers and money lenders involved in providing of bogus accommodation entries. The report as the so- called project and the evidence collected by the DIT (Inv.), Kolkata etc have not been brought on record. It is well settled that any document relied upon by the AO for making an addition has to be supplied to the assessee and an opportunity should be provided to the assessee to rebut the same. In this case, general statements have been made by the AO and the addition is made based on such generalizations. The assessee has not been confronted with any of the evidence collected in the investigation done by the DIT(Inv.), Kolkata. Evidence collected from third parties cannot be used against the assessee without giving a copy of the same to the assessee and thereafter giving him an opportunity to rebut the same.

9. The AO further relies on the shop increase of 31000% of the value of shares over the period of 2 years. Though this is highly suspicious, it cannot take the place of evidence. The Hon'ble Supreme Court has stated that suspicion however strong cannot be the basis for making an addition. The evidence produced by the assessee listed above proves his case and the AO could not controvert the same by bringing on record any evidence. The evidence said to have been collected by the DIT (INV.), Kolkata and the report is not produced before this Bench.

10. I now discuss the case law on the subject. The Hon’ble Calcutta High Court in the case of CIT, Kolkata-III vs. Smt. Shreyashi Ganguli reported in [2012] (9) TMI 1113 held as follows: “1. Whether on the facts and circumstances of the case, the order of the Ld.. Tribunal is perverse in law as well as on facts in deleting the addition made by the Assessing Officer as unexplained cash credit under section 68 of the Income Tax Act, 1961, by ignoring the facts on record. The ld. Tribunal after considering the material and hearing came to a fact finding which is as follows: The Assessing Officer has doubted the transaction since the selling broker was subjected to SEBI’s action. However, the demat account given the statement of transactions from 01.04.2004 to 31.03.2005 i.e. relevant for the assessment year under appeal (2005-06) are before us. There cannot be any doubt about the transaction as has been observed by the assessing officer. The transactions were as per norms under controlled by the Securities Transaction Tax, brokerage service tax and cess, which were already paid. They were complied with. All the transactions were through bank. There is no iota of evidence over the above transactions as it were through demat format. Hence, we agree with the given findings of the ld. Commissioner of Income Tax (Appeals) in accepting the transactions as genuine too. In view of the fact findings we cannot reappreciate, recording is such, cannot be said to be perverse as it is not fact finding of the ld. Tribunal alone. The Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 7 commissioner of Income Tax came to the same fact finding. Concurrent fact finding itself makes the story of perversity, unbelievable.” The “D” Bench of the Kolkata Tribunal in the case of Gautam Kumar Pincha vs. ITO, in dated 15.11.2017 at para 19 onwards held as follows: (i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) – In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated. (ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) – In this case the Hon’ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive. (iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) – In this case the Hon’ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI’s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. (iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) – In this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO’s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed. (v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) – In this case the Hon’ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.

Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 8 (vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in of 2009 dated 29.4.2009] – In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon’ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court. 8.4. In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered 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 the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT(A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence 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. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence 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 that income from LTCG is exempted u/s 10(38) of the Act. For coming to such a conclusion we rely on the decision of the Hon’ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein 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 filed 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 aside 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 ITA No.620 of 2008 is dismissed.” 8.5. We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale Kamal Singh Kundalia Vs. ITO Wd-1(4), Slg. Page 9 proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition.