ARCHIT GUPTA,NEW DELHI vs. ACIT, CENTRALCIRCLE-29, NEW DELHI

4. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A) and raised grounds of appeal as well as filed detailed submissions. After considering the detailed submissions, ld. CIT (A) partly allowed the appeal of the Assessee.

5. Aggrieved, assessee is in appeal before us raising following grounds of appeal :-

1. That on the facts and circumstances of the case and provisions of law, the order passed by the Ld. CIT(A) under section 250 of the Act is bad both in the eyes of law and on facts.

2. That on the facts and circumstances of the case and the provisions of the law, the Ld. CIT(A) has failed to appreciate that the assessment order passed u/s. 147 is illegal, bad in law and without jurisdiction.

3. That on the facts and circumstances of the case and the provisions of law, the Ld. CIT(A) has failed to appreciate that the approval u/s. 151 is illegal, bad in law and without application of mind and consequently the assessment order passed requires to be quashed.

4. That on the facts and circumstances of the case, the ld. CIT(A) has failed to appreciate that the assessment order being passed in violation of the principle of natural justice by not providing opportunity for cross examination of persons, whose statements have been relied upon by the AO, in spite of specific request made by the AO, in spite of specific request made by the appellant in assessment proceedings as well as before CIT(A) and without giving adequate time and opportunity to the assessee to represent its case.

5. On the facts and circumstances of the case, the Ld. CIT(A) New Delhi has erred, both on facts and in law, in sustaining the assessment of the appellant at income of Rs. 1,14,61,699/- as against the income of (Rs. 21,74,900) declared by the appellant.

6. That the Ld. CIT(A) has erred, both on facts and in law, in sustaining the addition of Rs. 92,86,799/- on account of LTCG on sale of shares without appreciating the facts of the case.

7. That the Ld. CIT(A) has erred, both on facts and in law, enhancing the income by Rs. 1,85,735/- on account of alleged notional commission @2% paid for arranging the accommodation entries.

8. That the provisions of sections 234A, 234B and 234C of the Act are not at all applicable.

D. A search U/s 132 was conducted on M/s Radford Global Group on 9.04.2015, wherein, as per the Assessing Officer, it was alleged that the shares of M/s Wagend Infra Venture Ltd. were used as accommodation entries. E. The assessment has been re-opened in the case of appellant U/s 147 of the Act, alleging that appellant has earned long term capital gain of Rs. 74,86,799/- on the sale of 38,900 shares of M/s Wagend Infra Venture Ltd and the same is bogus. The reassessment proceedings were initiated based on an excel sheet received which contained the name of the appellant being dealing in the said shares. F. During the course of the assessment proceedings, the appellant appeared and submitted the relevant replies and documents. Summons were also issued to the appellant and his statement was recorded. The appellant duly appeared and in connections to the shares traded he submitted that (a) The shares were purchased for Rs. 18 lacs through payment of cheque of HDFC bank, (b) The 1,50,000/- share were received in the physical form vide share certificate dated 24.01.2011 and later these were materialized in D-Mat account, (c) Out of these shares he has sold 38,900 shares during the F.Y. 2011-12, and (d) He is a regular investor in shares. It is reiterated that all the relevant documents to substantiate the transaction was duly filed by the appellant Re: For the A.Y. 2013-14 G. It is submitted that out of 1,50,000 shares, appellant has sold 38,900 shares in the FY. 2011-12 relevant to the A.Y. 2012-13. Thereafter, on 8.06.2012 the assessee was allotted 164400 and 75800 number of shares as result of share split. The assessee was therefore having 351300 number of shares in the F.Y 2012-13 relevant to A.Y. 2013-14, which has been sold by him on various dates for a sale consideration of Rs. 3,03,20,995/- and he earned LTCG exemption U/s 10(38) being STT paid on it. On the basis of an investigation report, the Ld. A.O has considered such long-term capital gain as part of accommodation entry and made the addition of both LTCG income of Rs. 2,89,87,795/- under section 68 of the Act. Re: Passing of the reassessment order: The assessee, for substantiating the transaction, duly submitted (a) bank statement, (b) Contract notes, (c) transaction account statement with the registered broker namely M/s K.K Securities Ltd. The Assessee therefore submitted that from the perusal of these documents the legitimacy of the transactions is clearly proved. De hors these factual aspects the Ld. AO only on the basis of some investigation report has chosen to make the addition in this case by invoking the provisions of section 68 of the Act. From the mode and manner in which the Ld. AO has concluded the reassessment proceedings, shall make it clear that the same is merely based on surmises and conjectures, without considering that the there is NO connection of the alleged entry providers, much less brought on record by the AO, without conducting any independent inquiry, without bringing on record any evidence against the assessee, against the principles of natural justice, in violation of the settled legal jurisprudence and merely and only following the alleged report. Re: CIT (A): Against the aforesaid assessment order, the assessee filed an appeal to the CIT(A) contending the addition on merits. Beside the same, the assessee also challenged the reopening as bad in law and further on the ground that the Ld. AO has erred in the law in invoking the provision of section 147 instead of section 153C of the Act since in the case, it was reopened on the basis of the information received during search and seizure operation conducted upon M/s Radford Global group. The Ld. CIT(A) without considering the submissions of the appellant, without pointing out any defects in the documents submitted, confirmed the assessment order in a mechanical manner. From the perusal of the order of the CIT (A), it shall make it clear that in the same, the Ld. CIT (A) has passed the order on irrelevant and extraneous contentions mainly focusing on the modus operandi of the penny stock cases rather than linking the same to the facts of the present case. Against the same, the present appeal is filed before this Hon’ble Bench. RE: SUBMISSIONS OF THE APPELLANT. Now having stated the brief facts and the history of the case, in this regard, the legal submissions of the appellant are as under: 1. SUBMISSIONS OF ALL THE RELEVANT DOCUMENTS FOR SUBSTANTIATING THE TRANSACTIONS AND NO DEFECT POINTED OUT IN THE SAME: It is a trite law that unless some defects are pointed by the AO in the documents submitted, the same needs to be accepted. In this case, from the perusal of the reassessment order/ CIT(A) order it shall be clear that the same does not contain even a whisper that the document submitted by the Appellant was not genuine/ were defective. It is submitted that the payments were received through banking channels and transaction were done through recognized stock exchange. The inflow of shares is reflected by way of physical share certificate and demat account. The shares were transferred through demat account and the assessee does not know the buyer. There is no evidence that assessee has paid cash in return of the receipt through cheque. In other words, there is no evidence that the cash was recycled. It may the case that the share price of M/s Wagend Infra Venture Ltd could be subject matter of artificial price rigging, but there is no evidence brought on record by the Ld. AO that either the assessee or his stock broker was involved in connived transactions in order to earn the exempt long term capital gains. The entire exercise of reopening and the consequential re-assessment had been made by the Id. AO only out of pure surmise and conjecture. The assessee has got only incidental benefit of price rise. The assessee invested in shares, which gave rise to capital gains in a short period, does not mean that the transaction is bogus, as all the documents and evidences have been produced before assessing officer. The shares were sold on different dates through recognized stock exchange at quoted price. It is submitted that the Hon’ble Delhi High Court in the case of Pr. CIT vs. Karuna Garg in order dated 23rd November, 2022 as also held that an astronomical increase in the share prices of the company, in itself, is not a justifiable ground for holding the LTCG to be an accommodation entry. Reliance in this regard is further placed on the decision of Pr. CIT vs. Sandipkumar Parsottambhai Patel [2023] 150 taxmann.com 192 (Gujarat).

2. Appellant is a regular investor and there is no adverse report of SEBI etc. against the appellant: It is pertinent to state that in this case, the statement of the appellant was recorded and during the course of the assessment proceedings. During recording of the same, the appellant clearly stated that he is regular investor and making the investment in shares. Further in this regard the kind attention is invited to page no. 100, 103 and 104. This fact has not been denied by the Ld. AO while passing of the assessment order. The submissions are therefore that only because alleges a scrip to be a penny stock does not mean that actually that scrip is a penny stock as it is not the case that the appellant has invested only in this scrip. In this case, the appellant has made a genuine transaction of the aforesaid scrip and sold the same when the prices are high. Further, it is pertinent to state that in the entire assessment order of the CIT (A) order, it is has not been stated that against the scrip to which the appellant has traded, there is some adverse report of the SEBI. Reliance is further placed on the decision of the Supreme Court in the case of Pr CIT vs Kuntala Mohapatra 160 Taxmann.com 608 (SC) upholding the decision of Hon’ble Orissa High Court having the ratio that if shares were bought via account payee mode, held in a demat account for over 12 months, and then sold through a Recognised Stock Exchange after payment of STT, the taxpayer qualifies for exemption under section 10(38) for long-term capital gains. Reliance is further placed on the decision of Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC), wherein the facts were that the assessee-individual was engaged in business of trading in shares claimed long term capital gains arising out of sale of shares as exemption under Section 10(38).The Assessing Officer denied claim and made certain additions into assessee's income on grounds that said gains were earned through bogus penny stock transactions and companies to whom sold shares belonged were bogus in nature. The Tribunal observing that assessee by submitting records of purchase bills, sale bills, demat statement, etc., had discharged his onus of establishing said transactions to be fair and transparent, same not being earned from bogus companies was eligible for exemption under Section 10(38) of the Act. The High court by impugned order held that no substantial question of law arose from Tribunal's order. The SC dismissed the SLP against said impugned order.

3. RELIANCE PLACED ON THE ALLEGED INVESTIGATION REPORT IS BAD IN LAW/ CRYPTIC: A perusal of the reassessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. However, even these statements have not been referred in the reassessment order. It is apparent from the reassessment order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the Assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. It is provided U/s 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. The submission is therefore, the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and affirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. In the given facts of the case, it shall be clear that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 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. Reliance in this regard is being placed on the decision of the jurisdictional High Court in the case of Pr. CIT v. Smt. Krishna Devi [2021] 126 taxmann.com 80 (Delhi).

4. THE APPELLANT IS NOT INVOLVED IN ANY PRICE RIGGING/ HYPE IN THE PRICE OF SHARE: There is no whisper in the reassessment order or in the CIT(A) order that there is any kind of involvement of the Appellant in case of any price rigging or price increase. The assesee is not at all connected with any kind of nexus if any run by some brokers. The appellant on being duly advised, invested in the scrip and when the price was on a higher side he sold the shares. There is nothing unusual about it. It shall be appreciated that the startling spike in the share price and other factors may be enough to circumstances that might create suspicion; however, the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behaviour and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Revenue. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. So many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. In this process, they also burn their fingers by incurring huge losses without knowing the fact that the particular scrip invested is operated by certain interested parties with an ulterior motive and once their motives are achieved, the price falls like pack of cards and eventually make the gullible investors incur huge losses. In this background, the only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action against them. In this case, no adverse inference in regard to the scrip M/s Wagend Infra Venture Ltd in context of SEBI report etc, finds place in the reassessment order or the CIT (A) order and thus the transaction carried out by the assessee cannot be termed as bogus.

5. NO DIRECT/INDIRECT INCRIMINATING MATERIAL/ DOCUMENTS AGAINST THE APPELLANT/ ASSESSEE: In this case, there is no whisper either in the reassessment order or the CIT(A) order that the assessee has taken an accommodation entry or has routed his unaccounted money. The bank statement evidencing receipt of funds from the Share Broker has already been furnished in the course of assessment proceedings. The AO have not brought any material indicating that said amount proposed to be taxed has not been received from the Share Broker or the sum received is from the sources other than the sale consideration claimed against sale of shares. In view of these facts, the addition should not be made under section 68 of the Act. No evidence has been brought on record to establish any link between the assessee herein with the entry operators who were allegedly involved in price rigging of shares artificially or any other person named in the assessment order being involved in any price rigging and also the exit provider. In the present case, there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which has no legs to stand and therefore has to fall. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. Reliance in this regard is placed on the decision of PCIT v. Sandipkumar Parsottam bhai Patel [2023] 150 taxmann.com 192 (Gujarat) 6. NO CROSS- EXAMINATION GRANTED TO THE APPELLANT DESPITE BEING SPECIFICALLY ASKED FOR: It is a trite law that any document or any statement which has been relied by the department is to be confronted to the assessee and the cross-examination of such person whose statement has been recorded of these persons is required to be given. In this case, the assessee has specifically asked for the cross- examination which has been specifically denied by the Ld. A.O by observing as under (kind attention is invited to para no. 15&16 of the assessment order for the A.Y. 2012-13) “The submissions of the assessee has been perused. The assessee submitted that the third party information has no evidential value until the assessee is provided an opportunity of cross examination of the person who alleged that he has provide accommodation entries through LTCG. In these type cases, the spread of the network of the entry operators and the number of persons taking accommodation entries are large and therefore, it is not possible for every A.O. to summon every entry operator/broker and record his statement. The entry operator in this case before the Investigation wing. Income tax department has accepted oath that M/s Wagend Infra Venture Ltd. was being used for the purpose of providing bogus entries of LTCG.”

7.1 When no direct link/nexus is established of the assessee and or its broker to say that the assessee is involved in some illegitimate operation no addition can be made; 7.2 When the Ld. AO is not able to point out any deficiency/defects in the document submitted no addition can be made in its case; 7.3 All the relevant documents/statements are required to be provided to the assessee for his perusal and counter comments and in the absence of which the assessment proceedings have been initiated; 7.4 No addition can be sustained without any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so-called entry operators and brokers who were involved in artificial price rigging of shares; 7.5 Evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators; 7.6 Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus; 7.7 The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the Ld AO, etc.

9. Further the appellant for the other two grounds that in this case: The first, the reassessment proceedings have been invoked in a mechanical manner, merely placing reliance on the report of the investigation wing, the same is also bad in law as the approval is given in a mechanical manner; The second, in this case, the invocation of the reassessment proceedings is bad in law as the proceedings in this case, should have been invoked under the provision of section 153C. For the above grounds, the appellant seeks to place reliance on the submission made before the CIT (A), which is also quoted in the order. It is further submitted that the addition made in this case is also against the binding instruction of the CBDT dated 11.10.2019 pertaining to issuing the standard operating procedure, which is required to be followed by AO while handling the penny stock matter. It is submitted that in this case, the addition has made without following such express mandate of the CBDT and the addition is therefore bad on this count also. Before closing it is stated that in this case the appellant has also challenged the re-assessment proceedings on various grounds which has been clearly mentioned before the written submission filed before the CIT(A), which is part of the paper-book filed by the appellant and the same is not repeated here for the sake of brevity.”

7. On the other hand, ld. DR for the Revenue vehemently argued that the issue involved in this case is penny stock and lower authorities have given elaborate findings and assessee could not explain why the assessee has made the investment on such companies which has no financial capacity and not justified enough material to make investment in these companies. He prayed that addition may be sustained on the basis of detailed findings of lower authorities.

8. Considered the rival submissions and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We cannot agree to the above observation, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares directly from the company and through share transfer from other party, subsequently, sold the same in the stock exchange. However, there are no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the Assessing Officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: - “1. The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"

3. Therefore we find nothing perverse in the order of the Tribunal.

6. The appeal is devoid of merits and it is dismissed with no order as to costs.”

9. Further, the Hon’ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: - “8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453.

9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.

10. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of human probabilities and held the above said scrips to be a penny stock without bringing on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised

by the assessee. Accordingly the grounds raised by the assessee are allowed.

11. In the result, appeal filed by the assessee is allowed.

12. With regard to appeal for AY 2013-14, since the facts are exactly similar to AY 2012-13 our above findings in AY 2012-13 are applicable mutatis mutandis in AY 2013-14. Accordingly, the appeal being for AY 2013-14 filed by the assessee is allowed. 13. To sum up : both the appeals filed by the assessee are allowed. Order pronounced in the open court on this 6th day of November, 2024.