HARI RAM AGARWAL ,KOLKATA vs. ITO, WARD - 22(4) , KOLKATA

ORDER Per M. Balaganesh:

This appeal of the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals) -6, Kolkata [ in short ld CITA] in Appeal No.CIT(A), Kolkata-/10295/2016-17 dated 2.8.2018 against the order of assessment framed by Learned Income Tax Officer, Ward 22(4), Kolkata [in short the ld AO] u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) on 21.12.2016 for the Asst Year 2014-15.

Hari Ram Agarwal Assessment year 2014-15 1. Whether on the facts and circumstances of the case, the ld CITA was justified in upholding the addition made by the ld AO u/s 68 of the Act in respect of sale proceeds of shares of Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee’s claim of Long Term Capital Gains (LTCG) on sale of those shares.

2. Whether on the facts and circumstances of the case, the ld CITA was justified in upholding the charging of interest u/s 234A, 234B and 234C of the Act.

3.1. The ld AO observed that the assessee had bought 50000 shares of Re 1 each of CPAL from M/s Needful Vincom Private Limited in off market. The copy of purchase bill and sale contract note was produced by the assessee before the ld AO. Notice u/s 133(6) of the Act was issued by the ld AO to examine the veracity of the purchase from M/s Needful Vincom Private Limited. The said notice was returned back with a postal remark ‘Addressee moved / not known’. Accordingly, the ld AO concluded that the purchase of shares as stated by the assessee to be bogus. Thereafter the ld AO proceeded to seek confirmation from the broker M/s SKP Securities Ltd about the share transactions which were duly complied with by the broker vide letter dated 29.11.2016. The ld AO observed that the assessee made abnormal gain within a short span of holding period of the shares. The price movement of the scrip in the short span raised doubts in the mind of the ld AO that profit earned by the assessee were beyond human probabilities. The ld AO therefore made a deeper study to ascertain whether the transactions were genuine investment transactions or sham / colourable device to convert the unaccounted cash into tax exempt income. The ld AO merely made general observations as under:- An investigation was conducted on a number of penny stock companies by the Directorate of Investigation , Kolkata wherein 84 penny stock companies were identified and worked upon. After that, number of search and surveys were conducted in the office premises of more than 32 share broking entities which accepted that they were actively involved in the bogus LTCG / STCL scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements recorded. All have accepted their role in the scam. Beneficiaries of more than 38000 crore have been identified and segregated DGIT(Investigation) wise. Total number of more than 60000 PANs of the beneficiaries have been identified which have been reported to the assessment wing through the DGITs. Out of 84 penny stock companies which have been used for generating bogus LTCG, the above named penny stock , i.e M/s Kailash Hari Ram Agarwal Assessment year 2014-15 Auto Finance Limited is one of the same. Further, the scrip has also been banned by SEBI. The basic trade pattern of all the 84 scrips are same. A close view of all such data suggested that there is a common pattern in the trading of such scrips and the pattern is that they represent a bell shape in their trading. It means first, their prices start from low range, then it rises rapidly, stays there for a while and then it decreases more rapidly. Thus trade pattern makes a bell shape. ……………… Apart from that from the balance sheet of the penny stocks it will be found that they have no actual financial credentials to support their share movement pattern. Almost all the companies have no fixed asset, no turnover, no profitability and they did not pay taxes. It shows that these are made specially for the purpose of providing Bogus Long Term Capital Gain or Short Term Capital Loss to willing beneficiaries.

3.2. The ld AO observed that the reply of the assessee to the aforesaid show cause letter was received on 20.12.2016 wherein the assessee was silent regarding bell shape structure of trading of the scrip and sale of the same at a rigged value almost 39 times of its purchase within a span of around two years and accordingly the remaining portion of the reply of the assessee was considered to be not tenable. Based on these observations, the ld AO proceeded to deny the treat the long term capital gains on sale of shares of KAFL in the sum of Rs 18,88,141/- as fictitious and denied the claim of exemption u/s 10(38) of the Act thereon.

5.1. In the course of hearing of the case, the ld AR referred to various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove the genuineness of the transactions relating to LTCG on sale of shares of KAFL. The documentary evidences included the following:

Hari Ram Agarwal Assessment year 2014-15 (i) Purchase Bill for purchase of 50000 shares of CPAL from M/s Needful Vincom Private Limited on 1.3.2012 falling in the previous year relevant to the Assessment Year 2012-13. (ii) Bank Statement showing payment of the purchase consideration of shares of CPAL to Needful Vincom Pvt Ltd. (iii) Balance Sheet of the Assessee for the FY 2012-13 to show that the investment in the shares of CPAL was duly disclosed. (iv) Demat Statement with SKP Securities Ltd, a Depository Participant (DP) showing the aforesaid shares of CPAL in the account of the assessee. (v) Order of Hon’ble Allahabad High Court dated 10.7.2013 for merger of CPAL with KAFL and allotment of equity shares by the transferee company in the ratio of 1:1. (vi) The Demat statement of the assessee with SKP Securities Ltd showing receipt of shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of SKP Securities Ltd., share broker through whom the assessee sold shares of KAFL in the FY 2013-14 relevant to the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s SKP Securities Ltd by account payee cheques. (ix) Demat statement showing delivery of shares of KAFL on sale of shares. (x) Assessee’s computation, profit and loss account, Balance sheet as at 31.3.2014 along with investment schedule and capital gains statement.

5.2. It is also pertinent to note that the total sale consideration of shares of KAFL was Rs 19,38,141/- and out of which,the ld AO had treated only a part of the sum of Rs 18,88,141/- as fictitious , being the amount of long term capital gain claimed as exempt. The natural corollary to this would be that the ld AO accepts part of Hari Ram Agarwal Assessment year 2014-15 the consideration to the tune of Rs 50,000/- to be genuine. This divergent stand taken by the ld AO is not sustainable in law.

5.3. We find that the issue under dispute has been the subject matter of adjudication by this tribunal in the case of Manish Kumar Baid and Mahendra Kumar Baid vs ACIT in & 1237/Kol/2017 dated 18.8.2017 wherein it was observed as under:- 5. The ld AR argued that the ld CIT(A) erred in confirming the addition made by the ld AO on the basis of the aforesaid findings and various observations made in the impugned assessment order. The ld AR submitted that the findings of the ld AO are based on presumptions and suspicion alone and are perverse. In the course of hearing of the case, the ld AR referred to various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove the genuineness of the transactions relating to LTCG on sale of shares of KAFL. The documentary evidences included the following: (i) Purchase Bill for purchase of 2,40,000 shares of CPAL from M/s Brijdhara Mercantile Pvt. Ltd. on 20.12.2011 falling in the previous year relevant to the Assessment Year 2012-13. (ii) Bank Statement showing payment of the purchase consideration of shares of CPAL to Brijdhara. (iii) Balance Sheet of the Assessee for the FY 2011-12 to 2012-13 to show that the investment in the shares of CPAL was duly disclosed. (iv) Demat Statement with United Bank of India, a Depository Participant (DP) showing the aforesaid shares of CPAL in the account of the assessee. The letter dated 8th June, 2013 of KAFL informing the (v) assessee that the CPAL was merged with KAFL by virtue of Court order and the assessee was allotted shares of KAFL as against the shares of CPAL in the ratio of 1:1. (vi) The Demat statement of the assessee with United Bank of India showing receipt of shares of KAFL on amalgamation as aforesaid. (vii) Contract Notes of Ashika Stock Broking Ltd., share broker through whom the assessee sold shares of KAFL in the FY 2013-14 relevant to the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s Ashika Stock Broking Ltd. by account payee cheques.

Hari Ram Agarwal Assessment year 2014-15 (ix) Demat statement showing delivery of shares of KAFL on sale of shares. 5.1. The ld AR submitted that the purchase of shares in the FY 2011-12 was accepted by the ld AO. In the case of Sri Mahendra Kumar Baid the assessment order for the assessment year 2012-13 was passed under section 143(3) on 30th January, 2015 and the purchase of shares of CPAL was accepted. The assessment in the case of Manish Kumar Baid was processed under section 143(1) of the Act accepting the purchase of shares. The ld AR also submitted that even in the impugned assessment order the purchase of shares by the assessee was not held to be bogus. The ld AR submitted that the evidences and documents furnished by the assessee were neither found to be false nor fabricated. The ld AR submitted that the ld AO doubted the genuineness of the sale transactions on the basis of various orders of SEBI and/or the Investigation Wing and the statements of various persons recorded by Investigation Wing in the cases of persons unconnected to the assessee. It was submitted that the ld AO disallowed the assessee’s claim of LTCG on sale of shares of KAFL on suspicion and presumptions alone. It was submitted that the lower authorities have not brought any material or evidence on record to falsify the claim of the assessee or to hold that the share transactions were bogus. 5.2. The ld AR has shown that the three orders of SEBI and the report of the Investigation Wing and/or the statements of different persons recorded by Investigation Wing nowhere named the assessee as a beneficiary to the transactions relating to KAFL. It is seen from the Interim Order dated 29th March, 2016 that SEBI has listed the names of various entities/persons who were the promoters and/or the connected or related parties provided bogus transactions of LTCG to various beneficiaries. The list of the names of the beneficiaries was also given in the said order. The ld AR referring to the said lists has shown to us that the name of the assessee and/or his broker namely Ashika Stock Broking Ltd. nowhere appear in the said lists annexed to SEBI’s interim order dated 29th March, 2016. On a specific query to the ld DR appearing for Revenue, he fairly agreed that the assessee’s name and/or the name of Ashika Stock Broking Ltd. do not appear in the list annexed to various orders of the SEBI including final order dated 15th June, 2016 referred to in the impugned assessment order. 5.3. The ld AR also brought our attention to the enquiry report made by Pr. Director of Income Tax (Investigation), Kolkata in the matter of transactions of KAFL. The ld AO relied on the statements of different persons including Sri Sunil Kumar Dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing Hari Ram Agarwal Assessment year 2014-15 accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The ld AR has shown that the list of beneficiaries provided by these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd. 5.4. The ld AR, on the other hand, relied on the ad interim exparte order dated 29th March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible investors had been lured into the trading of shares of KAFL and had been entrapped in the price fluctuation of the script. This finding of SEBI supports the case of the assessee. In this case, the assessee was lured to purchase shares of CPAL, when he knew that the company allotted bonus shares in the ratio of 1:55. The assessee sold the shares of KAFL when he found that the prices increased substantially in the market. The ld AR submitted that he being innocent gullible investor, his name did not appear in the list of SEBI who were named as beneficiary to the alleged scheme formulated by some persons. 5.5 The ld AR, in course of hearing before us, filed a copy of the audited financials of KAFL for the FY 2012-13 and drew our attention to the Notice convening the AGM. He submitted that it was the 28th AGM of KAFL which shows that the said company was incorporated for more than 28 years as on the end of the said financial year i.e. 2011-12. He concluded that in such circumstances, the merger of the two companies with KAFL could not be said to be a premeditated arrangement to give benefit of LTCG to beneficiaries. At least a gullible investor would be lured to make investment in such companies. 5.6. The ld AR also brought to our notice the Financials of KAFL reported in SEBI’s interim order dated 29th March, 2016 to show that the Price Earnings Ratio (in short P/E ratio) of that Company increased to Rs.4,065 in FY 2013-14 from Rs. Nil in the FY 2012-13. The ld AR stated that the conclusion drawn by ld AO that the financials of the company shows Nil P/E ratio and did not give rise to steep increase of market price of the shares of KAFL, is contrary to the facts on record. 5.7. The ld AR also referred to the statement of Sri Sunil Dokania relied on by the ld AO to draw adverse inference against the assessee. He referred to the following statement against Q. No. 15 :-

Hari Ram Agarwal Assessment year 2014-15 Q.15 Please explain the modus operandi of getting bogus long term capital gain through scrips controlled and managed by you. Ans. Generally beneficiaries approached to the broker/entry operator in search of generation of Capital in an easier manner without paying any tax on it. Brokers identify the various bogus scripts to provide LTCG as the same is exempt from the tax. Kailash Auto is such scrips which is engaged in providing accommodation entry in form of LTCG / STCL to various beneficiaries. Beneficiaries are allotted the shares at nominal price and the price of the shares rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entities are paid by the unaccounted money of the beneficiaries in cash. As a result unaccounted income ploughed back in the file of individuals and HUFs in the form of bogus LTCG without paying income tax on it. In process the bogus Short Term Capital Loss is also booked by the entities who wants to reduce their taxability. 5.8. The ld AR submitted that there is no allegation by Shri Sunil Dokania and/or the ld AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the ld AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The ld. AR also referred to the statements of various other persons annexed with the Assessment order to show that none of the said persons named the assessee to have been benefitted by them in respect of LTCG claimed by the assessee. The ld AR submitted that the ld AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry made from BSE to find out the names of buyers who ultimately bought the shares sold by the assessee. On the basis of such enquiry, the ld AO prepared a cash trail to allege that cash deposited in 5th or 6th layer were the unaccounted income of the assessee. It was his submission that the assessee did not know the names of the buyers and has no connection and/or relations with any such persons. The transactions of sale of shares were online trading system through his broker from whom he received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. 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. The ld AR referred to the judgement of Hon’ble Bombay High Court in the case of Hari Ram Agarwal Assessment year 2014-15 CIT vs. Lavanya Land Pvt. Ltd. [2017] 83 taxmann.com 161 (Bom) to contend that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. In the said case, the Hon’ble High Court at Para 21 held that in absence of any material to show that huge cash was transferred from one side to another , addition cannot be sustained. Similar view was taken in the following cases:- (i) Baijnath Agarwalla vs. ACIT [2010] 40 SOT 475 (Agra Third Member) (ii) Ganeshmull Biijay Singh Baid HUF vs. DCIT – dated 4.12.2015 (Kolkata Tribunal) (iii) Malti Ghanshyambhai Patodia vs. ITO – ITA No. 3400/Ahd/2015 (Ahmedabad Tribunal) (iv) Pratik Suryakant Shah vs. ITO –[ 2017] 77 taxmann.com 260 (Ahmedabad Tribunal) (v) Padduchari Jeevan Prashant vs. ITO – ITA No. 452/Hyd/2015 (Hyderabad Tribunal) (vi) Anil Nand Kishore Goyal vs.ACIT – ITA Nos. 1256/PN/2012 (Pune Tribunal) (vii) CIT vs. Jamna Devi Agrawal – [2012] 20 taxmann.com 529 (Bom HC)

5.9. The ld AR submitted that all the observations, conclusions and findings of the lower authorities are based on suspicion, surmises and hearsay. It is a trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Reference was made to the judgement of Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC). The ld AR submitted that the entire case of the revenue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG. The ld AR referred to the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai-Trib.)(SB) The Tribunal observed as under: 46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its Hari Ram Agarwal Assessment year 2014-15 circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of ‘preponderance of probability’ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee . 5.10. The ld AR submitted that there is no direct evidence against the assessee brought on record by ld AO to hold that the assessee introduced its own unaccounted money by way of bogus LTCG. The direct evidence as alleged by the ld AO to be the SEBI’s orders is no evidence against the assessee for the reasons stated earlier. The ld AR submitted that although various investigations were carried out by different agencies, there is no evidence against the assessee to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR submitted that, in view of the aforesaid judgement of Special Bench of Hon’ble Mumbai Tribunal, various judgements relied on by the ld AO against the assessee are irrelevant in as much as the said judgements are based on conclusions drawn on the basis of circumstantial evidences only without any material evidence on record. 5.11. The ld AR vehemently submitted that the assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the ld AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares of CPAL is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in dated 2.12.2016. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The ld AR referred to the following judgements of Jurisdictional High Court:-

Hari Ram Agarwal Assessment year 2014-15 (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 ld 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 ld 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 ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld 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 ld AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the ld AO’s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.

Hari Ram Agarwal Assessment year 2014-15 (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 ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. (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 ld 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.

5.12. The ld AR submitted before us that where the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:- (i) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal – (Agra ITAT) (iv) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)

Hari Ram Agarwal Assessment year 2014-15 (ix) Anil Nandkishore Goyal vs. ACIT – (Pune ITAT) (x) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC) (xiv) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT)

5.13. The ld AR further submitted before us that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon’ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon’ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon’ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgements while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal – (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT) 5.14. The ld AR further submitted that the ld AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and price rigging. It was submitted that there is no allegation in Hari Ram Agarwal Assessment year 2014-15 orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee and/or his broker was a party to the price rigging or manipulation of price in BSE. The ld AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the ld AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum)

5.15. The ld AR also submitted that the ld AO was not justified in disallowing the assessee’s claim of exemption under section 10(38) of the Act by concluding that the transactions of the assessee resulting in LTCG on sale of shares of KAFL were bogus relying on the statements of various persons recorded by Investigation Wing wherein these persons accepted to have provided accommodation entries of various natures including LTCG to different persons. The ld AR submitted that in the statement of third parties, the name of the assessee was not implicated. Even otherwise, no adverse inference could be taken against the assessee on the basis of untested statements without allowing opportunity of cross-examination. The ld AR referred to and relied on the following judgements in support of the aforesaid submissions:- (i) Andman Timber Industries vs. CCE – [2015] 62 taxmann.com 3 (SC) (ii) ITO vs. Ashok Kumar Bansal – (Agra ITAT) (iii) ACIT vs. Amita Agarwal & Others – ITA No. 247/(Kol) of 2011 (Kol ITAT) (iv) ITO vs. Bijaya Ganguly - ITA Nos. 624 & 625/Kol/2011 (Kol ITAT) (v) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (vi) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vii) Malti Ghanshyambhai Patadia vs. ITO - ITA No.3400/Ahd/2015 (Ahmedabad ITAT) (viii) Pratik Suryakant Shah vs. ITO – [2017] 77 taxmann.com 260 (Ahmedabad ITAT)

Hari Ram Agarwal Assessment year 2014-15 (ix) Sunita Jain vs. ITO - & 502/Ahd/2016 (Ahmedabad ITAT) (x) Atul Kumar Khandelwal vs. DCIT – ITA No. 874/Del/2016 (Delhi ITAT) (xi) Farah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)

5.16. The ld AR also submitted that the ld AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares of KAFL received by the assessee from M/s Ashika Stock Broking Ltd. was not satisfactorily explained by the assessee. There is no evidence on record to disbelieve that the assessee sold shares of KAFL through M/s Ashika Stock Broking Ltd., a registered share and stock broker with BSE. The assessee produced all evidences to explain the source of the amounts received by the assessee from M/s Ashika Stock Broking Ltd. The ld AO was not justified in assessing the sale proceeds of shares of KAFL as unexplained cash credit under section 68 of the Act.

5.17. The ld AR submitted that on the facts and circumstances of the case and on the basis of incontrovertible evidences produced by the assessee, the ld AO was not justified in concluding that the assessee’s transactions relating to LTCG on sale of shares of KAFL were bogus. The ld CIT(A) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee in support of his case. Various judgements referred to by the assessee in support of assessee’s claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the ld CIT(A) . On the other hand, he agreed with the ld AO, who relying on surrounding circumstances held that the assessee’s transactions of LTCG were bogus ignoring all legal evidences furnished by the assessee in support of the genuineness of the transactions resulting in LTCG. The ld AR prayed that the order of the ld CIT(A) be set aside and the exemption under section 10(38) of the Act be allowed to the assessee.

5.1. We find that the decision rendered hereinabove apply mutatis mutandis to the facts of the instant case also and respectfully following the same, we direct the ld AO to grant exemption u/s 10(38) of the Act in respect of sale of shares in the sum of Rs 18,88,141/- as claimed by the assessee. Accordingly, the grounds raised by the assessee are allowed.

6. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 03.04.2019. Sd/- Sd/- [A. T. Varkey] [M. Balaganesh] Judicial Member Accountant Member Dated :03.04.2019 [RS, Sr.PS] Hari Ram Agarwal Assessment year 2014-15 Copy of the order forwarded to:

1. 1. Appellant – Hari Ram Agarwal, 219-C, Old China Bazar Street, 1st Floor, Room No.B-6, Kol-1.

2. Revenue – ITO, Ward-22(4), Kolkata. 3. CIT(A)- Kolkata. 4. CIT – , Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.