NICHOLSON VANIJYA PRIVATE LIMITED ,KOLKATA vs. ITO, WARD - 1(2), KOLKATA , KOLKATA

According to the learned AR, the AO has treated the transaction as bogus only on the basis of suspicion or surmises. According to him, the AO has made the addition with prejudiced mind after going through the investigation report of the Investigation Wing of the department and has not bother to find out if there is any collusion between the broker and the assessee in respect to the transaction in question to create bogus loss. It was also brought to our notice that suspension of shares of M/s. Shree Shaleen Textiles Ltd. was from 06.01.2015 whereas the assessee had sold the shares on 13.03.2014 which means the sale of shares was not suspended at the time when the assessee sold the shares. Therefore, according to the learned AR, the AO ought to have allowed the claim of loss on the listed equity of M/s. Shree Shaleen Textiles Ltd. to the tune of Rs. 18,46,140/-. According to the learned AR, the assessee purchased shares of M/s Shree Shaleen Textile Ltd for Rs. 64 and when price was dropping down sold it for Rs 18. So according to ld. AR this was a decision which any prudent businessman would take in such circumstances and purchase and sale are supported by documents as well as the transaction are by account payee cheques. Thereby the claim of loss to the tune of Rs. 18,46,140 /- need to be allowed. According to ld. AR without finding out any fault, the AO/Ld. CIT(A) has not accepted the claim of assessee

After giving our careful considerations to the contention and the documents placed before us which is running to 188 pages of Paper Book, we note that the assessee has declared interest income of Rs. 30,99,300/- and had claimed loss transaction of shares on listed equity of M/s Shree Shaleen Textile Ltd. to the tune of Rs. 18,46,140/-. According to the AO, the loss has been claimed by the assessee for bringing down the profit so that the assessee can avoid giving tax. The AO took note of the investigation carried out by the Investigation Wing of the department and observations of the SIT to draw a conclusion that the assessee’s claim of loss on sale of shares of Shree Shaleen Textile Ltd. to the tune of Rs. 18,46,140/- as bogus claim and made the addition. On appeal, the Ld. CIT(A) confirmed the action of the AO. We note that the assessee has filed a Paper Book containing188 pages from where we note that the assessee had filed the requisite documents called upon by the AO. The assessee had furnished the following documents: (i) Copy of Bank Statement (ii) Copy of DEMAT statement (iii) Details of share dealing during the year (iv) The contract notes of Shares traders

We note that the aforesaid documents filed by the assessee before the AO in order to substantiate sale of listed shares of Shree Shaleen Textile Ltd. has not been founded to be false, fabricated and fictitious. The assessee had furnished the copies of contract notes, Demat statement, Bank Statement, Ledger accounts of brokers. The transactions in listed shares took place through a registered share broker, namely M/s. Dhan Stock & Share Broker Pvt. Ltd. The purchase and sales took place on screen based trading platform of Bombay Stock Exchange. The transaction was settled by making / receiving payment by account payee cheques through proper banking channel. The assessee had paid securities transaction tax (STT) on both purchase and sales. The transaction took place at the price quoted on stock exchange on respective transaction dates. We also note that the assessee purchased the shares on 11.11.2013 @ Rs 64.19/- per share for Rs 19,25,707/- and Rs 8,77,585/- [ Total Rs 28,03,292/-] sold the shares of Shree Shaleen Textile Ltd. on 13.03.2014 @ Rs 18.41 for Rs 18,46,140/-whereas the sale of this scrip was suspended on 06.01.2015. So the sale of scrip of M/s. Shree Shaleen Textile took place before the suspension of this scrip is concerned. In the light of the documents filed as aforestated, the assessee has discharged the onus to prove the genuineness of the loss suffered. There is no evidence to show that the documents filed by the assessee before the AO are false and fabricated. So, therefore, we are of the opinion that the assessee’s claim had to be upheld, for doing so, we rely on the following judgment of the Hon’ble Jurisdictional High Court as well as the other High Courts and Coordinate Bench of this Tribunal as discussed below.

We note that in order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. Similar view has been pronounced by Hon’ble Delhi High Court in the case of Pr. CIT vs Jatin Investment (P) Ltd. wherein it was observed "A transaction cannot be treated as fraudulent if the appellant has furnished the documentary proof and proved the identity of the purchaser and no discrepancy is found. The AO has to exercise his powers u/s 131 & 133(6) of the Act to verify the genuineness of the claim and cannot proceed on surmises. The AO must establish that cash has changed hands. There is no material or evidence even to suggest that the cheques directly or indirectly emanated from the appellant so that it could be said that the appellants' own money was brought back in the guise of sale proceeds’’.

In the case of CIT vs. Lavanya Land Pvt Ltd. the Hon’ble Bombay High Court ruled that the allegations made by the authorities have to be supported by actual cash passing hands or actually has changed hands.

In the case of DOLARRAI HEMANI vs. ITO, this Tribunal held that the fact that the stock is thinly traded & there is unusually high gain, is not sufficient to treat the LTCG as bogus when all the paperwork is in order. The revenue has to bring material on record to support it's findings that there has been collusion/connivance between the Broker & the Appellant for the introduction of unaccounted money.

In the case of DCIT Vs. Sunita Khemka, ITAT Kolkata ruled that the AO cannot treat a transaction as bogus only the basis of suspicion or surmises. He has to bring material on record to support his findings that there has been a collusion/connivance between the Broker and the Appellant for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by Contract Notes and d-mat statements and account payee cheques cannot be treated as bogus.

So, as the facts of the case are very similar, the AO has failed to establish any link and therefore the order is based on surmises, predetermined, solely relying upon the investigation report which is general in nature and no concrete material has been brought on record proving otherwise.

We note that the AO in his order has mentioned that SEBI has given adverse report on so many scrips including that of Kailash Auto. Further, we note that SEBI, in its two reports on the said scrip, has named and banned/suspended the beneficiaries in particular. However, we note that the appellant’s name does not appear in this list. And that the SEBI did not stop/suspend the trade of sale of M/s. KAFL when assessee sold the scrip. We note that M/s. KAFL was very much listed on the stock exchange and trading in the said scrip was permissible on the stock exchange. Moreover SEBI report against certain beneficiaries of Kailash Auto was in public much after the appellant has sold the shares, and we note that on 29.03.2016 SEBI has revoked the ban on such entities which implies that there was no evidence against them.

We note that M/ s Guiness Securities Ltd was not named in the assessment order / D.I. report as a broker who was involved in price rigging of penny stocks. On the other hand, we note that M/s. Guiness Securities Ltd is a SEBI registered stock broking company having registration no. INB 011146033 and also is a member of Bombay Stock Exchange having membership no. 3027; Neither during the time of execution of the contract in FY 2013-14 nor even today, this stock-broking company was suspended by SEBI or BSE on any charge of irregularities like price rigging etc as alleged by the AO. We note that AO failed to bring on record any material to connect the assessee to any of the alleged entry operators/ brokers who are a part of this so called price rigging group or LTCG Generator Group.

We note that the sale of shares of M/s. KAFL which was dematerlized in Demat account has taken place through recognised stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to countenance the action of AO/Ld. CIT(A) in the aforesaid facts and circumstances explained above.

Even assuming that the brokers may have done some manipulation then also the assessee cannot be held liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges that the assessee was in hand in gloves with the broker for committing the unscrupulous activity to launder his own money in the guise of LTCG is brought on record by the AO.

There is also nothing on record which could suggest that the assessee gave his own cash and got cheque from the alleged brokers/buyers. The assessment is based upon some third parties statements recorded behind the back of the assessee and the assessee has not been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the AO to draw adverse inference against the assessee in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the AO.

Let us look at certain judicial decisions on similar facts:-

The case of the assessee’s is similar to the decision of Hon’ble Bombay High Court, Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal & Ors. dated 23rd September, 2010 reported in (2010) 328 ITR 656 wherein it was held that: "The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the M/s. Nicholson Vanijya Pvt. Ltd. AY- 2014-15 documents furnished by the assessees. Therefore, the fact that some of the transactions were off- market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.—Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) & Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished.”

The Hon'ble High Court of Rajasthan in CIT vs. Smt. Pushpa Malpani - reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing 'Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, 'the prese/itdppeal does not raise any question of law, much less any substantial question of law.”

The Hon’ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 0179 has held as under:- “The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.— C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguished”

The Co-ordinate Bench of Ahmedabad in & 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of the statement of a broker. The relevant part reads as under:- “14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- “6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders.”

The Hon’ble Apex Court held as under:- “According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.

We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when 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) (ix) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (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) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 29. The ld AR also brought to our notice 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 judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT) 30. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and M/s. Nicholson Vanijya Pvt. Ltd. AY- 2014-15 alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the 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 – (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) 31. We note that the ld. D.R. had heavily relied upon the decision of the Hon’ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit.

It is clear from the above that the facts of the case of the assessee are identical with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s KAFL. We, therefore, respectfully following the same, and set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition.

The next issue in confirming the addition of Rs.1,83,020/- as unexplained expenditure towards commission charges of sale of such shares by the operator. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the AO. Consequently the addition of Rs.1,83,020/- is hereby directed to be deleted. We accordingly hold that the issue is allowed in favour of the assessee.”

From the facts discussed in para 7 and 8 supra, and the ratio decidendi of the Hon’ble jurisdictional High court and other Hon’ble High Courts, and particularly the Hon’ble jurisdictional High Court decision in the case of M/s. Blb Cables And Conductors,(supra) we, therefore, respectfully following the same, allow the claim of loss as claimed by the assessee.

In the result, the appeal of the assessee is allowed Order is pronounced in the open court on 8th March, 2019 Sd/- (Aby. T. Varkey) Judicial Member Dated : 8th March, 2019 Biswajit (Sr.P.S.)