RUKMINI DEVI MANPURIA,KOLKATA vs. DCIT(IT), CIRCLE - 2(1), KOLKATA, KOLKATA

Rukmini Devi Manpuria A.Yr. 2014-15 3. The brief facts of this issue is that the assessee filed her return of income for the Asst Year 2014-15 on 18.7.2014 declaring total income of Rs 3,16,250/-. She is a non- resident Indian settled in United Kingdom. She derived income in India from commodity trading, long term capital gains on account of sale of shares and mutual fund units and received interest income from bonds and bank deposits. The assessee claimed carry forward of Long Term Capital Loss on Mutual Fund to the tune of Rs 2,07,522/- and exempt income u/s 10(38) of the Act on account of long term capital gains (LTCG in short) of Rs 74,86,600/- on sale of listed equity shares of Kailash Auto Finance Ltd (KAFL) which was also subjected to Securities Transaction Tax (STT) and transactions routed through recognized stock exchange. The ld AO observed that the assessee acquired 200000 equity shares of face value of Rs 10/- each of M/s Careful Projects Advisory Limited (CPAL in short) at Re. 1/- each totaling to Rs 2,00,000/- on 14.2.2012 through off market purchase from M/s Sanskriti Vincom Pvt Ltd (PAN – AAPCS2061P) , 4, Raj Sir Radha Kanta Deb Lane, Shyampukur, Kolkata – 700005. The payment of Rs 2,00,000/- for the same was made by account payee cheque by the assessee in favour of M/s Sanskriti Vincom P Ltd and the cheque got cleared in the bank account of the assessee on 16.2.2012. These shares were credited to the demat account of the assessee on 23.2.2012. Later this company ( i.e M/s Careful Projects Advisory Ltd) got merged with M/s Kailash Auto Finance Ltd (KAFL - a listed company) vide order of merger approved by Hon’ble Allahabad High Court on 21.5.2013 with appointed date as 1.4.2012. Pursuant to this merger, the assessee was allotted 200000 shares in KAFL . These shares were duly dematted by the assessee with the depository participant on 22.7.2013. Later these shares were sold in the recognized stock exchange ( i.e open market) through a registered share broker on various dates during the period 8.8.2013 to 1.11.2013 , relevant to Asst Year 2014-15 for Rs 76,86,600/- after holding period of more than 17 months and LTCG thereon was worked out at Rs 74,86,600/-. The details of the same are as under:-

Rukmini Devi Manpuria A.Yr. 2014-15

Rukmini Devi Manpuria A.Yr. 2014-15 credit u/s 68 of the Act and added the same to the total income of the assessee. This action was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us.

Rukmini Devi Manpuria A.Yr. 2014-15 This decision of Mumbai Tribunal was approved by the Hon’ble Bombay High Court in the case of CIT vs Mukesh R Marolia in of 2007 dated 7.9.2011 wherein it was held as under:- 6. Similarly, the sale of the said shares for Rs 1,41,08,484/- through two Brokers namely, M/s Richmond Securities Pvt Ltd and M/s Scorpio Management Consultants Pvt Ltd cannot be disputed, because the fact that the Assessee has received the said amount is not in dispute. It is neither the case of the Revenue that the shares in question are still lying with the Assessee nor it is the case of the Revenue that the amounts received by the Assessee on sale of the shares is more than what is declared by the Assessee. Though there is some discrepancy in the statement of the Director of M/s Richmond Securities Pvt Ltd, regarding the sale transaction, the Tribunal relying on the statement of the employee of M/s Richmond Securities Pvt Ltd held that the sale transaction was genuine.

7. In these circumstances, the decision of the ITAT in holding that the purchase and sale of shares are genuine and therefore, the Assessing Officer was not justified in holding that the amount of Rs 1,41,08,484/- represented unexplained investment under section 69 of the Income Tax Act, 1961 cannot be faulted.

8. In the result, we see no merit in this Appeal and the same is dismissed with no order as to costs.

The ld AR also placed on record the evidence for dismissal of Special Leave Petition (SLP) of the Revenue by the Hon’ble Apex Court in SLP No. 20146/2012 dated 27.1.2014 against the decision of the Hon’ble Bombay High Court supra.

5.1. The ld AR further placed reliance on the co-ordinate bench decision of this tribunal in the case of Manish Kumar Baid & Ors vs ACIT in dated 18.8.2017 wherein the scrip of KAFL had been dealt under similar circumstances and relief granted to the assessee. He also argued that the SEBI in its final order dated 21.9.2017 on the investigation of KAFL shares had revoked the ban and restraint orders issued on 244 entities and persons which formed the very basis of the ld AO for framing the addition and making various allegations against the assessee herein.

Rukmini Devi Manpuria A.Yr. 2014-15 6. The ld DR on the other hand vehemently supported the interim order of SEBI dated 29.3.2016 and share price movements in graphical form of the said scrip. He also placed reliance on the decision of Hon’ble Bombay High Court in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs PCIT, Nagpur & Another in / 2017 dated 10.4.2017 which was decided in favour of the revenue with regard to the issue of huge increase in share sale prices. He also placed reliance on certain books authored by Mr Parag Parikh titled as ‘Value Investing and Behaviorial Finance ( Insights into Indian Stock Market Realities)’ wherein the various human behaviour with regard to the time of purchase of scrip and exit from stock markets were listed out.

7.1. We find that the assessee had dematted the shares of CPAL on 23.2.2012 with M/s Eureka Stock & Share Broking Services Ltd (Depository Participant – DP in short).

Rukmini Devi Manpuria A.Yr. 2014-15 Pursuant to the merger of CPAL with KAFL, the assessee got 200000 shares in KAFL and the same were dematted with the same DP on 22.7.2013. The scheme of amalgamation of CPAL with KAFL was duly approved by the Hon’ble Allahabad High Court on 21.5.2013.

7.2. There is no harm in shares being purchased in off market and this issue had been addressed by this tribunal in the case of Dolarrai Hemani vs ITO in dated 2.12.2016.

7.3. We find that the assessee had sold these 200000 shares of KAFL, through the share broker (M/s Eureka Stock & Share Broking Services Ltd – NSDL) who is registered with SEBI and member of Bombay Stock Exchange, on various dates in Asst Year 2014-15 and the said sale is evidenced by the following documents :- a) Contract Notes issued by the registered share broker containing the number of shares sold, price at which it was sold, STT collected, brokerage collected, service tax collected, trade time, date of sale, settlement number, net amount payable to seller through the stock exchange ( enclosed in pages 40 to 49 of Paper Book) ; b) Bank Statements of the assessee for the period 1.8.2013 to 28.1.2014 maintained with Axis Bank wherein the sale proceeds of sale of shares on different dates were credited (enclosed in page 50 of Paper Book) c) Demat Statement of the assessee in respect of various scrips including the scrip of KAFL containing the number of shares held in each scrip after each sale (enclosed in Pages 51 to 52 of Paper Book).

Rukmini Devi Manpuria A.Yr. 2014-15 7.4. With regard to the arguments of the ld DR that at the time of purchase of shares of CPAL by the assessee, the shares of KAFL were very much available in the stock market and the assessee could have very well bought the shares of KAFL from the open market. He need not have resorted to purchasing the shares of CPAL and later on get it merged with KAFL. In this regard, we find from the materials available on record, that the assessee was not the director or promoter of either M/s CPAL or KAFL prior and post merger. Assessee was only a shareholder in CPAL and pursuant to the merger of that company with KAFL, the assessee was allotted shares in KAFL, which cannot be faulted with by the revenue by mere surmise and conjecture and without bringing any evidence on record to the contrary. Moreover, it is for the assessee to chose whether to buy a particular scrip and the department cannot step into the shoes of the assessee in this regard and participate in the business and investment decisions of the assessee. Reliance in this regard is placed on the decision of Hon’ble Apex Court in the case of CIT vs Dhanrajgirji Raja Narasingirji reported in 91 ITR 544 (SC). The next argument of the ld DR that the contract notes and demat statements are only evidences to prove that the transactions happened and got recorded in the stock exchange and that it does not give credence to the transaction per se. In this regard, we find that the transactions of purchase and sale of shares happen in the secondary market based on the prevailing market prices through the registered stock brokers in the concerned stock exchange. This is how the transactions happen across the world. For these events, the documents are furnished by the stock brokers in the form of contract notes , delivery instructions submitted by the parties for effecting the sale through the recognized stock exchange and transactions of movement of shares from one person to another are recorded in the respective demat statements issued by the concerned Depository Participant. These documents cannot be disbelieved as not giving any credence to the share transactions as they had happened in the open market. In any case, it is for the revenue to bring out any other extraneous material to prove that these documents are fabricated with the connivance of assessee, registered stock broker and recognized stock exchange. It 8

Rukmini Devi Manpuria A.Yr. 2014-15 cannot be brushed aside that these transactions in the open market had duly suffered STT which is also reflected in the contract notes issued by the stock broker and the revenue had already been enriched by the STT component. Hence it would not be proper for the ld DR to state that these documents cannot be relied upon.

7.5. We find that the Hon’ble Punjab & Haryana High Court (non-jurisdictional high court) in the case of PCIT (Central), Ludhiana vs Prem Pal Gandhi in of 2017 dated 18.1.2018 had in similar circumstances held the issue in favour of the assessee. We find that the ld DR also placed reliance on the decision of Hon’ble Bombay High Court in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain vs PCIT, Nagpur & Another in ITA No. 18 / 2017 dated 10.4.2017 which is also a non-jurisdictional High Court decision. In these circumstances, the Hon’ble Apex Court in the case of Vegetable Products had held that when there are conflicting views on an issue for and against the assessee by the different non-jurisdictional high courts, the construction which favours the assessee should be followed. Accordingly, the decision of Hon’ble Punjab & Haryana High Court supra would have to be followed in the instant case before us.

7.6. We also find that the entire issue with regard to sale of shares of KAFL had been the subject matter of adjudication by this tribunal in the case of Manish Kumar Baid & Others vs ACIT in dated 18.8.2017, wherein the arguments of the assessee and the decision rendered by this tribunal are 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:

Rukmini Devi Manpuria A.Yr. 2014-15 (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 assessee that the (v) 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. (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 10

Rukmini Devi Manpuria A.Yr. 2014-15 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 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. The ld AR, on the other hand, relied on the ad interim exparte order dated 29th 5.4. 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.

Rukmini Devi Manpuria A.Yr. 2014-15 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 :-

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 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) 12

Rukmini Devi Manpuria A.Yr. 2014-15 (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 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 13

Rukmini Devi Manpuria A.Yr. 2014-15 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:- (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.

Rukmini Devi Manpuria A.Yr. 2014-15 (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. (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)

Rukmini Devi Manpuria A.Yr. 2014-15 (viii) Ms. Farrah Marker vs. ITO – (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)

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 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 16

Rukmini Devi Manpuria A.Yr. 2014-15 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 – (Agra ITAT)

(ii) ACIT vs. Amita Agarwal & Others - 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) (ix) Sunita Jain vs. ITO - ITA No. 201 & 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 17

Rukmini Devi Manpuria A.Yr. 2014-15 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.

We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI’s interim order supra. We find that the SEBI’s orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries 18

Rukmini Devi Manpuria A.Yr. 2014-15 provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in roder to have a good return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI’s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd’s name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI’s order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon’ble Jurisdictional High Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee.

7.7. Moreover, we also find from pages 114 to 129 of the paper book that SEBI vide its order dated 21.9.2017 had revoked the restraint order banning 244 entities and persons from trading and dealing in securities by giving a categorical finding that they had no role in the manipulation of the scrip of Kailash Auto Finance Ltd. We find that the ld AO had grossly relied on the interim order passed by SEBI on 29.3.2016 to address the issue before us. In the said interim order of SEBI, restraint orders were issued. Now in the final order dated 21.9.2017, such restraint orders and other bans had been revoked by SEBI itself. Hence the primary reliance placed on a document by the ld AO while framing the assessment goes against the revenue now. 19

Rukmini Devi Manpuria A.Yr. 2014-15 7.8. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the ld AO to delete the addition made u/s 68 of the Act in respect of LTCG on sale of shares of KAFL. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced in the Court on 24.10.2018