RAMESH RIKHAVDAS SHAH, HUF,MUMBAI vs. ACIT 24 (3), MUMBAI, MUMBAI

The Ld.AR submitted that the assessee has purchased the shares from the Stock Exchange platform and also sold the shares in Stock Exchange platform. Thus, the assessee has purchased the shares in the normal course of making investments. The assessee has furnished all the evidences with regard to the purchase and sale of shares. The payment for purchase of shares was made through banking channels and sale consideration on sale of shares was also received through banking channels. He submitted that the AO did not find fault with any of the documents furnished by the assessee. He submitted that the AO has placed his reliance entirely on the report given by the Investigation wing and he did not conduct any independent enquiry with regard to the transactions carried on by the assessee. The AO has also not shown that the assessee was part of the group, which was indulging in rigging of prices of shares. The assessee was also not subjected to any enquiry by the SEBI. Hence, the AO was not justified in dis-believing the transactions, without bringing any contrary material on the record. He was also not justified in estimating commission expenses without bringing any material on record. The Ld A.R submitted that the Ld CIT(A) was also not justified in confirming the additions. Accordingly, he prayed that the order passed by the tax authorities be set aside and the AO may be directed to delete the additions made in both the years and allow exemption of long term capital gains u/s. 10(38) of the Act. The Ld.AR submitted that the case of the assessee is squarely covered by the decision of the Hon‟ble Bombay High Court in the case of PCIT vs. Indravadan Jain, HUF, in of 2018.

We heard the parties and perused the record. We notice that the assessing officer has primarily placed reliance on the report given by the Investigation wing of the Income tax department, Kolkatta in order to arrive at the conclusion that the long term capital gains reported by the assessee in both the years is bogus in nature. We notice that the investigation report prepared by Investigation wing, Kolkatta is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We notice that the AO has placed reliance on the said report without bringing any material on record to show that the transactions entered by the assessee were found to be a part of manipulated transactions, i.e., it was not proved that the assessee has carried out the transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of prices. The Ld A.R submitted that the transactions carried on by the assessee were not subjected to scrutiny by SEBI at all.

We notice that the assessee has purchased the shares from Stock exchange platform and also sold the shares in the stock exchange platform. Both the transactions have been carried out at the prevailing market rates only. The assessee has furnished evidences to prove the 5 & 3546/Mum/2023 factum of purchase and sale of shares. The financial transactions have also been carried out through banking channels. The shares have entered into and exited from Demat account of the assessee. We notice that the AO did not find any fault with the documents so furnished by the assessee. Under these set of facts, we are of the view that the decision rendered by Hon‟ble Bombay High Court in the case of Indravadan Jain (HUF) (supra) will squarely apply to the facts of the present case. In the above said case, the Hon‟ble Bombay High Court held as under:- “….The CIT(A) came to the conclusion that respondent bought 3000 shares of RFL, on the floor of Kolkatta Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent‟s bank account has been debited. The shares were also transferred into respondent‟s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkatta Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instruction slips and also received payment from Kolkatta Stock Exchage. The cheque received was deposited in respondent‟s bank account. In view thereof, the CIT(A) found there was no reason to add the capital gains as unexplained cash credit under section 68 of the Act. The Tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.” Accordingly, we are of the view that there is no reason to suspect the transactions of purchase and sale of shares of above said company declared by the assessee in both the years under consideration. Accordingly, the estimated commission expenses added by the AO to the total income of both the years are also liable to be deleted.

In the result, both the appeals filed by the assessee are allowed.