INCOME TAX OFFICER-1(3), KANPUR vs. SHRI RAJ KUMAR AGARWAL, KANPUR

These are two appeals filed by Revenue against separate orders of ld. CIT(A) both dated 29.11.2018. The issue involved in these appeals is similar and these were heard together and therefore for the sake of convenience a common and consolidated order is being passed.

assessing officer in assessment order that the sale of shares in this case is not a natural phenomenon but an arrangement of dubious design of providing accommodation entry of Long Term Capital Gain To introduce unaccounted own money as exempt income in the form of LTCG on sale of shares and the assessee being fully aware of it is also a part of this manipulation. 2. The Ld. Commissioner of Income Tax (Appeals)-1, Kanpur has erred in law and on facts without appreciating the facts that the issue involved pertains to organized scam/tax evasion activity and unique modus operand! of this embezzlement for which CBDT's Circular No.23 of 2019 dated 06.09.2019 and subsequent O.M. dated 16.09.2019 mandate that the appeals may be filed on merits in case of the assessee claiming bogus LTCG/STCL through Penny Stocks. 3. That the order of the Ld. Commissioner of Income Tax (Appeals) is erroneous, unjust and bad in law be vacated and the order dated 30.12.2016 passed u/s 143(3) of I.T. Act of the Assessing Officer be resorted.”

due to exceptional circumstances beyond the control of Department which may be condoned and the appeals be heard on merits.

medium of manipulating stock prices. The ld. CIT(A) has however deleted the additions primarily on the basis that the stock brokers and the persons from whom the assessee had purchased and sold shares has not been examined by the Assessing Officer and Assessing Officer had made the additions on the basis of general statement of certain persons. While allowing the relief, ld. CIT(A) has held that the Assessing Officer has ignored the various documentary evidences which were in favour of the assessee. The ld. CIT(A) has recorded similar findings in the above cases. For the sake of completeness the findings of ld. CIT(A) in ITA No. 204/Lkw/2020 are reproduced below: “Decision: I have gone through the facts of the case, relevant part relied upon by the AO, of the report of the investigation wing and submissions of the appellant. “Facts in this case are not disputed. The assessee is an individual and during the financial year 2013-14 relevant to AY 2014-15, earned Income from trading in shares, share consultancy and earnings from interest. During the year, the assessee has shown exempted Long Term Capital Gain amounting to Rs. 4,81,223/- on sale of shares of Neil Industries Ltd.. The assessee purchased 2000 shares of M/s Octagon Commodity Pvt. Ltd. through offline transaction from Nandani Mittal & Co. transaction for which the payment was made @ Rs.30 per share at the total cost of Rs.60,000/-. Appellant paid through his Saving Bank Account. The company Octagon Commodity later merged amalgamated with Neil Industries Ltd. The shares of Neil Industries were credited to their DEMAT account maintained with Sajendra Mookim. Thereafter the assessee sold the shares on 02.04.2013 for a total consideration of Rs.5,41,223/- during the year under review and sold through the registered stockbroker M/s Sajendra Mookim through Kolkata Stock Exchange in an open market transaction after paying STT, and money paid and received was through proper banking channels. The said broker is a regular broker of the assessee for purchase and sales of shares. The purchases and sales of shares are after payment of STT, All amount paid and received, was through proper banking channels. During the course of assessment proceedings, appellant has filed all the contract bills issued by the broker. The assessee held these shares for more than a year in dematerialized form, meaning thereby that the appellant became the physical owner of these shares. The assessee effected sales of these shares when the prices started appreciating in lots at various intervals as per the details submitted before AO and reproduced in the assessment order.

AO found that there was an abnormal increase in the value of shares of the scrip that was actually innocuous. However, during the appellate proceedings it is seen that appellant submitted all the relevant facts and details and the evidences of sale/ purchase and bank accounts. Assessing Officer has made any enquiry from the share broker M/s Sajendra Mookim or Koikata Stock Exchange seeking specific information pertaining to these transactions undertaken by the appellant. Directorate of Income Tax (System) had uploaded the information pertaining to the trading run by the penny stocks and that the information pertaining to the assessee was available in the ITD module under the EPS facility in a tab labeled "Penny Stocks". AO perused the information available on the system and utilized the same in finalizing the assessment. Therefore, AO on the basis of the detailed and comprehensive enquiries made by Investigation Wing, Kolkata made the assessment. AO made the addition of Rs. 5,41,223/- by treating the exempt capital gain income as unexplained income under the head income from undisclosed sources without invoking any specific section of income tax act, 1961, primarily on the basis of report received from investigation wing and for the reason that the appellant name was appearing in ITD system of Penny Stocks. A perusal of the chapter 3 of the 153 page report of Investigation wing shows that the investigation officers in a massive exercise searched or surveyed some 32 Share Broking Entities and more than 20 Entry operators. After conducting detailed investigations of such high magnitude, they unearthed and identified some 84 odd companies, which are listed on various national stock exchanges that were being misused for providing bogus accommodation entry of Long Term Capital Gain/ Short Term Capital Loss. SEBI has directed stock exchange to suspend trading in more than 26 Scripts listed in BSE. Promoters and key entry operators of such stocks were identified and their statements were recorded. Ail these evidences collected were given to all the AOs for taking further necessary action as per law. On perusal of the facts mentioned in the assessment order it is an important fact in this case that there is no mentioning of the share broker M/s Safal Finstock Ltd. and MPSE Securities Ltd in the investigation report and there is nothing adverse reported pertaining to the scrip of M/s Neil Industries Ltd. AO on the basis of the above unrelated details mentioned in the assessment order held that since the shares in which the appellant has done trading are of a penny stock company, which resulted In unreasonably high Long Term Capita! gains, that were purchased by the assessee more than one year back from the open market on normal rates, these transactions are bogus. It is clear from the above facts and circumstances that there is no evidence at all against the appellant available on record for the AO to come to this conclusion.

Apparently as per data available on record there is no adverse evidence at all .either in the form of any general or specific statement by the principal officer of either M/s Sajendra Mookim or Kolkata Stock Exchange or of M/s Neil Industries Ltd. against the appellant or against these transactions undertaken by appellant. Ignoring these facts, AO still made the addition. The AO has only quoted facts pertaining to various completely unrelated persons whose statements were recorded and on the basis of unfounded presumption, addition was made in the hands of the appellant. It is seen from records that name of the appellant is neither quoted by any of the beneficiaries who surrendered the income nor any material is found at any place where investigation was done by Kolkata, Investigation Wing, in which the name of the appellant, broker or the scrip was found to be mentioned. SEBI has prima facie not found involvement of the concerned company in any unfair trade practices and has allowed the trading of the same on public portal. Therefore, because of that fact the same script has been purchased and sold by many investors through various brokers across the country, leading to some bogus transaction, or the promoters of the Scrip company were in collusion for providing certain sham transactions, such transactions of the appellant cannot be held to be a sham transaction only by mere assumption unless any specific material is found against the appellant. AO made addition only on the basis of general information that was available in the investigation report and in the ITD module under the EPS facility in a tab labeled "Penny Stocks". Hence it is clear that the assessment order was passed without establishing anything against the appellant by any investigative agency or by AO. The assessment is made purely only on basis of presumptions, which is bad in law. It is seen from the report that investigation wing gathered substantial information against each and every stock broker and every such company whose scrip was used and who was involved in the Penny Stock Scam in any manner, recorded their statements and specified all the evidence gathered during their investigation in their report being relied upon by AO, which is completely missing in the case of M/s Sajendra Mookim or Kolkata Stock Exchange or of M/s Neil Industries Ltd. or the appellant. It will be another case if this broker and transactions done by them were found to be bogus and appellant being one of the beneficiaries was named by the promoters of the scrip, Here just because 'the appellant has traded in a scrip that was being used by few brokers for illegal purposes, won't make transactions undertaken by appellant as bogus, making it liable for any addition, in absence of anything specific or remotely general against the appellant. Here the integrity of the promoter or the broker or the manner in which the brokerage operations were conducted is not questioned by AO, There is no effort made by AO to know the factual position for the case of appellant, by examining anyone who admitted before investigation wing officers that they are manipulating the Long Term Capital Gain transactions. AO has not

made any effort to verify the documents placed on record by the assessee in support of the claim. AO's observation and conclusion are merely based on the information available on ITD system and modus operendi narrated by investigation wing pertaining to the whole scam unearthed. It is clear and now well settled as it appears from the plethora of case laws relied upon by appellant that these transactions in penny stocks that are fully supported by the documentary evidences could not be brushed aside on mere suspicion and surmises. AO has to bring specific adverse material on record against specified transactions of sale/purchase of shares undertaken by appellant to prove that they are not genuine. It was held in Tribunal decision rendered in the case of Smt. Manju Bansal V Income Tax Officer - 1(1), Lucknow in ITA N0.70/LKW/2011 dated 12/03/2015 after relying upon the case of Mohit Agarwal vs. ACIT in I.T.A. No.l71/Lkw/2008 dated 28/11/2008 that when overwhelming documentary evidences are produced by the assessee, the burden shifts on the AO to explain away them. Only the investigation report cannot be relied upon by AO for making any addition. Hew the above mentioned evidences could be ignored? The AO has to give cogent reasons for rejecting them. These are important documents, some of them arising under the provisions of the Companies Act. No third party investigation was done by AO to prove that the evidence brought on record by appellant is forged. The brokers were never confronted with the evidences produced by the assessee. The apparent has to be treated as real unless proved otherwise. Long ago Hon'ble Supreme Court has laid this law while rendering the celebrated decision in the case CIT Vs. Daulat Ram Rawatmal [1964] 53 ITR 574 (SC). Lastly the Long Term capital Gain claimed by the assessee as exempt income u/s 10(38) of tie Income Tax Act, 1961 was disallowed by invoking section 69A from IT Act but AO did not evolve the matter further to prove as to how these sections are applicable on facts of this case to tax this amount as income from the undisclosed sources of the assessee. No addition can be made in assessment without invoking any particular charging section of the IT Act. Hon'ble Allahabad High Court in the case of CIT vs. Udit Narain Agarwal vide judgment and order dated 12.12.2012 in ITA 560 of 2009 wherein their lordships after enumerating various material and information as had been placed on record by the assesses with regard to one such penny stock transaction, has further observed and held as under: "Briefly stated the facts giving rise to the present appeal are as follows;- 'The appeal relates to the Assessment Year 2004-05. The assessee-opposite party is an 'individual'. He filed return of income on 31.3.2005 declaring Income of Rs. 34,97,761/-. The case was selected for scrutiny and the income from long term capital gain amounting to Rs. 17,54,237/- on sale of 19000 shares of Focus

Industrial Resources through broker M/s. MKM Finsec, Delhi was investigated. It transpired that the shares were purchased on 8.7.2002 for Rs.1,90,000/- and sold on 14.8.2003 for Rs.19,54,948/-. The resultant gain was treated by the assessee as long term capital gains. The assessing officer examined him and was of the view that as the broker had not given details and furnished documents the transaction appeared to be fake, therefore, disallowed the plea of long term capital, gains and added the differential amount, of Rs.17,54,237/- as 'income from other sources'. The matter was carried in appeal before CIT(Appeals), who vide order dated 27th February, 2008 accepted the plea of the assessee and deleted the addition. The Revenue's appeal before the Tribunal has failed. We have heard Sri Shambhu Chopra, learned Senior Standing Counsel, appearing for the Revenue and Sri Krishna Agrawal, learned counsel appearing for the respondent-assessee. "Sri Chopra submitted that the CIT (Appeals) as also the Tribunal had erred in law deleting the addition as much as the broker had not produced any documentary evidence to support the claim set up by the assessee regarding sale of the shares in question. "We have given our thoughtful consideration to the plea and we find that the CIT(Appeals) while deleting the addition has held as follows. "2.5. I have considered the facts of the case, assessment record, submission of AR and position of law, in my opinion, appellant deserves to succeed. At the time of making assessment, the AO on the basis that the appellant could not furnish any evidence to prove that the shares were actually transferred from his name and there was no actual sale of shares and the money allegedly received as sale consideration of shares was in fact appellant's own money which was routed through the help of some unscrupulous person and hence made an addition of Rs.19,51,038/- as income from undisclosed and unexplained sources u/s 68 of 7.7. Act. On the other hand during the course of assessment as well as appellate proceedings the AR's of the appellant filed written submission along with documents and vehemently opposed the AO's action inviting attention to the facts of the case, the main points which have not been properly considered by the AO or have been totally ignored which are as under:- i) The shares were applied and allotted directly from the company Focus Industrial Resources Ltd. Who is registered with ROC and copy of master data details as per records of ROC was filed. ii) The payment of the share application money was made through Account payee Demand Draft prepared from appellant's bank account. iii) The shares allotted were transferred to Demat A/c No.DEL/CL4/16179378 with Stock Holding Corporation of India Ltd. Having DP ID No.IN301127. iv) The shares of the company listed with Delhi Stock Exchange,

v) The shares of Focus Industrial Resources Ltd. Were sold through share broker MKM Finsec Pvt, Ltd., 301 Dhaka Chamber 2058/39 Naiwal, Karol Bagh, New Delhi-11005. vi) The details of sale are on record. The details of number of shares and their sale rate are on record. vii) The shares of the company were sold through delivery instruction of the depository account with Stock Holding Corporation of India Ltd. And were transferred to Abhipra Capita Ltd. In this case even the name of buyer and his ID No. in which the shares of the appellant were transferred were also filed. Thus the objection of the AO that the detail of purchase and sale of shares is not made available is not correct. viii) The sale consideration of these shares was received through account payee Demand Drafts duly ascertained by the AO independently to have been issued from the bank account of the broker. ix) During the course of assessment proceedings the following evidences were brought on record: - a) Copy of share broker bill. b) Copy of the Contract note. c) Copy of Demat account statement with Stock Holding Corporation of India Ltd. Which dearly shows that the shares were transferred from the name of appellant after its sale. d) Copy of ledger account of the appellant in the books of share broker. e) Copy of Bank Statement of appellant with Bank of India, Agra. x) Further during the course of assessment proceedings it is seen that notices u/s 133(6)/131 were issued to the share broker were complied with. This fact seen along with the evidences as referred in Para(ix) above duly prove the existence of the share broker along with the transaction with the assessee. The AO has wrongly compared that onus of the assessee is the same as required in respect of cash credit entries. The Hon'ble Jodhpur Tribunal had the occasion to consider a case in respect of similar type of share transaction. The decision reported in 13 SOT 61 in the case of ITO vs. Smt. Kusum Lata wherein the Hon'ble Bench held that the share transaction was not bogus. The Hon'ble Bench confirmed the order of CIT (A) who held that assessee has filed the requisite evidence to establish the genuineness of share transaction and merely because share broker could not report the transaction to Stock Exchange, it could not be said that the share transaction was bogus. The Hon'ble Bench further held that the burden of proving a transaction is a/ways on the person asserting it to be bogus and this burden has to be strictly discharged by adducing legal evidences of a character which would either directly prove the fact of bogusness or establish circumstances unerringly and reasonably raising an inference to that

effect. The Bench held that there was no evidence except speculation that this profit was not from the sale of shares. The AO had failed to establish his case and to discharge the requisite burden cast on him. xi) In this case as rightly pointed out by the AR's, there is no evidence on record as referred in assessment order, to prove that the proceeds received against sale of shares represent appellant's undisclosed income. Hon'ble Apex Court in the case of Kishan Chand Che/la Ram Vs CIT reported in 125 ITR 713 has held "that the burden is on the Department to prove that the money belongs to the assessee by bringing proper evidence on record and the assessee could not be excepted to call the concerned person in evidence to help the Department to discharge the burden that lay upon it". Similar view has been expressed by the Hon'ble Allahabad High Court in the case of CIT vs. Daya Chand Jain Vaidya 98 ITR 280. xii) The AR's of the appellant has a/so strongly emphasized on the peculiar fact that after the allotment of shares, the same were transferred to Demat A/c, remained in Demat account during the period of holding and transferred to the Demat account of the buyer, itself proves the genuineness of the purchase/sale transaction of shares having regard to the relevant provisions contained in the Depository Act The transaction made through Demat account is in itself an evidence to prove the genuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Magadh Stock Exchange, therefore, there cannot be any reason to doubt the genuineness of the sale transaction of the shares. It is settled position of law by the decisions reported in 26ITR 776(SC), 37 ITR 288(SC), 63 ITR 449(SC) and 1 SOT 90 (Mum) (supra) that suspicion how so ever strong cannot take place of the character of evidence. In this case it is seen that appellant brought on record all plausible evidences as is expected in these transaction, however, the AO has not brought any material on record to disprove the evidences as adduced by the appellant. The Hon'ble Supreme Court in the case of Sreelekha Banerjee and Others vs. CIT 49 ITR 112 has held "Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot be merely rejecting unreasonably a good explanation, convert good proof into no proof. The AO has based his conclusion on unfounded presumption and surmises. This a/so cannot be approved. Reliance is placed to the Hon'ble Supreme Court decision in the case of Umacharan Shaw & Bros. vs. CIT 37 ITR 271. "(2.7) Thus in view of above facts and circumstances of the case it is well established by the appellant regarding genuineness of share transaction and he has sufficiently discharged the onus cast upon him. AO's action is not well founded in position of law in adding entire amount of sale of shares as income from undisclosed and

unexplained sources u/s 68 of I.T. Act. Therefore, I am deleting the entire amount of Rs.19,51,038/-. However, the AO is directed to assess the long term capital gains of Rs. 17,54,237/- as shown by the appellant." "The Tribunal has upheld the finding. It had held that the assess was in possession of the shares in question and had sold the said shares in course of ordinary transaction of sale of shares at stock exchange and if the broker did not file any evidence since the same were seized by the Revenue Department, there is no fault with the assesses. From the aforesaid facts it is dear that the shares in question were a/lotted to the assessee in the public issue which were held in Demat a/c of Stock Holding Corporation of India Ltd. The shares were transferred to Abhipra Capital Ltd,. The sale consideration was received by demand draft. Therefore, the transaction in question cannot be said to be fake and is a genuine transaction. The Tribunal has not committee any error in upholding the order of CIT(Appeals) on this point, "The appeal fails and is dismissed. Order Date :- 12.12.2012" Hon'ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC) 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 assessee produced all evidences to explain the source of the amounts received by the assessee from the brokers. The AO was not justified in assessing the sale proceeds of shares as unexplained cash credit under section 68 of the Act. Hon'ble Allahabad High Court in the case of Ms. Amita Bansal vs. Commissioner Of Income (2018) 400 ITR 324 (All) on 30 March, 2017 INCOME TAX APPEAL Mo. - 326 of 2010, HELD: "1. Whether on the facts and circumstances of the case the ITAT was correct to hold that 11,000 shares of M/s Welcome Coir Industries Ltd. Purchased by the appellant on 10.11.2003 from broker M/s Elbee Portfolio Pvt, Ltd vide contract Note dated 10.11.2003 and received in the Demat account and thereafter sold vide Contract Note dated 26.2.2005 of the broker M/s D.N. Kansal Securities Pvt. Ltd. And sale proceeds of share credited in the bank account of the appellant, still it was rightly held that shares sold were not the same shares purchased in November, 2003? 2. Whether the ITAT rightly treated the sale price of 11,000 shares, as income from undisclosed sources and added to the income of the appellant u/s 68 of the Act on the ground that the appellant could not

filed any cogent evidence why the shares purchased in November, 2003, the payment was made in February, 2004 and credited in Demat Account in November, 2004 ignoring the contract note dated 10.11.2003, sale bill dated 17.11.2003 of purchases and sale of shares by Contract Note dated 26.2.2005? 3. Whether the Tribunal rightly disallowed Rs. 11,77,000/- received from the sale of shares and being not liable to be exempted as long term capital gains, when the share were purchased in November, 2003 and sold in February, 2005 as per contract notes of purchase and sales of shares?" "Whether the Tribunal was justified in holding that purchase of 1,000 shares by assessee was unexplained, ignoring the fact that purchase of such shares was not doubted by the A.O. ?" However, in view of the finding recorded by the assessing officer for addition to be made under section 68 of the Act without allowing any deduction in respect of cost of acquisition of the shares, it necessarily flows from such finding that the assessing officer did not believe the case of the assessee of purchase of the shares in question. Accordingly, the additional question does not arise in this case. The sole addition, which is subject matter of dispute in the instant appeal, relates to addition of Rs. 11,77,000/-/ which according to the assessee was long term capital gain arising on the sale of 11,000 shares of a company M/s Welcome Coir Industries Ltd. The Assessing Officer had disbelieved the long-term capital gain and made a corresponding addition of Rs. 11,77,000/- under Section 68 of the Act. Upon appeal the assessee adduced evidence in the shape of contract notes/bills receipt; payments made through banking channel; contract notes and; copies of passbook of its Demat account in support of it thus asserted its claim of long term capital gain as genuine and correct. Qua the payment made by the assesses for purchase of shares, it was not disputed by the department that the same was made through banking channel. It is also an undisputed fact that 11,000 shares were sold in the previous year relevant to the Assessment Year 2005-06 which were of the company M/s Welcome Coir Industries Ltd. Entire sale proceeds were also received through banking channel. The CIT (Appeals) after detailed examination of the case of the assessee and evidence thus adduced by the assessee including the entries in the Demat account passbook; evidence of the broker firms through whom the transactions were made; contract note dated 10.11.2003 etc. allowed the appeal. In his view the disallowance of the said claim was not justified. The CN (Appeals) had further found that merely because certain transactions performed by the brokers through whom the assessee had sold those shares were doubtful, it could not be said that the transactions performed by the assessee

were, therefore, for that reason alone, doubtful or not genuine. In such cases individual transactions relating to the particular assessee (in whose case genuineness of the transaction is doubted) need be examined before adverse conclusion be drawn against such assessee. Upon appeal, by the revenue, the Tribunal has reversed the finding of the CIT (Appeals) and sustained the addition made by the Assessing Officer. The Tribunal's order is one of reversal. However, the Tribunal has without directly dealing with the reasoning given by the CIT (Appeals) passed its order on a solitary reasoning of the purchase of shares having been recorded late in the Demat account of the assessee. In this regard, it is noticed while the assessee claimed to have purchased the shares in the month of February 2003 at the cost of Rs. 55,594/-. They were found recorded in the Demat account of the assessee, for the first time in November 2004. It cannot be denied that the fact of purchase transaction being recorded late in the Demat passbook raises a doubt as to its genuineness and it is also true that this evidence is relevant to the decision on the point in issue in this case, yet, this was not the only evidence relevant to the issue. There exists other evidence, adduced by the assessee in this case, in shape of contract notes; bank transactions pertaining to payment for purchase and sale of share and other material relied upon by the CIT( Appeals). Such other relevant evidence ought to have been a/so looked at in entirety and thereafter conclusion as to genuineness of the transaction should have been drawn. It may have been open to the Tribunal to declare any piece of evidence relied by the CIT(Appeals) to be irrelevant or unreliable. That having not been done, it could not have side-stepped the evidence and/or the reasoning of the CIT(Appeals), especially, because the order of the Tribunal is one of reversal. A three Judge bench of the Supreme Court, in Udhavdas Kewslram Vs. CIT (1967) 66 ITR 462 (SC) held : "The Tribunal was undoubtedly competent to disagree with the view of the Appellate Assistant Commissioner. But in proceeding to do so, the Tribunal had to act judicially, i.e. to consider all the evidence in favour of and against the assesses. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be regarded as conclusively determining the questions of fact raised before the Tribunal." The Supreme Court thus laid down the test of fair and full review of evidence by the Tribunal, a final authority on fact when it reverses a finding of fact by a lower appellate authority. In this regard, the Tribunal the higher appellate authority has neither considered and weighed, in entirety, the evidence relied by the lower appellate authority nor it has dealt with the reasoning and findings of the lower appellate authority while passing the order of reversal. It is

then difficult for this court to the uphold as correct the finding of fact recorded by the Tribunal. We are therefore of the view that the Tribunal's finding is not conclusive, and it has been arrived by following a faulty process. The Tribunal has not considered a/I relevant and other material evidence existing on record before disbelieving the claim of the assessee. The Tribunal has also not specifically dealt with the findings recorded by the CIT (Appeals)." As three Judge bench of the Supreme Court, in Udhavdas Kewalram Vs. CIT (Supra) held that the AO had to act judicially, i.e. to consider all the evidence in favour of and against the assessee, An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be sustained. The Supreme Court thus laid down the test of fair and full review of evidence by the AO. In this regard, in the instant case the AO has neither considered nor weighed, in entirety, the evidence presented by the investigation authority nor it has dealt with the reasoning and submissions of the appellant while passing the assessment order. It is clear that the order of the AO is nothing but an estimation made, based on presumptions. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H), a Division Bench of the Hon'ble Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions /disallowances are made. Applying the principles laid down by the observations of the Punjab and Haryana High Court, I find that if the entire material pertaining to these transactions like DMAT statements, Contract Notes of purchase and sale of shares and source of funds to acquire the shares that had been placed by the assessee before the AO at the time when the assessment was being made and the AO, applied his mind to that material and did not express anything contrary about the evidence placed by appellant then in such circumstances it shows that the evidence placed by the appellant has been accepted by AO. AO then cannot go ahead and make an addition on part evidence available with him where there is no mention of the transactions done by appellant or by her broker. AO was specifically asked to file any specific material against the appellant vide this office letter no. CIT(A)-I/KNP/Penny Stock/2017- 18/11 dated 04.03.2018 asking following information: "The above noted appeal against the order u/s 143(3) of the I.T. Act, 1961 has been preferred by the appellant. "In this case, the appellant claim for exemption u/s 10(38) of the I.T, Act, 1961 in relation to Long Term Capital Gain arising on sale of shares has been disallowed. In the assessment order, it has been

held that this whole transaction of purchase and sales of shares is a colorable device and is a fabricated transaction and same was held as bogus. "It is, therefore, requested that all the available material specifically pertaining to the appellant that has been received from the D.I.T(investigation), Kolkata or gathered through any other sources may kindly be flagged in the assessment record and the same may kindly be sent to this office with all pages properly numbered, for disposal of the appeal. You may appreciate that since quantum of revenue involved in these appeals is substantial, therefore every available piece of documentary evidence specifically pertaining to the appellant becomes important. Therefore, same may kindly be identified and forwarded to this office so that judicious decision in this appeal can be taken. "You are directed to send the assessment record with all pages duly numbered and all the specific evidence available on record pertaining to appellant, properly flagged within 15 days of receipt of this letter." In reply to this specific opportunity given, the Assessing Officer simply sent the assessment folder to this office for perusal without specifying any adverse evidence present on records against the appellant whatsoever of any kind in support of the suspicion relied upon by him. It is therefore clear that there is no adverse material on record against the appellant, to show that the share prices of Nikki Global were rigged in the case of appellant or that the appellant had in fact participated in any such scheme of procuring bogus entry of share sales to show bogus capital gains. It is therefore clear that there is no adverse material on record against the appellant, to show that the share prices of Nikki Global were rigged in the case of appellant or that the appellant had in fact participated in any such scheme of procuring bogus entry of share sales to show bogus capital gains. Income Tax Appellate Tribunal - Kolkata "D" BENCH in the case of Kiran Kothari (Huf) vs. ITO, Ward 35(3), Kolkata, on 15 November, 2017 in ITA No. 443/Kol/2017 for AY 2013-14 held in exactly similar facts and circumstances that no addition can be made in the hands of appellant. Hon'ble Allahabad High Court in the case of K.N. Agarwal Vs. CIT (1991) 189 ITR 769 (All), relevant extract of the said judgment are given hereunder:- "Indeed, the orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that the Tribunal’s order is the subject matter of revision in the High Court or that the High Court's decision Is under appeal before the Supreme Court. Permitting him to take such a view would introduce judicial

indiscipline, which is not called for even in such cases. It would lead to a chaotic situation. True it is that the dilemma of the Revenue is also real and substantial in such cases, but such a situation cannot be provided for by judicial interpretation by courts, but only by an appropriate agency." Therefore respectfully, following the law laid down by :urisdictional High Court in the case of Ms. Amita Bansal & Mr. Udit Narain Agarwal (Supra), and from the Lucknow ITAT in various cases mentioned above, I am of the view that the AO's finding is not conclusive, and it has been arrived by following a faulty process. It cannot be denied that the fact of purchase and sale transaction in penny stocks being recorded in an off market transaction in the Demat passbook raises a doubt as to its genuineness and it is also true that this evidence is relevant to the decision on the point in issue in this case, yet, this was not the only evidence relevant to the issue. There exists other evidence, adduced by the appellant in this case, in shape of contract notes; bank transactions pertaining to payment for purchase and sale of share and other material. The AO has not considered the available material and evidences existing on record in proper way before disbelieving the claim of the appellant. The AO has also not specifically dealt with the evidence placed on record by the appellant during assessment proceedings. AO made assessment ignoring the fact that there is no evidence of either the appellant or the share broker present on record that binds them for being involved in any illegal or manipulative transactions leading to an unreasonable high long-term capital gain. I do not find that the AO has brought out any part of the report from the investigation wing in which the assessee has been investigated and or is found to be a part of any arrangement for the purpose of generating bogus long-term capital gains. Nothing has been brought on record to show that the persons investigated by wing, including entry operators or stock brokers, have named the assessee as being in collusion with them. In absence of any finding specifically against the assessee in the investigation wing report, the appellant cannot be held to be guilty or linked to the wrong acts of any third persons investigated. In this case, in my view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation into the facts of misuse of the scrip for the purpose of collusive transaction and then should have tried to collect further specific evidences against the transactions entered into by the appellant to prove that it was also a collusive transaction. I, however, find that the Assessing Officer has not taken this exercise and has not brought on record any adverse evidence to prove that the capital gain disclosed by appellant is not genuine. Accordingly, the addition of Rs.5,41,223/- is deleted. Appeal is partly allowed.”

“3. The present appeals under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] are directed against the common order dated 6th August, 2019 [hereinafter referred to as the ‘Impugned Order’] passed in ITA No. 1069/DEL/2019 (for AY 2014-15), 2772/DEL/2019 (for AY 2015-16) and other appeals for the same AYs, by the Income Tax Appellate Tribunal [hereinafter referred to as the ‘ITAT’]. However, the Impugned Order records the factual position only in respect of ITA No. 1069/DEL/2019. 4. The Revenue urges identical questions of law in all the afore-noted appeals with the only difference being the figures relating to the additions made under Section 68 read with Section 115BBE of the Act. Accordingly, the same are being decided by way of this common order. 5. It is not in dispute, as noted in the

Impugned Order, that the factual background in all the three appeals is quite similar. However, for the sake of convenience, the facts in respect of ITA 125/2020 are being noted and discussed elaborately. Briefly stated, the Respondent-Assessee is an individual who has derived income from interest on loan, FDR, NSC and bank interest under the head of ‘income from other sources’ in respect of A.Y. 2015-16. She filed her return of income, declaring total income of Rs. 13,96,116/-. After claiming deduction of Rs. 1,60,000/- under Chapter VI-A, the total taxable income of Respondent was declared to be Rs. 12,36,120/-. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny. During the scrutiny proceedings, the AO noticed that for the relevant year under consideration, the Respondent had claimed exempted income of Rs. 96,75,939/- as receipts from Long Term Capital Gain [hereinafter referred to as ‘LTCG’] under Section 10(38) of the Act. He inter alia concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060/-, making an addition of Rs. 96,75,939/- under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited. The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted vide the Impugned Order, relevant portion whereof reads as under: “21. A perusal of the assessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. xx xx xx 23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any

person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and affirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014. The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find any place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Qrganic food Processing Ltd – a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of the fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI. 26. There is no dispute that the statements which were relied by the Assessing Officer were not recorded by the Assessing Officer in the assessment proceedings but they were pre- existing statements recorded by the Investigation Wing and the

same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void. xx xx xx 30. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand.” 6. Aggrieved by the aforesaid findings, the Revenue has filed the instant appeals contending that, notwithstanding the tax effect in the appeals falling below the threshold prescribed under Circular No. 23 dated 6 th September, 2019, the appeals are maintainable in view of the Office Memorandum dated 16th September, 2019 issued by the CBDT, which clarifies that the monetary limits prescribed in the aforementioned circular shall not apply where an assessee is claiming bogus LTCG through penny stocks, and the appeals be heard on merits. 7. Mr. Zoheb Hossain, learned senior standing counsel for the revenue (Appellant herein), contends that the learned ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suffers from perversity. He submits that there are certain germane factual errors, inasmuch as the learned ITAT has wrongly recorded that there was no independent enquiry conducted by the AO, when in fact the AO had issued notices to the companies in question under Section 133(6) of the Act. He points out that the observations recorded in para 25 of the Impugned Order are factually incorrect, and in conflict with para 4 of the order of the CIT(A) dated 24th December, 2018 which reads as follows: “4. Even the broker through whom the shares were dematerialized and sold i.e. SMC Global Securities Ltd. was also a part of the scam. This is a Delhi based broker whose regional office was also surveyed. The sub brokers were also surveyed and also statements recorded which confirmed the payment of cash commission by the beneficiaries for being part of the syndicate.” 8. Mr. Hossain argues that in cases relating to

LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the

Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that

some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed.”

under similar facts and circumstances the ITAT has decided the issue in favour of the assessees.

i) Shri Achal Gupta Vs. ITO 3(1) Kanpur in ITA No. 501/Lkw/2019 dated 16-12-2020 for the A.Y. 2015-16 decided by the Hon'ble ITAT Lucknow Bench 'A' Lucknow. ii) Smt. Sabreen vs. ITO -3(4), Kanpur in ITA No.498/Lkw/2019 vide order dated 20/07/2021. iii) Shri Surendra Kumar Gupta vs. Dy.CIT in ITA No.125/Lkw/2019, order dated 13/07/2021 iv) Shri Jai Prakash Sharma vs. Dy. CIT in ITA No.544/Lkw/2019 order dated 03/06/2021] v) Shri Ashish Kumar Chaurasia, HUF vs. Dy.CIT, in ITA No.552/Lkw/2019, order dated 03/06/2021 vi) Smt. Divya Agarwal vs. Dy.CIT, in ITA No.555/Lkw/2019, order dated 03/06/2021

Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar