SMT. SNEHA ANKIT SALECHA,MUMBAI vs. INCOME TAX OFFICE , WARD, 19(3)(4), MUMBAI

The assessee is an individual deriving income from salary, house property, business and profession and income from other sources. The assessee filed the return of income for AY 2014-15 on 04.05.2015 declaring a total income of Rs.10,25,460/-. The case is selected for scrutiny under CASS and the statutory notices were duly served on the assessee. The Assessing Officer (AO) during the course of assessment noticed that the assessee has earned income from Long Term

The ld. Authorized Representative (AR) submitted that the assessee has purchased 20,000 shares of Kaushalya Global Ltd. (KGL) which subsequently got merged with M/s Matra Kaushal Enterprises Ltd. The ld. AR further submitted that Smt. Sneha Ankit Selecha the payment for purchase of shares of KGL was made by the assessee to Pranjal Trading Co. Pvt. Ltd. through A/c payee cheque on 26.11.2012 and in this regard our attention was drawn to the invoice raised by the broker and the bank statement (page 31 to 33 of the Paper Book). The ld. AR also submitted that the said shares were credited to the demat account on 13.12.2012 (page 34 of Paper Book) and that these shares were subsequently sold in various tranches during the year under consideration through registered broker in the Bombay Stock Exchange after paying the STT. The broker's statements and the credit in the bank account of the assessee were submitted by the ld. AR to substantiate the claim (page 35 to 43 of Paper Book). It is submitted that assessee is a regular investor which would evident from the financial statement of the assessee where the various investments made by the assessee have been listed. The ld. AR submitted that the AO has made the addition merely based on the investigation report and has not made any independent enquiry in assessee's case. The ld. AR further argued that the assessee has submitted entire set of documents to substantiate the purchases and sale of the impugned transaction and the AO did not record any adverse finding with regard to the documents submitted by the assessee. The ld. AR drew our attention to the statement recorded under section 131 to submit that the assessee has merely stated that she is not aware of the details pertaining to the financial position of the company and that the AO has made the addition stating that the assessee does not have any knowledge of stock market and therefore could not have made the investment as a regular investor. The ld. AR submitted that the assessee has discharged the onus of proving the genuineness of the transaction by submitting the relevant documents including the bank statements and therefore, the AO is not correct in making the addition merely based on investigation report without recording any independent adverse finding pertaining to the assessee. The ld. AR in this regard relied on the decision of the Co-ordinate Bench in the case of Shri

We have heard the parties and perused the material available on record. The assessee purchased 20,000 shares of M/s Kaushalya Global Limited on 26.11.2012 from M/s Pranjal Trading Company Private Limited which as per the statement recorded was based on the advice of her father. The assessee the consideration for purchase was paid through banking channels. M/s Kaushalya Global later got amalgamated with M/s Matra Kaushal Enterprises Limited a listed company and the shares of M/s Matra Kaushal Enterprises Limited were credited into the Demat account of the assessee. We notice that the assessee in order to substantiate the genuineness of the impugned transactions submitted following documents during the assessment proceedings -  Copy of Purchase Invoice from M/s Pranjal Trading Company Pvt. Ltd. (Page No. 31 of Paper book)  Copy of Bank Statement reflecting the payment consideration (Page No. 32 & 33 of the Paper book)  Copy of Demat Statement (Page No. 34 of the Paper book)

We further notice that the assessee has submitted before the lower authorities the documents pertaining to the sale of the shares (page 35 to 41 of paper book) such as the contract note, Demat statement reflecting the sale of shares, copy of ledger account of the share broker, bank statement containing the credit of the consideration received on sale of shares. We also notice from the perusal of the financial statement of the assessee (page 44 of paper book) that the assessee is holding shares other than the impugned shares. The ld AR during the course of hearing also drew our attention to the table containing the details of all the investments in shares of the assessee to submit that the impugned shares forms

We notice that the coordinate bench in the case of Pankaj Kantilal Shah (supra) while considering the issue of sale of shares of M/s Matra Kaushal Enterprises Limited under similar facts has held that –

We heard rival contentions and perused the record. We noticed that the assessee has furnished all the details in support of purchase and sale of shares of M/s Matra Kaushal Enterprises Ltd and the said fact has also been noticed by the AO in the assessment order. We noticed that the assessee has purchased the shares by paying Rs.10.00 lakhs through banking channels. Subsequently, the assessee became owner of 10,00,000 shares in the above said company after merger, split etc. During the year under consideration, the assessee has sold 4,14,500 shares through stock exchange. We notice that the assessing officer did not find any fault with any of the documents furnished by the assessee in support of purchase and sale of shares. The Ld D.R, however, submitted that the assessee has not furnished the copies of share certificates, share transfer forms etc. But the fact that the shares were dematerialized and credited to the account of the assessee would prove the fact of purchase of shares. In any case, it is not the case of AO also. Hence the transactions of purchase and sale cannot be doubted with as held by Hon’ble jurisdictional Bombay High Court in the case of CIT vs. Jamnadevi Agarwal (328 ITR 656)(Bom).

The case of the AO is that the assessee has agreed to withdraw the exemption claimed u/s 10(38) of the Act before the search officials. In this regard, it is submitted by the assessee before tax authorities as well as before us that he could not explain the details of purchase and sale during the course of search proceedings, since all these transactions were carried out by his father, who had since expired. It was further submitted that the assessee had agreed to withdraw exemption u/s 68 of the Act before the search officials, since he was given impression by the search officials that some wrong was committed by his father and further, he was under the impression that all the relevant documents may not be available. It is submitted that the assessee verified the records subsequently and noticed that all the supporting evidences are available. After consulting the tax consultants, the assessee came to know that there was nothing wrong in the transactions of purchase and sale of shares carried out by his father. Accordingly, it is stated that the assessee adhered to the claim for exemption u/s 10(38) of the Act. From the explanations so given, we notice that the assessee has agreed to withdraw Smt. Sneha Ankit Selecha the exemption claimed u/s 10(38) of the Act under misconception. Accordingly, we agree with the contentions that the declaration given by him under wrong impression should be ignored. In any case, as submitted by Ld A.R, the exemption given under the Act is a statutory right available to the assessee. Hence the same cannot be denied only on the reasoning that the assessee has waived his right, i.e., it is the duty of the assessing officer to allow the concession and benefits available to the assessee while computing total income as per the circulars issued by the CBDT. The case laws relied upon by the Ld D.R with regard to the addition made on the basis of sworn statements, in our opinion, are not applicable to the facts of the present case, in view of the discussions made supra.

Before us, the Ld D.R placed reliance on various case laws in support of the addition made by the AO. In our view, those decisions have been rendered on the basis of facts prevailing in those cases and hence they cannot considered as a straight jacket formula to decide the issue under consideration, i.e., the decision has to be taken on the basis of facts available in each of the cases. In any case, we are dealing with some case laws later. In the instant case, we noticed that the assessing officer has mainly relied upon the report given by the investigation wing of the Income tax department, which included the statements given by the alleged entry operators and exit providers. We noticed that the AO did not carry out any independent enquiry in order to find out whether the assessee was part of ring which indulged in the alleged price rigging. The AO, in particular did not examine the brokers/persons from whom/through whom the assessee has purchased and sold the shares. Based on the reports of investigation wing, the AO has arrived at the conclusion that the assessee has availed accommodation entries by way of long term capital gains. In this process, the AO has ignored the fact that the assessee is a regular investor in shares. He also could not disprove the fact that the purchase and sale of shares of the above said company was carried out by the father of the assessee, who has since expired.

We notice that an identical case of allegations that the assessee has availed accommodation entries for bogus capital gains was examined by the Hon’ble jurisdictional Bombay High Court in the case of Shyam Power (supra). The decision rendered by Hon’ble Bombay High Court in the above said case is extracted below:- “3. Mr. Sureshkumar seriously complained that such finding rendered concurrently should not have been interfered with by the Tribunal. In further Appeal, the Tribunal proceeded not by analyzing this material and concluding that findings of fact concurrently rendered by the Assessing Officer and the Commissioner are perverse. The Tribunal proceeded on the footing that onus was on the Department to nail the Assessee through a proper evidence and that there was some cash transaction through these suspected brokers, on whom there was an investigation conducted by the Department. Once the onus on the Smt. Sneha Ankit Selecha Department was discharged, according to Mr.Sureshkumr, by the Revenue- Department, then, such a finding by the Tribunal raises a substantial question of law. The Appeal, therefore, be admitted.

We have perused the concurrent findings and on which heavy reliance is placed by Mr. Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt. Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme.

It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either.

We may also refer to another decision rendered by Hon’ble Jurisdictional Bombay High Court in the case of PCIT vs. Ziauddin A Siddique (Income tax Appeal No. 2012 of 2017 dated 4th March, 2022) and relevant discussions made by Hon’ble Bombay High Court are extracted below:- “2. We have considered the impugned order with the assistance of learned counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against the assessee that it has participated in any price rigging in the market on the shares of RFL.

Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income tax (Central)-1 vs. NRA Iron & Steel (P) Ltd (2019)(103 taxmann.com 48)(SC) but that does not help the revenue in as much as the facts in that case were entirely different.

In the case of Shri Yogesh P Thakkar vs. DCIT (ITA No.1065/Mum/2021 & others dated 03-02-2023, the co-ordinate bench has held that the addition made merely by placing reliance on the Kolkata Investigation Wing report, which are more general in nature, cannot be the basis for making addition u/s 68 of the Act, when the investigation wing has not implicated the assessee. Before us, the Ld D.R placed reliance on the decision rendered by Hon’ble Delhi High Court in the case of Suman Poddar (supra). In the case of Shri Yogesh P Thakkar (supra), the Tribunal has considered the above said decision and noticed that the same has been distinguished by Hon’ble Delhi High Court itself in the case of PCIT vs. Krishnadevi (ITA 125/2020 dated 15.01.2021). The relevant observations made by the co-ordinate bench are extracted below:- “5.12. We find that the ld. CIT(A) relied on the decision of Hon’ble Delhi High Court in the case of Suman Poddar vs ITO reported in 112 taxmann.com 329 dated 17/09/2019 where the decision was rendered in favour of the revenue. The Special Leave Petition filed by the assessee before the Hon’ble Supreme Court in this case was dismissed by the Hon’ble Apex Court vide its order dated 22/11/2019. But we find that there is yet another decision of Hon’ble Delhi High Court in the case of PCIT vs Krishna Devi and others in ITA 125/2020 ; 130 & 131/2020 dated 15/01/2021 reported in 126 taxmann.com 80 (Delhi HC) wherein similar issue of penny stock vis a vis long term capital gain exemption u/s 10(38) of the Act was subject matter of adjudication, in favour of the assessee. This decision rendered in the case of Smt Krishna Devi considers all the propositions laid out hereinabove and are squarely applicable to the facts before us. In fact the Hon’ble High Court duly endorses the elaborate findings given by the Delhi Tribunal on various facets of the issue. Moreover, in this decision, the Hon’ble Delhi High Court duly considered the decision of Suman Poddar referred to supra and also the decision of Hon’ble Supreme Court in the case of Sumati Dayal which was heavily relied upon by the ld. DR before us also herein. The relevant operative portion of the decision of Hon’ble Delhi High Court in the case of Smt Krishna Devi is reproduced hereunder:- 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.

Accordingly, the present appeals are dismissed. (emphasis supplied by us)” In the case of Smt Krishna Devi (supra), the Hon’ble Delhi High Court has held that the theory of human behaviour and preponderance of Smt. Sneha Ankit Selecha probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the respondent.

With regard to the reliance placed by the Ld D.R on the decision rendered by Hon’ble Calcutta High Court in the case of Swati Bajaj (supra), the co-ordinate bench has held as under in the above said case of Yogesh Thakkar (supra):- “5.14. We find that the ld. DR had relied on the decision of Hon’ble Calcutta High Court in the case of PCIT vs Swati Bajaj reported in 139 taxmann.com 352 which is an elaborate decision rendered after considering various decisions of various High Courts on the subject. In the said decision, it was held that assessee had to establish the genuineness of rise of price of shares within a short period of time that too when general market trend was recessive. But we find that when there are several decisions of Hon’ble Jurisdictional High Court as stated supra are already in favour of the assessee, the same would prevail over this tribunal and this tribunal need not take cognizance of the Hon’ble Non-Jurisdictional High Court. The law is very well settled by the Hon’ble Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of Hon’ble Jurisdictional High Court would have higher precedence value than the decision of Hon’ble Non-Jurisdictional High Court on the Tribunal. The Hon’ble Supreme Court emphasised therein that the orders of the Tribunal should be followed by the authorities falling within its jurisdiction so that judicial discipline would be maintained in order to give effect to orders of the higher appellate authorities. The Hon’ble Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. Hence we deem it fit and appropriate to follow the decisions of Hon’ble Jurisdictional High Court referred supra wherein the impugned issue is decided in favour of the assessee. Moreover, when there are two conflicting decisions of various High Courts, the Hon’ble Supreme Court in the case of Vegetable Products reported in 88 ITR 192 (SC) had held that Construction that is favourable to the assessee should be adopted. Hence by following this principle, the decision of Hon‟ble Calcutta High Court and other decisions that are rendered against the assessee, need not be followed by this Court in the peculiar facts and circumstances of the instant case.” Hence the decision rendered by the jurisdictional High Court is required to be preferred in the instant case also 28. In the instant case, even though the AO has initially stated that he is rejecting the exemption claimed u/s 10(38) of the Act, yet the AO has assessed entire sale proceeds received on sale of shares ad income of the assessee, meaning thereby he Smt. Sneha Ankit Selecha has made addition u/s 68 of the Income tax Act. The responsibility placed upon the assessee u/s 68 of the Act is different, i.e., the initial burden to prove the cash credits is placed upon the shoulders of the assessee. In order to discharge the said burden, the assessee has to prove three main ingredients, viz., the identity of the creditor, credit worthiness of the creditor and genuineness of transactions. If the assessee proves all the three main ingredients, then the burden to disprove them would shift to the shoulders of the assessing officer. If the AO fails to disprove the three main ingredients proved by the assessee, then the assessing officer is not entitled to make addition u/s 68 of the Act. The decision rendered by Hon’ble Bombay High Court in the cases of Shyam Power (supra) and Ziauddin A Siddique (supra) are in the context of sec. 68 of the Act.

As noticed earlier, the assessee herein has discharged the initial onus placed upon him u/s 68 of the Act. We noticed that the assessee has furnished all documents relating to purchase and sale of securities. The shares have entered and exited his demat account. The purchase and sale transactions have been routed through the bank accounts of the assessee. All these documentary evidences produced by the assessee have not been disproved. However, the AO has simply relied upon the report of the investigation department including the statements taken from certain parties and held that the long term capital gains declared by the assessee are not genuine. It is also not the case of the AO that those parties have implicated the assessee nor he could show that the assessee was part of the team which was involved in the triggering of prices. No other material was brought on record by the AO to prove that the assessee has indeed availed only accommodation entries. With regard to questions as to why the shares of the above said company was purchased, the assessee has explained that the said decisions were taken by his late father and hence he could not explain the reasons. It was not shown that the said explanation was incorrect and hence, in our view, the same cannot be rejected.

Another important point that was placed before us is the chart of price movement of above said shares. The share price movement was taken out by the assessee from the website of Stock exchange. A perusal of the same would show that the assessee did not sell the shares, when the prices were at peak. The assessee has sold the shares when the prices have started falling, which is the usual tendency of the investors. Had he been part of the wing, which triggered the prices, he would know the peak price and would have sold the shares at that price only. It was the case here and hence, this fact shows that the assessee was not part of that group. We further notice that the assessee is a regular investor in the shares and held shares in many companies.

In view of the foregoing discussions and on a conspectus of the matter, we are of the view that the decision rendered by the jurisdictional Hon’ble Bombay High Court in the cases of Shyam R Pawar (supra) and Ziauddin A Siddique (supra) are Smt. Sneha Ankit Selecha squarely applicable to the facts of the present case. Accordingly, we uphold order passed by Ld CIT(A) and accordingly hold that the Ld CIT(A) was justified in directing the AO to delete the assessment of sale consideration of shares as income of the assessee.

We notice that the coordinate bench in the above case has deleted the addition for the reason that –  AO has simply relied on the report of the investigation wing and did not carry out any independent enquiry to find out anything incriminating the assessee with regard to the impugned transactions  AO failed to show that the assessee had participated in the price rigging in the market  AO has made the addition merely for the reason that in the statement recorded u/s 131 of the Act, the assessee has admitted for the addition towards impugned transaction and the same is not tenable.  AO has not considered the fact that the assessee is a regular investor  AO has not doubted the documentation involving the sale and purchase of shares submitted by the assessee  The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a preplanned manner, is not supported by any material on record.  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 11. In the light of the above findings of the coordinate, when we peruse the materials on record and the findings of the lower authorities following facts emerge –  The assessee has submitted all the relevant documents before the AO / CIT(A) pertaining to the purchase as well as the sale of the impugned shares Smt. Sneha Ankit Selecha  The impugned shares entered and exited his demat account of the assessee  The purchase and sale transactions have been routed through the bank accounts of the assessee  The AO / CIT(A) have not recorded any adverse findings with regard to the documents submitted nor rejected the same  The assessee is a regular investor in shares and the impugned shares constitute only 4% of the total investments in shares  In the statement recorded under section 131 of the Act the assessee has stated that she invested in the shares of M/s Matra Kaushal Enterprises under advise from her father and that she has no knowledge of the financial position of the company  The AO has relied on the report of the investigation wing stating that M/s Matra Kaushal Enterprises Limited is a penny stock company providing accommodation entry and that the AO has not recorded any specific adverse finding with regard to the assessee  The AO has done a detailed analysis of the financial statement of M/s Matra Kaushal Enterprises to conclude that the same does not support the price at which the shares of the company are traded  The SEBI report relied on by the assessee does not contain the name of the assessee and nothing has been brought on record to show that the assessee in any way is involved in either the price rigging or in the trading strategy of the shares of M/s Matra Kaushal Enterprises Limited.

From the above listed facts in assessee's case it is clear that the facts are similar to the facts basis which the coordinate bench in the case of Pankaj Kantilal Shah (supra) has deleted the addition made by the AO treating the LTCG on sale of Smt. Sneha Ankit Selecha shares of M/s Matra Kaushal Enterprises as bogus. We also notice that the coordinate bench under similar facts in various judgments has deleted the addition made with respect to LTCG. We also notice from the perusal of the submissions of the ld AR with regard to the case laws relied on by the ld DR, that there is merit in the contention that the facts in those cases are distinguishable from that of the assessee and that each case has to be decided based on facts specific to that case. Accordingly considering the facts and circumstances of the present case and the judicial pronouncements rendered under similar of facts, we are of the view that the addition made by the AO towards the sale of shares of M/s Matra Kaushal Enterprises Limited amounting to Rs. 1,11,69,765/- is not sustainable and therefore be deleted.

Since we have deleted the addition made towards sale consideration of shares, the consequential addition made by the AO by way of commission expenses as unexplained under section 69C is also liable to be deleted. Accordingly, we direct the AO to delete the addition relating to commission expenses amounting to Rs.2,23,395/-.

In the result, appeal of the assessee is allowed.