RAJESH SARDA,NAGPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(2), NAGPUR

Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 In response to notice under section 153A, the assessee filed his return of income declaring same income as filed on 30.09.2015. During the assessment, assessing officer (AO) recorded that he has information that assessee group is beneficiary of penny stock. Such information was based on the investigation carried out by Investigation Wing, Kolkata. The assessee is one of the beneficiary who has availed bogus long term capital gain during financial year 2014–15. The assessee is beneficiary of penny scrip namely Premier Capital Services Ltd. and Kailash Auto Finance Ltd. On perusal of details furnished by assessee along with return of income, the AO found that assessee has shown long term capital gain of `. 9.82 crore on sale of shares of Kailash Auto Finance Ltd. and long term capital gain of `. 8.42 crore on sale of shares of Premier Capital Services. Both amounts of long term capital gain were claimed as exempt under section 10(38). The AO prepared summary of working of capital gain in respect of both the scrips. The AO recorded that assessee purchased 40000 share of Premier Capital Services Ltd. in August, 2012 and sold the same scrip during May and June, 2014 and have shown capital gain of `. 8.42 crore. Similarly, for Kailash Auto Finance Ltd., the ld. AO recorded that assessee purchased 30,00,000 shares in March, 2013 and sold in May and June, 2014 and earned capital gain of `. 9.82 crore. The AO issued show cause dated 02.02.2017 to assessee to substantiate such capital gain. The contents of show cause notice are recorded in para 4.2 at page no. 3 to 4 of assessment order. In the show cause notice, the AO asked to explain the details of transaction including mode of source of payment, date of purchase and identity and purchaser Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 and name and address of broker. The assessee filed his reply dated 24.07.2017. The AO recorded that in the reply, the assessee explained that he has already furnished the computation of income and disclosing the details of transaction. From the reply furnished by the assessee, the AO recorded that it can be seen that assessee purchased share of Premier Capital Services Ltd. @ `. 75/- per share and sold @ `. 1881/ per share. The share of Kailash Auto Finance Limited was purchased at `. 1.00 /- per share and sold @ `. 34/– per share. The assessee also furnished working of capital gain. The assessing officer in para 5.1 of assessment order recorded that Investigation Wing, Kolkata carried out countrywide investigation about the bogus entry of long term capital gain and modus operandi of entry operator. The AO recorded the modus operandi of such entry provider, rate of scrips increased and decreased during the relevant period. The AO also extracted the part of statement of alleged entry provider in the assessment order. The AO also recorded modus of funds trail from bank accounts i.e. from one entity to another entity and noted that funds were received by a company through transfer / RTGS and were transferred to the share brokers and ultimately used for purchase of shares by various brokers / companies. On the basis of such observation, the AO treated the transaction of both the long term capital gain as sham transaction and aggregate of both the long term capital gains of Rs. 18.84 crore was treated income from undisclosed sources in the assessment order dated 28.12.2017. The AO also added `. 56,54,511/– on account of unexplained expenditure as commission paid i.e. 3% of capital gain for obtaining alleged entry.

Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 4. Aggrieved by the additions in the assessment order, the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detail statement of fact. The ld. CIT(A) after considering the material on record confirmed the addition made by AO by taking view that during search action carried out on 26.11.2015, statement of assessee was recorded, wherein he was asked to provide details of long term capital gain on sale of shares and that in his statement, the assessee accepted the long term capital gain as bogus and offered the same as additional income. During assessment, the AO has sufficient information form investigation wing in respect of share of Kailash Auto Finance Ltd and Premier Capital Services Ltd are zama kharchi / penny stock company and used for providing accommodation entry. The AO has discussed complete modus operandi of entry provider about the accommodation entry. On the basis of such observation he confirmed the additions of unexplained cash credit of `. 18.84 crore as well as addition of unexplained expenditure of commission payment. Further, aggrieved the assessee has filed present appeal before Tribunal.

, which may be considered as original grounds of appeal

, there is no change in the nature of grounds of appeal

. The ld AR of the assessee submits that long term capital gain on sale of shares of Kailash Auto Finance Ltd. and Premier Capital Services Ltd. is genuine, the assessee has Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 furnished complete documentary evidence during the assessment which includes Sauda Summary Report, copy of client ID, allotment letter of shares, consent letter of assessee, contract notes of Premier Capital Securities Ltd., purchase of share of Careful Projects Advisory Ltd. which was later on amalgamated with Kailash Auto Finance Ltd, contract notes of Kailash Auto Finance Ltd., Form 10DB, copy of Demat account, copy of bank statement, ledger account of assessee with his Broker Anand Rathi. Similar evidences were furnished in respect of other scrips namely Premier Capital Services Ltd. All such evidences furnished by assessee were not found to be incorrect or false by AO or ld. CIT(A) in any manner. The evidence of purchase of share and receipt of shares of Demat account is not disputed. The shares of Kailash Auto Finance Ltd. and Premier Capital Services Ltd. were acquired in F.Y. 2012–13 and such investment was recorded in the books of account and were accepted in the assessment order framed in said assessment year without any variation, copy of assessment order dated 28.12.2017 for A.Y. 2012–13 is placed on record. The assessee was holding shares of various other companies of aggregate value of `. 1.52 crore. The assessee is regular investor and had purchased shares of more than 30 companies which were shown as investment as on 31.03.2013 in the balance sheet of the assessee. The investment in shares of Kailash Auto Finance and Premier Capital Services Ltd. at `. 60,00,000/– is a part of total investment held by assessee, with other different shares. The allotment of shares from various companies are accepted. Nothing incriminating material was found during the search nor any adverse evidence was Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 brought in the assessment proceeding. The merger of Kailash Auto Finance Ltd. was approved by Allahabad High Court vide order dated 09.05.2013, thus, the ownership of shares cannot be disputed. Further, the shares of Premier Capital Services Ltd. were received on preferential allotment, their ownership by way of acquisition cannot be disputed. The assessee sold shares of both the scrips in Bombay Stock Exchange (BSE) their registered broker. The sales are on public platform which is corroborated by contract notes, clearly indicating quantity, date, time and rate of sales. Securities transaction tax (STT) was paid on sales of shares of both the scrips. The sale consideration was received through banking channel on the conditions for claiming exemption under section 10(38) are fully satisfied. The view taken by AO is solely based on information of Investigation Wing. All the reference of information of Investigation Wing is general and not to any specific corroborated by evidence on record. The statement of Ajay Kedia referred by AO as on 19.05.2015 and 26.11.2016 are prior to date of search. Such statements were recorded behind the back of assessee. Such statements were not recorded by AO of assessee but recorded by Investigation Wing. Complete copy of such statements were not provided to the assessee, nor such persons were called for cross–examination. The assessee has no knowledge of such persons. Similarly, the statement of Sunil Dokanrr was recorded by Investigation Wing, copy of which was not provided to the assessee. There is no reference, how his statement is connected with Kailash Auto Finance Ltd. The assessee has no transaction through such person. Similarly, other statement recorded by AO in various parts of Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 assessment order has no linke with the assessee. The ld. AR of the assessee while referring various statement mentioned in the assessment order submits that this statement has nothing to do with the transaction of assessee. Such statements are general statement and nothing to do with the assessee. The AO vaguely relied upon such statement without bringing any nexus with the transaction of assessee. The ld. AR of the assessee submits that by filing sufficient evidence on record, the assessee has proved acquisition of shares. The shares were sold at the current market rate in open market on public platform at BSE. Such facts are not in dispute. The investment in shares is accepted in the assessment order for A.Y. 2013–14. The ld. AO has not brought any evidence on record that money in cash is flown from assessee for which cheque is received as sale of shares to assume that it is an accommodation entry. The allotment of shares was as per provisions of Companies Act and not in violation of SEBI guidelines. It is not a credit entry as per provisions of section 68. Similarly, there is no basis or evidence on record for making addition of unexplained commission on expenditure. The addition of unexplained commission payment is solely based on assumption by AO. The ld. AR submits that assessee has no role in alleged manipulation of scrip of Kailash Auto Finance Ltd. or Premier Capital Services Ltd. In the order of SEBI dated 31.09.2017, with regard to price manipulation, placed on record. Neither the name of assessee in price manipulation nor the name of his broker in the SEBI order is mentioned Rajesh Sarda (AY2015-16) ITA 44/Nag/2022

Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 8. To support his submissions, the ld CIT-DR for the revenue relied on the following  Manish C. Jogani (HUF) to 7347/M/2014 dtd. 16.11.2015  Kolte Patil Developer to 1483/PN/2013 dtd. 20.02.2015  Kanwar Natwar Singh Civil Appeal No. 8601 of 2010 dtd. 05.10.2010  B. Kishore Kumar vs DCIT 62 Taxmann 215 (SC) dtd. 02.07.2015  B. Kishore Kumar vs DCIT (Madras HC) dtd. 03.11.2014  PCIT vs Swati Bajaj (Calcutta HC) dtd. 14.06.2022  Suman Poddar vs ITO (2019) ITAT New Delhi  NRA Iron and Steel Pvt. Ltd. vs CIT 412 ITR 161 (SC)  CIT vs Sumati Dayal (1995) 214 ITR 801 (SC)  Durga Prasad More (1971) 82 ITR 540 (SC)  GCT Industries Ltd. vs ACIT 65 ITD 380 ITAT Mumbai Bench  Motilal Padampat Udyog Ltd. vs CIT 293 ITR 565 (Allahabad HC)  Marg Projects and Infrastructure Ltd. vs DCIT (2023) 147 taxmann.com 130 (Madras) 9. In the rejoinder submission, the ld. AR of the assessee refuted all the submission of ld. CIT–DR for the Revenue. The ratio of decision relied by ld. CIT–DR is distinguishable or not applicable on the facts of this case.

6. In the considered view of the Court, the ITAT committed no error in concurring with the view of the CIT(A) and in dismissing the Revenue's appeal. No substantial question of law arises from the impugned order of the ITAT that calls for interference by this Court. The appeal is accordingly dismissed.

Rajesh Sarda (AY2015-16) ITA 44/Nag/2022 16. We find that assessee made sale of shares through BSE and paid security transaction tax and there is no allegation against the share broker through whom assessee has made sales that they were indulging any price manipulation. Therefore, we do not find any justification in treating the LTCG as unexplained cash credit in absence of any cogent evidence. In the result, the addition of undisclosed income under section 68 is deleted.