DHARMENDRA JAYANTILAL SHAH ,MUMBAI vs. ACIT-31(1), MUMBAI, MUMBAI

Sr. No. Particulars of Documents Enclosed Page No.

1. Copy of contract notes of stock broker, Bonanza 1 to 10 Portfolio Ltd. for shares of Essar India Ltd. sold on the floor of Stock Exchange of BSE between 08/10/2012 to 12/10/2012

2. Copy of contract notes of stock broker, Arihant 11 to 48 Capital Markets Ltd. for shares of Essar India Ltd. sold on the floor of Stock Exchange of BSE between 12/11/2012 to 01/03/2013

3. D'mat Statement of assessee with HDFC Bank Ltd. 49 reflecting the immediate debit of shares of Essar India Ltd. on sale

4. Bank Statement of assessee with HDFC Bank 50 to 58 highlighting the immediate receipt of sale proceeds of shares of Essar India Ltd. on sale

4 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 5. Ledger Account of assessee from the books of stock 59 to 60 broker, Bonanza Portfolio Ltd. & Ledger of Bonanza Portfolio Ltd. from the books of assessee of A.Υ.2013- 14

6. Ledger Account of assessee from the books of stock 61 to 69 broker, Arihant Capital Markets Ltd. & Ledger of Arihant Capital Markets Ltd. from the books of assessee of A.Y.2013-14

i) Letter dated 17/03/2011 written by assessee to Board of Directors of Essar India Ltd. 70 expressing his desire to purchase the 1,00,000 shares of Essar India Ltd. in preferential allotment ii) Copy of share application letter dated 28/04/2011 given by assessee to Board of Directors of Essar India Ltd. along with copy of 71 to 73 cheque of Rs.15,00,000/- issued for purchase of 1,00,000 shares in preferential allotment iii) Copy of allotment letter dated 26/05/2011 issued by Essar India Ltd. allotting 30,000 shares at the premium of Rs.40 per share having face value of Rs.10 each share on 74 25/05/2011 against the payments made by assessee at Rs.15,00,000/- iv) Copy of bank statement of assessee with Malad Sahakari Bank Ltd. evidencing the 75 to 77 payment of Rs.15,00,000/- made for purchase of above named scrip on 06/05/2011 v) Copy of DMAT Statement of assesse with HDFC Bank evidencing the credit of 30,000 78 to 79 shares of Essar India Ltd. on 14/07/2011 vi) Copy of Notice dated 03rd August, 2011 issued by BSE permitting the shares allotted on 80 to 82 preferential basis on 25/05/2011 of Essar India Ltd. for trading on its floor from 4th August, 2011 vii) DMAT Statement of assessee showing the sub-division of shares from 30,000 shares to 83 3,00,000 shares on 23/02/2012 8. Copy of ITR acknowledgement, Computation of Total 84 to 98 Income and complete set of personal, business

9. Complete set of Tax Audit Report U/s.44AB of the 99 to 113 Act

4. Similar are the facts for Assessment Year 2014-15 wherein the scrip in which the assessee dealt is of Out of City Travels Solutions Ltd. (erstwhile Tilak Ventures Ltd.). Details of purchase and sale of shares of this scrip is tabulated as under:

4.1 From the above table, it is noted that assessee had purchased 50,000 shares through preferential allotment for Rs.11,50,000/- and subsequently sold for a total consideration of Rs.1,42,66,160/-, resulting into long term capital gain of Rs.1,31,16,160/-. In this respect also, in the course of regular assessment proceedings u/s. 143(3), assessee furnished the relevant documentary evidences to substantiate his claim which are also placed on record in the paper

Sr. No. Particulars of Documents Enclosed Page No.

1. Copy of contract notes of stock broker, Arihant 1 to 39 Capital Markets Ltd. for sale of 50,000 shares of Out of City Travel Solutions Ltd. (Tilak Ventures Ltd.) sold on the floor of Stock Exchange of BSE between 09/01/2014 to 03/03/2014

2. D'mat Statement of assessee with HDFC Bank Ltd. 40 to 45 reflecting the immediate debit of shares of Out of City Travel Solutions Ltd. (Tilak Ventures Ltd.) on sale

3. Bank Statement of assessee with HDFC Bank 46 to 48 highlighting the immediate receipt of sale proceeds of shares of Out of City Travel Solutions Ltd. (Tilak Ventures Ltd.) on sale

4. Ledger Account of assessee from the books of stock 49 to 51 broker, Arihant Capital Markets Ltd. of A.Y.2014-15

5. Following relevant documents in support of shares of Out of City Travel Solutions Ltd. (Tilak Ventures Ltd.) purchased in preferential offer:

i) Copy of share application letter dated 08/09/2012 given by assessee to Board of 52 to 53 Directors of Out of City Travel Solutions Ltd. (Tilak Ventures Ltd.) along with a cheque of Rs.11,50,000/-issued for purchase of 50,000 shares in preferential allotment ii) Copy of Information Memorandum dated 29/08/2012 of Out of City Travel Solutions Ltd. 54 to 75 (Tilak Ventures Ltd.) issued for allotment of shares on preferential basis iii) Copy of allotment letter dated 20/10/2012 issued by Essar India Ltd. allotting 50,000 76 to 77 shares at the premium of Rs.22 per share having face value of Rs.1/ each share on 18/10/2012 against the payments made by assessee at Rs.11,50,000/- iv) Copy of bank statement of assessee with Malad Sahakari Bank Ltd. evidencing the 78 to 83 v) Copy of DMAT Statement of assessee with HDFC Bank evidencing the credit of 50,000 84 to 89 shares of Essar India Ltd. on 12/12/2012 6. Copy of ITR acknowledgement, Computation of Total Income and complete set of personal, business & 90 to 101 consolidated Balance Sheet & Profit and Loss Account of assessee of A.Y.2014-15

5. In the course of assessment proceedings, ld. Assessing Officer made analysis of the scrips in which the assessee dealt for their financial health, investigation in the case of operators, cash trails, SEBI reports and their findings qua the accommodation entry providers. Ld. Assessing Officer also issued notices u/s.133(6) to the purchasers of the shares sold by the assessee, referred to as ‘exit providers’ which according to him remained un-complied. Ld. Assessing Officer also issued summons u/s.131 on the assessee whereby his statements were recorded. Ld. Assessing Officer has reproduced the statement of the assessee in the impugned assessment order recorded by him on 04.12.2017 during the course assessment proceedings. In the said statement, assessee had given the details relating to the share transactions undertaken by him.

8 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 7. Ld. Assessing Officer, after considering the submissions made by the assessee, arrived at adverse conclusion by observing that there is unusual rise in the price of the shares sold by the assessee which has been investigated by the Investigation Wing of the Department to establish that cash has been routed from various accounts to provide accommodation to the assessee and that assessee has failed to discharge his onus to prove the unusual rise and fall of share prices.Ld. Assessing Officer also placed heavy reliance on the doctrine of preponderance of human probability to hold that the assessee is indulged in bogus and dubious share transactions since he had not been able to adduce cogent evidences in this regard. Ld. Assessing Officer also noted that assessee did not produce the purchasers of the shares sold by him.Ld. Assessing Officer, thus completed the assessment by making an addition u/s68 of the Act towards sale consideration received by the assessee on the transaction of sale of shares in the aforesaid scrips in the respective years. Aggrieved, assessee went in appeal before the CIT(A).

Sr. Date of Order Order Passed Under Order Passed Against No. Section 1 17th July, 2019 Section 15-1 read Rule 5 Arihant Capital Markets Ltd. 2 20th July, 2017 Section 15-1 read Rule 5 Insight MultitradingPvt. Ltd.

2. Shallot Tie-Up Pvt. Ltd.

3. Topwell Properties Pvt. Ltd.

4. Shallot DealtradePvt. Ltd. 4 25th August, Section 15-1 read Rule 5 Essaar India Ltd. 2022 5 26th April, 2023 Settlement Order Arihant Capital Markets Ltd.

9.2. On each of the above orders, assessee has made his submission which is discussed as under: a) For order at Sr. No.1, it is submitted that this relates to period between 01.04.2014 to 11.03.2016, whereas assessee had sold the shares of Essar India Ltd. between 08.10.2012 and 27.02.2013. Shares of Out of City Travel Solutions were sold between 09.01.2014 and 04.03.2014 by following the prescribed procedures and applicable rules. Thus, this order has no relevance to the facts of the present case. b) For the order at Sr. No.2, proceedings initiated were dropped and no penalty was imposed. c) In respect of order at Sr. No.3, no investigation or enquiry of any kind was carried out against the assessee either by SEBI or by concerned stock exchange. Hence, this has no relevance or application to the case of the assessee.

11 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 d) The order at Sr. No.4 is adjudicated in case of third parties which has no relevance or application to the case of the assessee since shares of Essar India Ltd. were allotted on preferential basis to the assessee and assessee invested his own funds. e) Facts in order at Sr. No.5 deal with physical shares stolen or counterfeited whereas in the case of the assessee these were sold on registered stock exchange out of DMAT account, acquired under preferential allotment.

12 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 10.1. On the perusal of records, it is discernible that ld. Assessing Officer had proceeded on the basis of analysis of the financials of the companies. According to him, sharp jump in the share prices of the aforesaid scrips is not justified. He has relied upon the search and survey operations conducted by the investigation wing of the Department at various locations in respect of alleged penny stocks which sets out the modus operandi adopted in the business of providing entries for bogus capital gains. The conclusion drawn by the ld. Assessing Officer of implicating the assesseeis un-supported by any cogent material on record. The finding arrived at by the ld. Assessing Officer is thus purely an assumption based on conjectures and surmises. In our thoughtful considerations to the facts and circumstances of the case, it is not in controversy that assessee has discharged his burden by submitting the relevant documents, details of which are already extracted above by way of index of the two paper books. 10.2. For the above observations and findings, we place our reliance on the decision in the case of CIT vs. Jamnadevi Agrawal[2012] 20 taxmann.com 529 (Bom), wherein it was held that transactions of purchase and sale of shares cannot be considered to be bogus, when the documentary evidences furnished by the assessee establish genuineness of the claim. We also draw our force from the decision of Hon’ble High Court of Delhi in the case of PCIT v. Krishna Devi [2021] 126 taxmann.com 80 (Del) wherein the Court noticed that the reasoning given by the Assessing Officer to disbelieve the capital gain declared by the assessee, viz. astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures.

13 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 10.3. Also, reliance placed by the ld. Assessing Officer on the report of investigation wing without further corroboration based on cogent material does not justify the conclusion that the impugned transaction is bogus, sham and part of racket of accommodation entries. It does not prove that the assessee has carried out the impugned transactions of purchase and sale of shares in connivance with the people who were involved in the alleged rigging of share prices. In absence of any such material, enquiry and examination, the addition made pertaining to receipt of sale consideration of the impugned transaction cannot be sustained. In our considered view, ld. Assessing Officer has not established that the assessee was involved in price rigging.

11.1. From the perusal of the statement of assessee recorded by the ld. Assessing Officer during the course of assessment for Assessment Year 2013-14 as reproduced in the impugned order demonstrates that he is a long-term investor, investing since year 2006 and is aware of his DMAT account, brokers through whom transactions were undertaken, shares in which he had invested and stock market operations. He produced all the relevant documentary evidences before the ld. Assessing Officer in support of his deposition in the statement recorded. From all of this, we notice that assessee has – a. purchased the shares under preferential allotment by making payment through banking channel. b. dematerialized the shares purchased by credit to the DMAT account and were later sold out of the same holding. c. sold the shares on the platform of recognised stock exchange on the then prevailing prices. d. received the sale proceeds through stock market process in his bank account.

11.2. From the above, we note that ld. Assessing Officer has not brought on record any material to show that assessee was part of any group which was involved in the manipulation of share prices. Suspicion by the ld. Assessing Officer on the purchase and sale of shares is baseless.

13.1. We refer to the relevant provisions of sec. 142 which are reproduced as under: Sec. 142 (1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under section 139 or in whose case the time allowed under sub- section (1) of that section for furnishing the return has expired a notice requiring him, on a date to be therein specified,- 142(2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such inquiry as he considers necessary. 142(3) The assessee shall, except where the assessment is made under section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub- section (2) or 16 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 any audit under sub- section (2A) and proposed to be utilised for the purpose of the assessment. [emphasis supplied by us by bold and underline] 13.2. From the above and in the present context, we note that section 142(2) empowers the AO to make such enquiry as he considers necessary. The discretion is on the AO under the said section. However, having conducted such enquiry as provided in Sec. 142(2), it is incumbent upon the AO u/s. 142(3) to give an opportunity of being heard in respect of any material gathered on the basis of any enquiry done u/s. 142(2) and proposed to be utilised for the purpose of the assessment. It is important to note that Sec. 142(3) uses the word “shall” which makes it mandatory requirement on the part of the AO to comply with it.

13.3.We also take note of the provisions of Sec. 143(3) wherein the assessment is to be completed by the AO which also provides in sub- section (3) that AO shall make an assessment by an order in writing, inter alia, “after taking into account all relevant material which he has gathered.” Thus, by keeping the provisions of Sec. 142(3) read with section 142(2) and Sec. 143(3) in juxtaposition, we understand that it is a mandatory statutory requirement on the part of the AO to comply with the provisions of Sec. 142(3) in completing the assessment proceeding, failure of which may vitiate the entire assessment itselfsince this sub-section uses the word “shall”. The only exception to this requirement is where an assessment is made u/s 144 which is not so in the present appeals before us.

17 & 3879/MUM/2023 Dharmendra Jayantilal Shah AYs 2013-14 & 2014-15 side and draw a conclusion in favour of a party which has more favourable factor in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of fact that might go against the assessee. Once nothing has been proved against the assessee with the aid of any direct material, nothing can be implicated against the assessee on the presumption or suspicion, howsoever, strong it might appear to be true.

i) Pr. CIT v. Ziauddin A Siddique [Income-tax Appeal No. 2012 of 2017, dated 4-3-2022] held as under:-

"1. The following question of law is proposed:

"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs. 1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was DMATed and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs. 1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"

3. Therefore we find nothing perverse in the order of the Tribunal.”

6. The appeal is devoid of merits and it is dismissed with no order as to costs."

ii) PCIT vs. Indravadan Jain HUF [2023] 156 taxmann.com 605 (Bom) wherein it was held: “Where shares were purchased by assessee on floor of stock exchange and not from broker, payment was made through banking channel, deliveries were taken in DMAT account where shares remained for more than one year, contract notes were issued and shares were also sold on stock exchange, there was no reason to add capital gains as unexplained cash credit under section 68” iii) CIT vs. Shyam R. Pawar [2015] 54 taxmann.com 108 (Bom) wherein it was held:

“Where DMAT account and contract note showed details of share transaction, and Assessing Officer had not proved said transaction as bogus, capital gain earned on said transaction could not be treated as unaccounted income under section 68”

Order is pronounced in the open court on 10 June, 2024