AJAY SHANKARLAL BANKDA,MUMBAI vs. DCIT, CIRCLE 16(2), MUMBAI
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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi dated 21.06.2023 for the assessment year 2014-15. 2. The main grievance of the assessee is against the action of the Ld. CIT(A) confirming the addition of Rs.88,06,950/- made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter “the Act”).
Brief facts are that the assessee had filed return of income on 11.09.2014 declaring total income of Rs.10,86,150/-. The return was processed u/s 143(1) of the Act. Later, the case of the assessee was reopened u/s 147 of the Act by issuance of notice u/s 148 of the Act dated 23.03.2017. The AO noted that he has received an information that the assessee has shown to have received Long Term Capital Gain
2 A.Y. 2014-15 Ajay Shankarlal Bankda (LTCG) on sale of shares of M/s. Alpha Graphics Ltd (hereinafter “M/s. Alpha Graphics”). According to the AO, the assessee had sold 2,00,000 shares of M/s. Alpha Graphics for consideration of Rs.88,06,950/- and claimed the same as exempt u/s 10(38) of the Act. According to the AO, the transaction was of a penny-stock and therefore the claim of assessee not genuine. Thereafter, the AO referred to the Investigation Report prepared by the Directorate of Investigation, Kolkata (General report) wherein it was reported that an organized racket involving entry operators were facilitating/generating accommodation entries to beneficiaries bogus LTCG which are claimed as exempt from tax. The AO took note of the modus operandi adopted by entry operators to facilitate beneficiaries bogus LTCG (on sale of penny-stock) to convert their undisclosed income disclosed income by bringing it in regular books. According to the AO, by adopting the modus-operandi, beneficiary is facilitated to buy shares of a penny stock; and thereafter the price of the shares of penny-stock companies are rigged and artificially raised through circular trading and thereafter sold through exit providers to whom beneficiaries undisclosed money is given in cash and they buy it for a high price and thus beneficiary can claim huge LTCG which is exempt from tax; and AO explained the modus operandi at page no. 2 & 3 of his assessment order. And took note of the fact that Securities and Exchange Board of India (SEBI) had passed some orders against some persons involved in manipulation of share market for providing accommodation entry of bogus LTCG and has passed several orders against the trading of such 3 A.Y. 2014-15 Ajay Shankarlal Bankda penny-stocks. According to the AO, the Investigation Wing, Kolkata has shared information in the form of Investigation Wing Report in the case of “Project Bogus LTCG/STCG through BSE listed penny stocks” wherein the name of M/s. Alpha Graphics has been mentioned as one of the penny stocks. According to the AO, Shri Anil Kedia designated director in M/s. Excel Stock Broking Pvt. Ltd in his statement recorded u/s 131 of the Act dated 15.06.2015 has admitted that his company along with other shell companies controlled and operated by his group has indulged in the business of providing accommodation entries by way of pre-arranged bogus LTCG and have also admitted to have transacted in the scrip of M/s. Alpha Graphics. According to the AO, the statement of Shri Anil Kedia has been corroborated by Shri Mayur Jain one of the dealers in M/s. Excel Stock Broking Pvt. Ltd. and was also a dummy director of four companies operated and controlled by Shri Sanjay Kumar Jain who was also a director of M/s. Excel Stock Broking Pvt. Ltd (Refer page no. 4 of the assessment order). Then, the AO noted the financials of M/s. Alpha Graphics and stated that the said company had meagre income from its business operation and negligible growth in the year when assessee purchased the shares of this company; and wondered as to how assessee could have purchased the shares of M/s. Alpha Graphics. The AO at page no. 5 to 10 of his order has drawn with the aid of graph the financials of M/s Alpha Graphics; and also captured the sudden/sharp rise in the price of the share. According to AO, the price of shares remained at Rs. 0.65/- from 08.01.2002 to 14.10.2010. And thereafter, the prices started
4 A.Y. 2014-15 Ajay Shankarlal Bankda rising and it touched its peak at Rs.52.60 in the month of Oct, 2013. Thereafter, the prices came down again to Rs.2.89 on 29.04.2015. According to the AO, since the shares of M/s. Alpha Graphics are penny stock, there is no intrinsic value for the shares to claim the huge capital gain. Having said so, he disallowed the LTCG claim of Rs.88,06,950/- claimed as exempt by the assessee which according to the AO is nothing but the unaccounted money of the assessee. Thus, he made an addition of Rs.88,06,950/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us.
We have heard both the parties and perused the records. We note that the assessee is a director of M/s. Syncom Healthcare Pvt. Ltd (Pharmaceutical Company). The assessee was allotted one Lakh equity shares of M/s. Alpha Graphics at Rs.10/- per share on 22.06.2011. And thereafter, the shares were sub-divided (face value at Rs.5 each) on 14.06.2012 and accordingly total shares of assessee increased to two (2) Lakhs shares which fact is evident from perusal of the copy of the share certificate issued by M/s. Alpha Graphics which is found placed as enclosure to Annexure-5 in PB (Registered Folio No.PRF02222, Certificate No.0101181, Distinctive Nos. 8760001 to 8960000). We note that consideration for allotment/purchase of shares has been through the banking channel [viz by cheque no. 556207 dated 22nd Jan, 2011]. After allotment of shares, the assessee dematerialized the shares which fact is evident from perusal of demat statement found placed at Page 15 of PB (Refer M/s. Motilal Oswal Securities Ltd
5 A.Y. 2014-15 Ajay Shankarlal Bankda Demat statement) and thereafter assessee sold the share of M/s. Alpha Graphics in Bombay Stock Exchange (BSE) after remitting STT in different lots between 22nd Aug, 2013 to 18th Sep, 2013 (9 transactions) wherein the 2,00,000 shares were sold at Rs.88,06,950/- (approximately Rs.44 per shares) which fact are evidenced from perusal of contract notes found placed at page no. 8 to 19 of PB from which we note that the assessee has sold the share through re-cognized broker M/s. Motilal Oswal securities Ltd. and claimed LTCG of Rs.75,47,776/- which was claimed as exempt u/s 10(38) of the Act. Noticing the aforesaid claim of the assessee, the AO asked the assessee to file the proof of purchase and sale of share of M/s. Alpha Graphics which assessee filed (share certificate, bank statement, dematerialized statement, contract of sale). However, the AO without finding any infirmity in the primary documents filed by assessee to prove the allotment/purchase of shares and holding of which is discernable from perusal of the demat account and later sale of the shares through BSE through re-cognized stock broker M/s. Motilal Oswal Securities Ltd and the transaction happening through the banking channel, disbelieved the genuinity of the claim only on the strength of general Investigation Report of the Investigation Wing, Kolkata branding the shares of M/s. Alpha Graphics as a penny-stock. We notice that the AO has primarily placed reliance on the report given by the Investigation wing of the Income tax department, Kolkatta in order to arrive at the conclusion that the LTCG claim made by the assessee is bogus in nature. We note that the investigation report prepared by 6 A.Y. 2014-15 Ajay Shankarlal Bankda Investigation wing, Kolkatta is a generalized report with regard to the modus operandi adopted in manipulation of prices of certain shares and generation of bogus capital gains. We find that the AO has placed reliance on the said report without bringing any material on record to show that the transactions entered by the assessee were found to be a part of racket manipulating share transactions in the stock exchange i.e., it was not proved that the assessee/or his broker has carried out the transactions of purchase and sale of shares in connivance with the person/entities which were involved in the alleged manipulation/rigging of prices of shares. The Ld A.R also submitted that the regulator of stock market SEBI has not made alleged any wrongdoing on the part of assessee or his broker against the assessee or its broker. We find that the assessee has proved the following facts to prove its claim of LTCG 1. purchased these shares by paying consideration through banking channels.
Two Lakh shares of M/s Alpha Graphics were allotted to the assessee by the said company. 3. dematerialized the shares and kept the same in the Demat account. 4. sold the shares through stock exchange platform 5. received the sale consideration through banking channels on which STT was remitted. Further, the shares have entered and exited the demat account of the assessee. We notice that the AO himself has not found any defect/deficiencies in the evidences furnished by the assessee with regard to purchase and sale of shares. Further, the AO has not brought
7 A.Y. 2014-15 Ajay Shankarlal Bankda on record any material to show that the assessee was part of the group/racket which were involved in the modus-operandi/manipulation of prices of shares. Since the allotment of shares, then holding of shares after remitting STT through BSE, assessee has discharged the burden to prove the purchase and sale of shares of M/s. Alpha Graphics. Though, the AO stated about the modus operandi adopted by the entry operators who has facilitated rigging of the prices of shares (Penny stocks) for beneficiaries to convert their black money to white, but, AO failed to point out from the facts discussed by him in his assessment order, how or what was the role or nexus of assessee or his broker with that of any of the unscrupulous entry operators/exit providers. Further, we do not find that the SEBI or Investigation Report of the Investigation Wing alleging any wrong doing of the assessee in purchase/sale of the shares of M/s. Alpha Graphics. The assessee is noted to be the director of pharmaceutical company M/s. Syncom Healthcare Ltd and holds share of that company as well as the shares of M/s. Alpha Graphic. The assessee had purchased the share of M/s. Alpha Graphic at a face value of Rs.10/- each and thereafter, has sold it approximately at Rs.42/- and claimed LTCG on which STT was paid; and since assessee fulfilled the conditions necessary for claiming the exemption of the said income u/s 10(38) of the Act, the same cannot be denied merely on the basis of the surmises and conjectures and based on general reports/order of SEBI. Even though AO has taken note of the statement of Shri Anil Kedia (director in M/s. Excel Stock Broking Pvt. Ltd) recorded u/s 131 of the Act dated 15.06.2015,
8 A.Y. 2014-15 Ajay Shankarlal Bankda wherein he has admitted of arranging bogus LTCG to beneficiaries by using the shares of M/s Alpha Graphics, through his paper companies has been corroborated by Shri Mayur Jain, but, the AO nowhere point out any statement/documents to connect assessee or his broker being part of such an arrangement or conspiracy, without which we are unable to discredit the primary documents filed by assessee as noted (supra). Moreover, the statement of third party recorded behind the back of assessee cannot be relied upon for drawing adverse view against assessee unless assessee was allowed to cross-examine them [refer Hon’ble Supreme Court decision in Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC)]. Therefore, the AO erred in relying on the statements of Shri Anil Kedia (director of M/s. Excel Stock Banking) and that of Shri Mayur Jain. And as noted (supra) any way it is not the case of AO that their testimony imputes any wrong doing on the part of assessee or his broker in the LTCG claim from transacting shares of M/s. Alpha Graphics. The AO without brining on record any nexus or connection with the unscrupulous entry operators (black listed by SEBI etc), could not have disallowed the claim of LTCG. In the light of the aforesaid facts and circumstances, we are of the view that by producing the primary documents (supra) before AO, the assessee has discharged his burden to prove the claim of LTCG, and then onus shifted to AO/Ld. CIT(A), who couldn’t rebut the same. In such a factual context, the LTCG claim on sale of shares of M/s Alpha Graphics ought to have been allowed. The AO/Ld CIT(A) erred in disallowing the claim and 9 A.Y. 2014-15 Ajay Shankarlal Bankda making addition of Rs 88,06,950/-. Therefore, in the facts and circumstance discussed (supra), we are unable to countenance with the impugned action of Ld. CIT(A) to deny the LTCG claim of assessee.
The Ld. AR also brought to our notice that Co-ordinate Bench of this Tribunal (Ahmedabad) had an occasion to examine the LTCG claim of an assesse on sale of share of M/s. Alpha Graphics and had allowed by order dated 20.02.2020, which order of the Tribunal has been upheld by the Hon’ble Gujarat High Court by order dated 17.09.2020 (R/Tax Appeal No.204 of 2020) and that the Department’s SLP against the decision of the Hon’ble Gujarat High Court has been dismissed by the Hon’ble Supreme Court. The Ld. AR also cited the decision of this Tribunal (Ahmedabad) in the case of Sabbirali alimiya Saiyed Vs. ITO ITA. No.904/Ahd/2018 for AY. 2014-15 dated 10.11.2021 wherein the Tribunal while dealing with similar claim of that assessee i.e. LTCG/u/s 10(38) of the Act, allowed exemption u/s 10(38) of the Act on sale of share of M/s. Alpha Graphics Ltd and held as under: -
“7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the long term capital gain declared by the assessee on sale shares M/s AGIL for ₹ 2,54,86,714/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph. Subsequently, the learned CIT (A) upheld the finding of the AO.
10 A.Y. 2014-15 Ajay Shankarlal Bankda
1 Indeed, the price of the share of M/s AGIL was increased from ₹18 to ₹ 40 within a span of 27 months which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having no financial base/business activity/profitability certainly gives rise to the doubt about such increase in the price. But in our considered view, this cannot be a sole criteria for reaching to the conclusion that the price were rigged up to generate the long-term capital gain which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides reasons to investigate the matter in detail and the same cannot take the place of the evidence. But in the case on hand there was no enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of share price of M/s AGIL by the assessee or his broker. Similarly, there was no complaint filed by any of the party either to the SEBI or the stock exchange about the assessee or brokers impleading that they were involved in the activity of rigging up the price of the shares. Similarly, the AO has not conducted an enquiry from the SEBI or BSE about the assessee whether he was engaged in the frivolous activities as alleged.
2 We also note that the AO has referred to the investigation carried out by the investigation wing of Kolkata wherein it was unearthed that the certain broker or entry provider have accepted that they have used the script of the M/s AGIL to provide bogus exempted long term capital gain to certain class of beneficiaries in consideration of cash. However, there was no information available on record whether the name of the assessee was appearing in the investigation carried out by the investigation wing of Kolkata or any other investigation carried out by the Income Tax Department. It was also not brought any material that those broker or entry provider have taken the name of the assessee or provided their services either to the assessee or assessee broker.
11 A.Y. 2014-15 Ajay Shankarlal Bankda
3 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this arrangement. The chain of events and the live link of the assessee’s action that he was involved in such rigging up of share price should be established based on cogent materials. The allegation as discussed above implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the Revenue.
4 We further note that authorities below have alleged that share purchase contract note was not provided. Similarly mode of payment for purchase of share was also not explained. In this regard we note the assessee vide letter dated 27th December 2016 before the AO has furnished following detail:
(a) Ledger account of investment in share of AGIL placed on page 40 to 42 of paper book.
(b) Share certificates of M/s AGIL were placed on page 43 of the paper book.
(c) Application for dematerialization of share of AGIL was placed on page 44 of paper book
(d) Bank statement showing transaction of purchase and sale of share of AGIL placed on page 68 to 82 of paper book.
5 Thus, we are of the view that finding of the authorities below to this extent is contrary to the facts on record. Likewise, the assessee has been able to produce the necessary document with regard to purchase of share through banking channel.
6 We also note that there was no dispute raised by the Revenue with respect to the following facts:
12 A.Y. 2014-15 Ajay Shankarlal Bankda (i) The payments are received through account payee cheques.
(ii) Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers.
(iii) Inflow of shares is reflected in Demat account. Shares are transferred through Demat account. The assessee does not know the buyer.
(iv) There is no evidence that assessee has paid cash to buyer or broker for booking LTCG and share was purchase by the predetermined buyer.
(v) The assessee is not a party in the alleged rigging up the prices of the shares. He has no nexus or any relation with the company, its directors or entry operators who accepted to the modus operandi.
(vi) The assessee may have got only incidental benefit of price rise.
(vii) The assessee invested in penny stocks which gave rise to huge capital gains in a short period, does not mean that the transaction is bogus as all the documents and evidences have been produced.
(viii) The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee.
7 It is also important to note that the assessee was holding 10 lakh shares M/s AGIL. However, the assessee has sold only part of the holding i.e. 7,60,003 shares. The remaining shares are still with the assessee as investment. Had the assessee been involved in manipulating the prices or purchased with intention to book bogus exempted income, then he would have sold the entire shareholding. Thus the conduct of the assessee suggests that he was not involved in 13 A.Y. 2014-15 Ajay Shankarlal Bankda rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand.
8 In our view, the income generated by the assessee cannot be held bogus only one the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangement. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. In holding so we draw support and guidance from the judgment of Hon’ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under:
“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 14 A.Y. 2014-15 Ajay Shankarlal Bankda 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 15 A.Y. 2014-15 Ajay Shankarlal Bankda 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.
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.”
9 Respectfully following the judgment of Hon’ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s AGIL is concern.
10 We also note that this Tribunal in the case of Parasben Kasturchand Kochar Mehta Lodha & Co. Chartered Accountant vs.
16 A.Y. 2014-15 Ajay Shankarlal Bankda ITO bearing ITA No. 549/Ahd/2008 involving identical facts and circumstances has held as under:
“7. We have gone through the relevant record and impugned order and heard both the parties. Assessee submitted that he is a customer of ICICI Bank and having demat account of ICICI Securities Ltd. and he has purchased shares through ICICI Securities Ltd. and money has been paid through banking channel. Copies of bank statement and Demat account have been submitted before the lower authorities.
Ld. A.R. also drawn our attention towards the statement of Edelweiss Broking Ltd. through the said company shares were sold and also shown us copy of the Contract Note and all these details were furnished before the lower authorities. The assessee has earned long term capital gain from the sale of companies share i.e. Alpha Graphic India Ltd. and Blazon Marbles.
In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10.Ld. A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.
In support of its contention, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed addition can be sustained in the hands of the assessee.”
17 A.Y. 2014-15 Ajay Shankarlal Bankda
In view of the above discussion we hold that the capital gain earned by the assessee cannot held bogus merely on the basis of some report finding unearthed in case of third party/parties unless cogent material brought against particular assessee are brought on record. Therefore, we set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of assessee appeal is allowed.”
Coming to the judgements cited before us, it is clarified that we have carefully perused the cited judgements relied upon by both the parties and but only those judgements which are found to be relevant to the case in hand, have been discussed in the ensuing paragraphs.
It is noted that the Ld. AR had rightly relied upon the judgment of the Hon’ble juri ictional Bombay High Court in the case of Shyam R. Pawar (229 Taxman 256). In the decided case also, the assessee was purchasing and selling the shares through a broker in Mumbai, for purchase of shares of (i) M/s. Bolton Properties Ltd., (ii) M/s Prime Capital and (iii) M/s. Mantra; and he has transacted through the broker at Calcutta and two operators namely Mr. Sushil Purohit and Shri Jagdish Purohit, and one of them was the Director of M/s. Bolton Properties Ltd. who had purportedly admitted to have manipulated the share price of M/s. Bolton Properties Ltd. Mr. Jagdish also reportedly floated several investment companies which were aggressively used in the entire deal with the broker M/s. Prakash Nahata & Co. According to AO, the shares offloaded by the beneficiaries through M/s. Prakash Nahata & Co., were ultimately purchased by the investment companies controlled by Shri Purohit. The name of the assessee figured during the 18 A.Y. 2014-15 Ajay Shankarlal Bankda course of the investigation. The AO noted that these entities/ companies, whose shares were traded by the assessee, were not having sufficient business activities justifying the increase in their shares prices. Therefore, the AO concluded that certain operators and brokers devised a scheme to accommodate the unaccounted monies of the assessee in guise of capital gains. The AO accordingly added the capital gains derived by the assessee under Section 68 of the Act. On appeal, the Hon’ble juri ictional High Court upheld the Tribunal order deleting the addition, by observing as under: “..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
19 A.Y. 2014-15 Ajay Shankarlal Bankda 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.
As a result of the above discussion, we do not find any substance in the contention of Mr.Suresh kumar that the Tribunal mi irected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs.”
We may also gainfully refer to the decision rendered by this Tribunal in the case of DCIT Vs Mukesh R Marolia (6 SOT 247) (affirmed by the Hon’ble Bombay High Court in their order in ITA No. 456 of 2007 dated 07-09-2011 ) wherein on similar facts and circumstances the addition made by the AO on account of purported
20 A.Y. 2014-15 Ajay Shankarlal Bankda bogus LTCG derived on purchase/sale of shares (off-market) was deleted by observing as under:
“10. We heard both sides in detail and perused rival contentions in the light of the records of the case and the paper book filed by the assessee. In the return of income filed by the assessee for the year under appeal, the purchase of flat at Colaba for a consideration of Rs. 2,06,72,904 was reflected. The assessee’s contribution in the purchase of the flat was @ 70 per cent for which the investment amounted to Rs. 1,44,71,033. The source of investment was, among other things, the sale proceeds of shares of Rs. 1,41,08,484. This amount has been questioned by the revenue authorities.
1 The assessee has purchased the shares of four companies viz., Allan Industrial Gases Ltd., Mobile Telecom, Rashee Agrotech and Centil Agrotech, during the previous years relevant to the assessment years 1999- 2000 and 2000-01. The books of account maintained by the assessee for both the years clearly reflected the purchase of those shares. The shares are reflected in the balance sheets filed by the assessee along with the returns of income for the assessment years 1999-2000 and 2000-01. Therefore, it is seen that as a prima facie evidence, the purchases of shares have been contemporaneously entered into the books of account of the assessee.
2 The assessee has been declaring agricultural income in his returns of income for the assessment years from 1990-91 to 2001-02. The total agricultural income returned by the assessee up to the assessment year 1999- 2000 was at Rs. 7,57,883. The amount invested in the purchase of shares as on 31-3-1999 was Rs. 4,48,160. The cash available with the assessee by way of agricultural income was much higher than the investment made by the assessee in the purchase of shares as on 31-3-1999. After making the investments in the shares, the assessee had a surplus cash balance of Rs. 3,09,000 as on 1-4-1999. Thereafter, the assessee has further returned an agricultural income of Rs. 66,000 for the assessment year 2000-01. The amount invested in the purchase of shares in the year ending on 31-3-2000 was Rs. 2,57,020. Again the assessee had a cash balance thereof of Rs. 1,18,771. Therefore, it is, very clear that the investment made by the assessee in shares during the previous periods relevant to the assessment years 1999- 2000 and 2000-01 was supported by cash generated out of agricultural
21 A.Y. 2014-15 Ajay Shankarlal Bankda income. The above agricultural income have been considered in the respective assessments. Therefore, the contention of the assessing authority that the assessee had no sufficient resourcefulness to make investments in the shares is unfounded.
3 Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions.
4 When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee.
5 The next set of evidences relied on by the assessing authority are the statements obtained from various parties. When certain persons like Radha Ashok and Sandeep D. Shah made negative statements against the assessee, persons like Satish Mandovara and Mangesh Chokshi had given positive statements in support of the contention of the assessee. But, the assessing authority sought to pick and choose the statements given by various parties. While accepting and rejecting such statements given by the parties, the 22 A.Y. 2014-15 Ajay Shankarlal Bankda Assessing Officer has made a mistake of accepting irrelevant statements and rejecting relevant statements. During the relevant period in which the assessee transacted in shares, persons like Radha Ashok and Sandeep D. Shah were not carrying on their business of brokers as in the manner they carried on the business in the past. Even their Stock Exchange Memberships were cancelled. It was Shri Satish Mandovara who was carrying on the business mainly for and on behalf of Shri Mangesh Chokshi, Director of M/s. Richmond Securities Pvt. Ltd. Those two persons have categorically admitted before the assessing authority that they had dealings with the assessee in respect of the share transactions. They have confirmed the transactions stated by the assessee that he had with them. These positive statements made before the assessing authority supported the case of the assessee. There is no force in the action of the assessing authority in relying on the negative statements of the other parties whose role during the relevant period was either irrelevant or insignificant. Therefore, in the facts and circumstances of the case, it is, our considered view that certain statements relied on by the assessing authority do not dilute the probative value of the statements given by other persons in favour of the assessee confirming the share transactions entered into by the assessee.
6 The above circumstances have made out a clear case in support of the book entries reflecting the purchase and sale of shares and ultimately supporting the money received on sale of shares and finally investing the same in the purchase of flat. The chain of transactions entered into by the assessee have been properly accounted, documented and supported by evidences.
7 Therefore, we find that the explanations of the assessee seems to have been rejected by the assessing authority more on the ground of presumption than on factual ground. The presumption is so compelling that comparatively a small amount of investment made by the assessee during the previous year period relevant to the assessment years 1999- 2000 and 2000-01 have grown into a very sizable amount ultimately yielding a fabulous sum of Rs. 1,41,08,484 which was used by the assessee for the purchase of the flat at Colaba. The sequence of the events and ultimate realization of money is quite amazing. That itself is a provocation for the Assessing Officer to jump into a 23 A.Y. 2014-15 Ajay Shankarlal Bankda conclusion that the transactions were bogus. But, whatever it may be, an assessment has to be completed on the basis of records and materials available before the assessing authority. Personal knowledge and excitement on events, should not lead the Assessing Officer to a state of affairs where salient evidences are over-looked. In the present case, howsoever unbelievable it might be, every transaction of the assessee has been accounted, documented and supported. Even the evidences collected from the concerned parties have been ultimately turned in favour of the assessee. Therefore, it is, very difficult to brush aside the contentions of the assessee that he had purchased shares and he had sold shares and ultimately he had purchased a flat utilizing the sale proceeds of those shares.
8 For a moment, even if all the above evidences are ignored, one cannot overlook the pressure of the evidence coming out of the survey carried out by the department in the business premises of the assessee. There was a survey carried out by the department in the business premises of the assessee. In the course of survey, contract notes for sale of shares, copies of bills thereof, photocopies of share certificates etc., were found. The purchase and sale of shares were also found recorded in the books of account. The department has no case that the survey was a staged enactment. A survey is always unexpected. So, it is not possible to presume that the assessee had collected certain fabricated documents and kept at his business premises so as to hoodwink the survey party to lead them to believe that the assessee had entered into share transactions. Atleast such an inference is not possible in law. The department has no defence against the forcible argument of the learned counsel that the survey conducted by the department has out and out upheld the contention of the assessee that he had purchased and sold shares. We find that this solitary evidence collected in the course of survey is sufficient to endorse the bona fides of the share transactions made by the assessee.”
At this juncture, we may gainfully refer to the decision of the Hon’ble Gujarat High Court in the case of Pr.CIT Vs Parasben K. Kochar (130 taxmann.com 176). In the decided case also, the 24 A.Y. 2014-15 Ajay Shankarlal Bankda assessee had furnished all relevant documents such as contract notes, demat statements, bank statements, ledgers, bills etc. to substantiate the LTCG derived on sale of listed shares. The AO, however, disputed the genuineness of the same by placing reliance on statements of certain persons obtained by the Investigation Wing. On appeal the Hon’ble Gujarat High Court is noted to have upheld the order of this Tribunal holding that since the assessee was not given opportunity to cross-examine these persons, the addition was unsustainable. The relevant findings of the Hon’ble High Court were as follows :-
“2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:—
"
In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.
Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.
In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Ltd. v. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee."
25 A.Y. 2014-15 Ajay Shankarlal Bankda
Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income-tax authorities and the Tribunal also took notice of the fact that some of the shares also remained in the account of the appellant.
We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under section 260-A of the Act, 1961.”
The Ld. AR of the appellant has rightly relied on another judgment of the Hon’ble Bombay High Court in the case of CIT Vs Jamna Devi Agarwal (328 ITR 656). In the decided case, also the Revenue had disputed the genuineness of the long-term capital gains derived by the assessee on sale of shares of listed companies for similar reasons as cited in the present case. On appeal, the Hon’ble High Court upheld the decision of this Tribunal deleting the additions by observing as under:
“12. From the documents produced before us, which were also in the possession of the Assessing Officer, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares
26 A.Y. 2014-15 Ajay Shankarlal Bankda declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions.
The statement of Pradeep Kumar Daga that the transactions with the Haldiram group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On a perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought to our notice that the findings recorded by the Tribunal are contrary to the documentary evidence on record.
The Tribunal has further recorded a finding of fact that the cash credits in the bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, in the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal.
Reliance placed by the counsel for the Revenue on the decision of the apex court in the case of Sumati Dayal [1995] 214 ITR 801 is wholly misplaced. In that case, the assessee therein had claimed income from horse races and the finding of fact recorded was that the assessee therein had not participated in races, but purchased winning tickets after the race with the unaccounted money. In the present case, the documentary evidence clearly shows that the transactions were at the rate prevailing in the stock market and there was no question of introducing unaccounted money by the assessees. Thus, the decision relied upon by the counsel for the Revenue is wholly distinguishable on the facts.
For all the aforesaid reasons, we hold that the decision of the Tribunal is based on findings of fact. No substantial question of law arises from the order of the Tribunal. Accordingly, all these appeals are dismissed. No order as to costs.”
27 A.Y. 2014-15 Ajay Shankarlal Bankda
The Ld AR also bought to our notice the recent judgment rendered by the Hon’ble juri ictional Bombay High Court in the case of PCIT v. Ziauddin A Siddique (ITA No. 2012 of 2017) dated 04.03.2022 which is found to be relevant in the facts involved in the present case. In the decided case, the issue before the Hon’ble High Court was whether this Tribunal was right in law in deleting the addition made u/s 68 of the ACT in relation to LTCG derived on sale of shares, ignoring the fact that the shares were purchased from off- market sources and that the sharp rise in prices were not supported by financials. Answering the question raised by the Revenue in the negative, the Hon’ble High Court held that there was a finding of fact that the purchase & sale of shares occured on the platform of stock exchang, upon payment of STT and were supported by documentary ecidences and therefore there was no perversity in the order of this Tribunal. The Court further noted that there was no allegation against the assessee that he had participated in price rigging in the market and therefore dismissed the appeal of the Revenue. The relevant findings of the Hon’ble High Court which is binding upon us, are as follows :-
“2. We have considered the impugned order with the assistance of the 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 the 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
28 A.Y. 2014-15 Ajay Shankarlal Bankda assessee that it has participated in any price rigging in the market on the shares of RFL.
Therefore we find nothing perverse in the order of the Tribunal.
Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd.1 but that does not help the revenue in as much as the facts in that case were entirely different.
In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.”
It is noted that similar questions were also put up for consideration before the Hon’ble Rajasthan High Court in the case of Pr.CIT Vs Gaurav Bagaria (453 ITR 513) which read as follows :-
I. ''Whether on the facts and in the circumstances of the case, the Learned ITAT was justified in deleting the addition of Rs. 7593444/- made on account of unexplained credit u/s 68 of the Act when the assessee was unable to justify equity trading by picking the shares of specific companies with poor net worth?
II. Whether on the facts and in the circumstances of the case, the Learned ITAT, Jaipur was justified in deleting the addition of Rs. 7593444/- by holding the transaction as genuine because transaction is through Stock Exchange and payment is by cheque, completely ignoring the fact that such masquerade is used methodically to provide accommodation entries in order to show the sham transaction as genuine?
III. Whether on the facts and in the circumstances of the case, the Learned ITAT, Jaipur was justified in deleting the addition of Rs. 151869/- being commission paid to acquire such accommodation entry?
29 A.Y. 2014-15 Ajay Shankarlal Bankda IV. Whether on the facts and in the circumstances of the case, the Learned ITAT, Jaipur was justified in rejecting the Revenue's appeal without considering the case on merit where the additions were made by the AO on the basis of corroborative information received from Investigation Wing, Kolkata given that the case fails under exception as per para 10(e) of CBDT circular no. 03/2018 dated 20-08-2018. 13. The Hon’ble High Court is noted to have answered the above questions against the Revenue by following their earlier judgment rendered in the case of CIT v. Smt. Pooja Agarwal, [2018] 99 taxmann.com 451, by observing as under :-
“..Learned ITAT has specifically held that the assessee has produced all the relevant documentary evidence to establish genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee and therefore treating the transaction of purchase and sale as sham is not justified. Further, learned ITAT has also relied upon the decision of the juri ictional High Court in CIT v. Smt. Pooja Agarwal, [2018] 99 taxmann.com 451 (Raj.) wherein learned ITAT has relied upon the judgment of Division Bench involving the same facts wherein the Division Bench has dismissed the appeal filed by the Revenue.”
We also gainfully refer to the decisions cited by the Ld. AR, rendered by the coordinate Benches of this Tribunal wherein also, on similar facts and circumstances, following the above referred judgments of the juri ictional High Court, this Tribunal deleted the addition/s made by the AO u/s 68 of the Act in relation to the long- term capital gains derived on these listed shares of TTL. The Ld. AR had brought to our notice that, the coordinate Bench at Delhi in the case of Seema Tayal Vs. ITO (ITA. No.1132/Del/2018) dated 28.06.2019 was pleased to delete similar addition on account of 30 A.Y. 2014-15 Ajay Shankarlal Bankda alleged bogus LTCG made by the AO in relation to sale of shares of TTL by the assessee by holding as under: - “17. That on going through the aforesaid judgment, we find that no question of law was formulated by Hon’ble High Court of Delhi in the said case and there is only dismissal of appeal in limine and the Hon’ble High Court found that the issue involved is a question of fact. Thus, the judgment of the Hon’ble High Court has to be seen if similar facts are permeating in the present appeal also and if there is difference on facts, then the judgment cannot be applied. In the judgment of Hon’ble Apex Court in Kunhayyammed vs State of Kerala reported in 245 ITR 360 and also in CIT vs. Rashtradoot (HUF) reported in 412 ITR 17, the Hon’ble (supra) is distinguishable as in that case the company was into consistent losses, whereas, the scrip in which assessee has dealt is a growing and high turnover company and dividend paying company. As TTL was having turnovers of Rs. 117.39 crores (AY 2014-15); Rs.150.59 crores (AY 2015-16); Rs 154.88 crores (AY 2016-17); and Rs. 146. 23 crores (AY 2017-18). The financial statements of said company are available in public domain, which have also been placed at Pages 325 to 370 of PB– II by assessee. That further, the interim order of SEBI in the case of TTL banning trading has been uplifted and cooled down by subsequent order of SEBI vide order dated 31.10.2018 placed before us at Pages 305 to 324 of PB– II by assessee. Thus, the growth in prices of TTL was backed by sound financials and as such, the case of Udit Kalra vs ITO relied by ld. 18. ………….
On the above facts and circumstances, we find that the transaction of the assessee of deriving long term capital gains of Rs. 1, 93, 56, 813/- by selling shares of M/s Trinity Tradelink Ltd. was treated as bogus by the 31 A.Y. 2014-15 Ajay Shankarlal Bankda Revenue only on the basis of suspicion and probability and without finding any defect in the various documentary evidences filed by the assessee and further, the finding recorded by ld CIT (A) on page 26 of his order that the addition has been made on independent analysis of the documents, is contrary to material available on record. As on perusal of the order of assessment, we find that no independent inquiry was made with regards to alleged entry operator Sh. Vikrant Kayan. Whereas, the sole basis of making the impugned addition was statement of Sh. Vikrant Kayan, which too was recorded behind the back of assessee by DIT (Inv) Kolkata and the statement alone cannot be the conclusive evidence to nail the assessee and hence needs to be excluded for consideration as the said person has not been allowed cross examination by assessee, even though various requests were made by assessee. As such, the transaction of the assessee was duly supported by relevant documentary evidences without there being any rebuttal by lower authorities; the addition made by the Assessing Officer of Rs. 1,93,56,813/- by treating the LTCG as bogus is unsustainable. In view of our above finding, we, therefore, delete the addition of Rs.1,93, 56,813/-.
As we find the transaction of long term capital gains of Rs.1,93,56,813/- derived by the assessee as genuine and as such, further addition of Rs. 3,87,136/- made by the Assessing Officer on account of alleged commission is consequential and is also liable to be deleted and accordingly, the same is also hereby deleted.”
The Ld. AR of the appellant has relied on another judgment of the Hon’ble Rajasthan High Court in the case of PCIT Vs Ritu Agarwal Shreeram Bhawan (453 ITR 520) which has been confirmed by the Hon’ble Supreme Court as the Civil Appeal No 9/2011 of 2022 by order dated 24.04.2023 of the Department has been dismissed by the Apex Court. In the decided case, the Hon’ble High Court has upheld the order of the Tribunal allowing the LTCG
32 A.Y. 2014-15 Ajay Shankarlal Bankda claim/exemption u/s 10(38) of the Act on sale of scrip of M/s Sunrise Asian Limited. The observations of the Hon’ble Court are as under “On going through the contents of the order of learned ITAT dated 18.11.2020, it is established that before rendering the judgment the learned ITAT has considered entire facts of the case, and has given a categorical finding that in the case in hand the assessee produced all the documentary evidence to establish the genuineness of transaction. The learned Assessing Officer as per the learned ITAT has failed to produce the contrary material evidences to rebut the claim of the assessee and documents produced by him. Learned ITAT has considered the bank statement, demat account, books of account, contract notes which were external documents and were not in the control of the assessee and therefore the claim of manipulation and for treating the transaction in question is as sham and bogus were not proven and hence untenable.”
We are also guided by the decision of Juri iction Bombay High Court referred by the Ld AR, in the case of PCIT V Indravadan Jain ITA 458 of 2018 where the Hon’ble Court has held that 3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was A.O.’s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent’s case was reopened under Section 148 of the Act.
33 A.Y. 2014-15 Ajay Shankarlal Bankda
The A.O. did not accept respondent’s claim of long term capital gain and added the same in respondent’s income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.
We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises.
34 A.Y. 2014-15 Ajay Shankarlal Bankda
Apart from the above, the Revenue has also relied upon several judgments rendered in the context of unexplained cash credit u/s 68 of the Act by the judicial forums. Having perused those judgments, it is noted that, the question as to whether the assessee had satisfied the three ingredients set out in Section 68 of the Act is essentially a fact finding exercise. We note that the facts involved in each of them were distinguishable to the issue involved in present case i.e. genuineness of capital gains derived on sale of shares. Since these judgments were noted to be not relevant to the present case, we do not deem it fit to discuss each of them separately. However, we discuss and distinguish some of the cases as under: -
The CIT(A) relies on the decision of Swati Bajaj [2022] 139 taxmann.com 352 where the Hon’ble Calcutta High Court in that particular case has rejected the evidence of LTGC and went by general Investigation report and of Investigation wing but the juri ictional Bombay High Court in several cases Indravada Jain, Moralia, Syam R Pawar , Jamnadevi Agarwal (supra) has allowed the LTCG claim.
Similarly, the decision rendered in the case of Sanat Kumar Vs ACIT (ITA 1881/Del/2018), is also found to be on completely different footing wherein the assessee was not able to produce the relevant details to justify its claim.
For the various reasons discussed in the foregoing and following the judgments cited above, more particularly of the binding juri ictional High Court in the cases of Shyam Pawar (supra), Ziauddin A Siddique (supra), Mukesh R Marolia (supra) & Jamna Devi Agarwal (supra), Indravadan Jain (supra) Ritu Agarwal Shreeram Bhawan (supra) we hold that, the Ld. CIT(A) had erred both on facts
35 A.Y. 2014-15 Ajay Shankarlal Bankda and in law in upholding the AO’s action of making addition u/s 68 of the Act, in relation to the LTCG on sale of shares of M/s Alpha Graphics Ltd alleging it to be bogus. We therefore direct the AO to delete the addition of Rs. 88,06,950/-. And we direct the AO to allow the LTCG/exemption claimed by assessee u/s 10(38) of the Act on sale of shares of M/s Alpha Graphics Ltd.
In the result, the appeal of the assessee is allowed
Order pronounced in the open court on this 22/03/2024. (AMARJIT SINGH) JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 22/03/2024. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. आयकर आयुक्त / CIT 3. 4. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //// उि/सहधयक िंजीकधर /(Dy./Asstt.
