DY. COMMISSIONER OF INCOME TAX - 7(1)(1), AAYKAR BHAVAN, MUMBAI vs. NISHA SHANTARAM POKLE, MUMBAI

Brief facts are that the assessee is an individual has filed her return of income on 30.09.2015 declaring total income at Rs.1,21,42,210/-. Later, the case of the assessee was selected for scrutiny. And the AO noted that the assessee had claimed Long Term Capital Gain (LTCG) of Rs.5,67,41,214/- on sale of scrip of M/s. Marigold Glass Industries Ltd (hereinafter "M/s. Marigold") which company is now known as M/s. Greencrest Financial Services Ltd (hereinafter "M/s. Greencrest"). According to the AO, he has received information from the DDIT (Inv.) Unit, Kolkata, Ahmedabad & Mumbai that the scrip of M/s. Marigold was one among the eighty four (84) penny-stocks; and AO noted the modus-operandi of unscrupulous entry providers facilitating bogus capital gain/loss for beneficiaries which he discussed at para no. 6 (page no. 4 & 5 of assessment order). Thereafter, he discussed the case of assessee regarding the claim of LTCG in sale of shares of M/s. Marigold/Greencrest from para no. 7 (page no. 5 to 18 of assessment order) wherein he noted the financials of M/s. Greencrest as well as the price movement of shares in graph/chart form; and AO was of the opinion that unusual price movements depicts the price rigging resorted by the entry providers in active connivance with pre-arranged exit providers. The AO took note of the rise in closing price between 10.05.2013 and 24.06.2014 and with the help of a graph has given the date-wise price and volume of trade of this scrip from page no. 12 to 14 of the assessment order and noted that between these dates, the shares were traded on 137 days; and only 182 trades took place during the period [i.e. one or two trades daily]. He also noted the abnormality in the price rise and fall. Thereafter, the AO at para no. 7.7 discussed about the exit providers and noted the name of forty one (41) entities who all had purchased the shares of M/s. Greencrest between 24.01.2012 to 01.01.2015. According to the AO, inquiry conducted by Investigation Wing (Kolkata) and the statements of entry operators who controlled and managed these entry providers revealed that these entities (exit providers) are bogus/paper entities, which are not doing any real business and used only for providing accommodation entries. According to the AO, these exit providers forty one (41) named in page no. 19 & 20 of the assessment order, had purchased shares worth Rs.167 crs out of the total trade of Rs.246cr. So according to AO purchases facilitated by exit providers were only accommodation entries. Thereafter, the AO discussed about the share brokers at para no. 7.8 at page no. 21 of the assessment order wherein he noted that survey actions were conducted by the Directorate of Investigation, Kolkata on share brokers (i) Shri Anuj Agarwal/Director of Korp Securities Ltd (ii) Pravin Agarwal/Director of M/s. Gateway Financial Services Ltd and (iii) Subrata Haldar/Promoter of BSAS Securities Pvt. Ltd and (iv) Soumen Sen/(D.B & Co.) who all accepted their role in the entire scheme of providing accommodation entry in the form of bogus LTCG. Thereafter, the AO concluded that the entire LTCG claim of assessee was bogus, and such an act was resorted to by assessee for converting her black money to white. Thereafter, at para no. 8 at page no. 22 of assessment order, he discussed the mode of acquisition of the share of M/s. Marigold by the assessee and the sale of shares of M/s. Greencrest and noted the unusual rise in the price when it was sold. Thereafter, he noted that the assessee had failed to show that she had any knowledge about share trading and have invested only on advice of her husband, Shri S. G. Pokle. Thereafter, the AO was of the opinion that the claim of the assessee was non- genuine and citing the decision of the Hon'ble Supreme Court in the "preponderance of the probabilities human" conduct and was of the opinion that the transaction of purchase and sale of 20 Lakh shares of M/s. Greencrest (earlier known as M/s. Marigold) led to generation of exempt LTCG are not genuine transaction, hence, the entire sale consideration of Rs.5,96,25,721/- received from sale of 20 Lakh share of M/s. Greencrest, was treated as undisclosed income of the assessee and brought to tax u/s 68 of the Act as unexplained cash credit. Further, the AO was of the opinion that the assessee might have incurred commission expenditure @ 6% of the amount purported to have been received on sale of shares of M/s. Greencrest and made an addition of Rs.35,77,543/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to allow the appeal of the assessee and deleted the addition made u/s 68 of the Act and also the commission added by AO. Aggrieved, the revenue is before us.

We have heard both the parties and perused the records. We note that the assessee is an individual who earns income from salary, income from house property, income from business, income from capital gain and income from other sources. And had filed her return of income for AY. 2015-16 on 30.09.2015 declaring total income at Rs.1,21,42,210/-. Later on, the case of the assessee was selected for scrutiny. The AO noted that the assessee had shown to have earned LTCG which was exempt u/s 10(38) of the Act to the tune of Rs.5,72,25,721/- (assessee claims that AO has mistakenly noted LTCG claim as Rs.5,67,41,214/-), therefore, he directed the assessee to file the details of the LTCG claimed, wherein the assessee brought to the notice of the AO that she has been allotted 2,00,000 shares of M/s. Marigold @ Rs.10 per equity share and on a premium of Rs.2/- [and paid Rs.24 Lakhs by cheque] (copy of share certificate dated 11.02.2013 placed at page no. 44 of PB) and filed relevant documents to prove the allotment of equity shares which are found placed at page no. 30 to 44 of PB. And also brought to the notice of the AO that the shares of M/s. Marigold allotted to her were dematerialized (M/s. IL & FS Securities Ltd dematerialization form page no. 45 to 46). And also the statement of Demat Account showing credit of the share to the demat account of the depository participant (M/s. IL & FS Securities Ltd at page no. 48 to 51 of PB). Thereafter, there was a split of share on 07.06.014 and by virtue of it 2,00,000 shares became 20 Lakh shares which fact is evident from the copy of demat statement at page no. 52 to 53 of PB. Thereafter, the assessee sold 20 Lakhs share in Bombay Stock Exchange (BSE) from 08.06.2014 to 19.12.2014 and received the total sale consideration of Rs.5,96,25,721/- and the assessee claimed LTCG of Rs.5,72,25,721/- which assessee claimed as exempt u/s 10(38) of the Act. As noted (supra), when the AO asked assessee to prove the purchase share of M/s. Marigold, she produced inter-alia the following primary documents to prove the purchase and holding of shares which are captured in chart form for easy reference as under: - Sr. No. Particulars Page No. of the Paper Book

Copy of documents related to dematerialization of shares 44-47 9 Copy of statement of Demat A/c showing credit of shares to the Demat account at Depository participant (IL&PS) 48-51 10 Copy of Depository participant (IL&PS) statement describing split effect on shares on 07.06.2014 (2,00,000 shares to 20,00,000 shares) 52-53 11 Documents showing split of shares 54

The assessee also produced before the AO the following primary documents to prove the sale of 20,00,000 shares of M/s. M/s. Greencrest Financial Services Ltd. (earlier known as Marigold) through the BSE electronic platform: - Sr. No Particulars Page No. of the PB 1 Copy of statement showing sale of shares 55 2 Copy of party ledger and confirmation of the same showing purchase and sale of shares by Mrs Nisha S. Pokle at Harjivandas Nemidas Securities Pvt. Ltd 55-63 3 Copy of Account Ledger of Harjivandas Nemidas Securities Pvt. Ltd. In the books of Mrs Nisha S. Pokle 64-65 4 Copy of Depository participant (IL&FS) Contract notes for sale of 953600 shares (during the year) on BSE 66--138 5 Copy of Depository participant (IL^]&FS) statement describing balance unsold 10,46,400 shares as on 31.03.2015 139 6 Copies of Bank statements reflecting receipt of money for sales of shares through Banking mode (RTGS) 140-145 7 Chart showing month wise trading volume and price chart of the shares of Greencrest Financial Services Ltd at Bombay Stock Exchange 146

Thus, we note that the assessee has submitted the primary documents to prove purchase/allotment of shares of M/s. Marigold i.e share application form, share certificate, bank statement highlighting the payment made for purchase of shares, demat statement etc. To prove the event of sale of shares of M/s. Greencrest (earlier known as M/s. Marigold) assessee has filed primary evidences like Broker's ledger, Contract notes issued by the broker, bank statement highlighting the sales consideration and STT remitted on such sales. Thus we find that assessee has filed the primary/relevant documents to prove the purchase and holding of shares for the statutory period by dematerializing it and sale of shares through BSE in the electronic platform through the recognized broker M/s. Harjivandas Nemidas Securties Pvt. Ltd. And that the consideration for purchase/sale of shares happened through banking channel and STT has been remitted on sale of shares. Thus, we find that assessee has fulfilled the conditions necessary for making the claim of LTCG as exempt u/s 10(38) of the Act; and it is not the case of AO that there is any infirmity/deficiencies in the relevant/primary documents filed by the assessee as noted (supra). Thus, we find that assessee has discharged her burden to prove the LTCG claim on sale of shares of M/s. Marigold (now known as M/s. Greencrest) and the AO has failed to rebut/produce contrary material/evidence to counter/question the veracity of the primary documents produced by assessee (supra) in order to dis-prove her claim.

The AO has disallowed the LTCG claim of assessee by mainly taking note of report submitted by Investigation Wing (Kolkata) as well as he doubted the financial prudence of the assessee to have purchased the shares of M/s. Marigold and wondered as to how the price of shares of M/s. Marigold would have commanded a price of (approximately) Rs.90 per share within a span of two years. And thereafter, the AO was of the opinion that the prices have been rigged and shares were traded only on 137 days and only 182 trades happened during that period; and according to him rigging of prices took place on different days; and thereafter he noted the name of fourty one (41) exit providers who according to him had purchased the shares of M/s. Marigold (now known as M/s. Greencrest Financial Services Ltd) between 24.01.2012 and 01.01.2015. According to him, these forty one (41) exit providers were known accommodation entry concerns and not doing any real business, but only providing accommodation entries. Thereafter, the AO also discussed about few share brokers [at para no. 7.8 at page no. 21 of the assessment order] wherein he noted that survey was conducted by the Directorate of Investigation, Kolkata on the following share brokers (i) Shri Anuj Agarwal/Director of Korp Securities Ltd (ii) Pravin Agarwal/Director of M/s. Gateway Financial Services Ltd and (iii) Subrata Haldar/Promoter of BSAS Securities Pvt. Ltd and (iv) Soumen Sen/(D.B & Co.) who all accepted their role in the entire scheme of providing accommodation entry in the form of bogus LTCG. Thereafter, he concluded that the purchase and sale of share of M/s. Marigold (now known as M/s. Greencrest Financial Services Ltd) was nothing but accommodation entry provided to the assesssee for converting her unaccounted income. And therefore, the AO added the entire sale consideration of Rs.5,96,65,721/- u/s 68 of the Act. And also computed @ 6% on it as commission i.e. Rs.35,77,543/-. On appeal, the Ld. CIT(A) has deleted both additions by taking note that assessee has discharged her burden to prove the allotment/purchase and sale of the shares of M/s. Marigold (now known as M/s. Greencrest Financial Services Ltd). And since the shares were demated and both considerations (i.e. share purchase & sale consideration) have passed through banking channel and the sale has happened through the electronic platform of BSE; and there was no material/evidence to show the involvement of assessee or her broker in the modus operandi for converting her unaccounted money in the form of bogus LTCG; or there was any evidence to suggest that assessee or her broker had any connection with unscrupulous entry operators named by AO, the Ld. CIT(A) was pleased to delete both the additions which action has been assailed by revenue before us.

We find that the main plea of the assessee before the Ld. CIT(A) was that addition made by AO u/s 68 of the Act was not legally sustainable in the light of the fact that assessee has discharged the burden of proving the genuineness of her claim regarding LTCG on sale of share of M/s. Greencrest (earlier known as M/s. Marigold) by submitting primary documents to substantiate the claim (LTCG). The assessee in order to prove the transaction which led her to claim the LTCG/exemption u/s 10(38) of the Act had proved the events of allotment/purchase of M/s. Marigold shares, dematerialization of shares, and thereafter shares were sold through Bombay Stock Exchange Electronic Platform. Therefore, according to Ld. AR, since assessee proved that she has fulfilled all conditions for making claim of LTCG/exemption u/s 10(38) of the Act, the same could not have been denied by AO without first finding any infirmity in the primary documents filed by assessee which in this case has been undisputed by AO. And it was pointed out by the Ld. AR before the Ld. CIT(A) that AO have not leveled any allegation/infirmity about the primary documents produced by the assessee to prove the purchase and sale of shares of M/s. Marigold. The Ld. CIT(A) agreed with the assessee that AO has not found any infirmity/deficiency in the primary documents produced by the assessee to prove her LTCG claim and the Ld. CIT(A) also found that AO has not been able to show that cash transaction was there in the assessee's claim. The Ld. CIT(A) found fault with the assessee for relying on the 3rd party statements without allowing assessee to cross-examine them. We concur with the finding of Ld. CIT(A) and also note that AO failed to show from the purported material which he relies upon in the assessment order (like investigation report of the Investigation Wing of Department, Financials, statements of stock-brokers/entry operator submission of assessee etc) that assessee was participant/recipient in the organized racket of generating bogus entries of LTCG and involved herself in the 'modus operandi' as discussed by him at para 6 of the assessment order. According to Ld. AR, unless the AO is able to point out from the investigation report/statement of stock brokers/entry operators and spell out the role of assessee/broker as a wrong-doer or participant in the racket (as stated in the report of investigation wing) the impugned action of AO, in the light of the un-impeached primary documents has to fail.

We find that AO during the assessment proceedings has asked the assessee to prove the claim of LTCG of Rs.5,67,41,214/- (according to assessee LTCG claimed is Rs.5,72,25,721/-) from sale of shares of M/s. Greencrest (earlier known as M/s. Marigold). And pursuant to such a direction, the assessee had filed the primary documents as discussed at para 4 to 6 (supra) to prove the purchase of shares of M/s.Marigold (now known as M/s. Greencrest Financial Services Ltd) and the same is not repeated for sake of brevity. Thus, we find that assessee had filed primary documents found placed at page 30 to 54 of the PB, which shows that assessee had applied/allotted the shares of M/s. Marigold (later known as M/s. Greencrest Financial Services Ltd on 11.02.2013 and sold the shares of M/s. Greencrest (between Aug, 2014 to Dec, 2014.) through Bombay Stock Exchange through broker M/s. Harjivandas Nemidas Securties Pvt. Ltd. and STT paid on the sale transaction. Thus, sale of shares cannot be held as bogus. The share certificate of M/s. Marigold (renamed as M/s. Greencrest) allotted to assessee proves the allotment of shares; and demat statement of holding of shares with M/s. IL & FS Securities Services Ltd proves that shares of M/s. Marigold was held by the assessee from allotment to sale of the same. Thus, when shares were allotted; and later sold through BSE (after remitting STT); and consideration having passed through proper banking channel (both allotment/sales), the LTCG claim of assessee on sale of shares of M/s. Marigold/M/s. Greencrest cannot be disallowed, unless there is any contrary material brought on record to show that it was a bogus claim. Merely on the basis of general investigation report (report of investigation wing of Department/Kolkata) wherein there is no whisper of any wrongdoing by assessee or her broker or assessee's involvement in modus-operandi as stated therein the investigation report of Kolkata or SEBI report, no adverse view is legally sustainable. We find that Kolkata Investigation Report discussed by AO at para 6 onwards nowhere alleges any wrongdoing of assessee or her brokers; and we have gone through the copy of the SEBI order dated 29th June 2022, wherein the SEBI conducted enquiry into the company M/s. Greencrest Financial Services Ltd & its director Shri Sunil Parekh and Shri Aditya Parakh and some allottees (total against 18 persons/entities refer page no. 45 of PB) wherein SEBI was concerned about two patches (Patch-1 from May 10th, 2013 to June 04, 2014 and Patch-II from June 05th, 2014 to Dec 04th,2014). After investigation, the SEBI didn't impose any penalty against the company M/s. Greencrest, and its two directors and another allottee Shri Ravindra Kumar Grover; and SEBI imposed penalty for 14 persons/entities (refer Page no. 90 of PB). Thus, we find that there was no allegation/penalty imposed on assessee or her broker or even against the company M/s. Grencrest. Therefore, no adverse view can be drawn against the assessee on her claim of LTCG on sale of shares of M/s. Greencrest. Thus, we find that the general report/statements relied upon by AO in no way can be said to incriminate assessee being part of modus-operandi to do any illegal acts. As noted, the AO has been influenced by the investigation report submitted by the Investigation Wing of Department functioning at Kolkata. It is true that some unscrupulous entry operators had devised methods/modus- operandi to beneficiaries to facilitate laundering their black money to white through pre-planned receipt in the form of bogus LTCG, loan etc. But from perusal of the discussion of AO, we find it to be general in nature and there is nothing in the discussion to link/connect the assessee somehow with the modus-operandi of the Investigation Wing or Report. Since there is neither any evidence/material to incriminate the assessee in the investigation report nor any material to suggest assessee/broker being part of the nefarious conspiracy or abetment, such a report of investigation wing cannot be of any aid to the revenue and thus AO erred in placing reliance on such report to draw adverse inference against assessee; and Ld CIT(A) rightly appreciated the facts and judicial precedents and allowed the claim and deleted the addition made by AO.

The Ld. AR has brought to our notice that similar case came up before this Tribunal (LTCG claim on sale of shares of M/s. Marigold) wherein Tribunal in the case of Shri Yogesh P. Thakkar (ITA. No.1612/Mum/2021 dated 03.02.2023) held in favour of assessee (and drew our attention to page 27 & 28, para 11) and directed the AO to allow the LTCG/exemption claim of the assessee and deleted the addition by holding as under: - "

We have heard the rival submissions and perused the materials available on record. The findings given by us hereinabove for the AY. 2014-15 in the case of the assessee shall apply mutatis mutandis to AY. 2015-16 also, save that during the AY. 2015-16, there was no interim order passed by SEBI on both the scrips; that there was only final order passed by SEBI dated 05.06.2020 wherein the name of the assessee or his registered share broker was not reflected as defaulters or persons involved in artificial price rigging of shares. Hence, the observations and findings recorded by us for AY. 2015-16 also. Accordingly, the Ground Nos. 1 & 2 raised by the assessee are allowed."

Now coming to the other judgments cited before us, it is clarified that we have carefully perused the plethora of judgments relied upon by both the parties and but only those judgments 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 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: