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Facts
The assessee filed an appeal against the order of the CIT(A) for AY 2013-14. The case was reopened based on information suggesting the assessee had claimed bogus Long Term Capital Gains (LTCG) from penny stock transactions. The Assessing Officer (AO) disallowed the LTCG, treated it as unexplained income, and also added commission paid. The CIT(A) upheld the AO's order.
Held
The Tribunal observed that the transactions were conducted through recognized stock exchanges and registered brokers, with payments made through banking channels. Crucially, the Tribunal noted that a coordinate bench had dealt with identical facts and scrip in a previous case (Smt. Veena Chaturvedi v. DCIT) and decided in favor of the assessee. The SEBI's initial order against alleged 'exit providers' was also found to be revoked, and no direct link between the assessee and price manipulation was established. The Tribunal concluded that the AO and CIT(A) relied on presumptions and the concept of human probabilities without sufficient material.
Key Issues
Whether the long-term capital gains claimed by the assessee from penny stock transactions are genuine, and whether the additions made by the AO and upheld by the CIT(A) are justified in the absence of cogent evidence.
Sections Cited
10(38), 147, 148, 143(2), 142(1), 131, 68, 69C, 271(1)(c), 69
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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI AMIT SHUKLA, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Anil Sathe Shri Manoj Kumar Sinha
O R D E R PER S. RIFAUR RAHMAN (AM)
1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld. CIT(A)”] dated 26.06.2023 for the A.Y.2013-14.
Abhishek Tejraj Doshi 2. Brief facts of the case are, Assessee filed his Return of income for A.Y. 2013-14 on 27.09.2013 declaring total income of ₹.8,48,960/- and the return was processed under section 143(1) of the Income-tax Act, 1961 (in short “Act”). Subsequently, the case of the assessee was reopened on the basis of information received from investigation carried out by Directorate of Income Tax (lnv.) Kolkata have revealed that many assessees have taken bogus Long Term Capital gains(LTCG) from operators, who are doing this business for commission, and that the capital Gain arisen on sale of such shares is arranged and colourful transaction. Investigation wing has summarized these transactions in detailed report and also provided list of company/ scrip which are being used for creating very high profit margin and LTCG which is exempt u/s 10(38) of the Act. These scrip/companies are penny stock companies which are controlled by few persons. One of the scrip is SHREENATH Commercial and Finance limited and it is seen that the assessee is one of the beneficiary who has availed such entry.
The case of the assessee was reopened for assessment under section147 of the Act after obtaining necessary approval. Notice under section 148 of the Act was issued on 15.09.2016 and served on the assessee and a copy of reasons recorded for reopening was provided to Page No. 2 Abhishek Tejraj Doshi the assessee on the request of the assessee. Accordingly, notice under section143(2) and 142(1) of the Act were issued and served on the assessee. The assessee raised an objection to the reopening of assessment under section 147, the same was rejected by speaking order on 06.10.2017. In response to the notices, Authorised Representative of the assessee attended and submitted the relevant information as called for.
During the course of the assessment proceedings, Assessing Officer observed that as per computation of income filed by the assessee, assessee has income from business, capital gain income and income from other sources and as per working of long term capital gain attached with return of income, assessee has incurred gain of ₹.2,56,67,731/- on sale of shares during the year which has been claimed exempt u/s 10(38) of the Act. quantity Purchase Purchase Particulars/Scrip Sale date Sale value Gain / Loss Date value SHREENATH 04.03.2011 28.12.2012 Commercial and 362000* to 40,37,842/- 2,97,26,257/- 2,56,67,731/- to 15.01.2013 Finance Limited 09.03.2011
5. Assessing Officer observed from the details filed by the assessee that assessee has earned Capital Gain of ₹.2,56,67,731/- from sale of Page No. 3 Abhishek Tejraj Doshi shares of Shreenath Commercial and Finance Limited. Assessing Officer in his order from Page No. 3 to 13 has elaborately analysed various parameters with regard to claim of Bogus long term capital gain such as Findings of the Investigation Wing, Findings in the case of Assessee, Examination of persons with which assessee traded (Exit Entry provider) and analysis of cash trail (for the sake of brevity the same is not reproduced below). Assessing Officer issued summons under section 131 of the IT Act to the assessee and the statement of the assessee was recorded under oath on 13.11.2017. Subsequently, Assessing Officer issued notice under section 142(1) of the Act requiring assessee to explain with evidences why the Long Term Capital Gain should not be treated as non-genuine and sale consideration received on the penny stock should not be taxed as an unexplained cash credit under section 68 of the Act. In response, assessee filed his submission on 20.11.2017 and submitted that the transaction of Long Term Capital Gain is genuine.
After considering the submissions of the assessee, Assessing Officer observed that the transaction of LTCG is a manipulated transaction done by assessee in connivance with the operators to evade taxes on his unaccounted income and treated the LTCG as non-genuine, according to him LTCG declared by the assessee of ₹.2,56,67,731/- as Page No. 4 Abhishek Tejraj Doshi unexplained income u/s.68 of the Act, he came to conclusion by observing as under: - "14. Findings and conclusion 14.1 The submissions made by the assessee and reply to show cause is considered. The facts of the case, investigations made by various directorates, statements recorded during the assessment proceedings are considered. From the discussion in the preceding paras it is concluded that long term capital gains booked by assessee in her books were pre-arranged method to evade taxes and launder money. Following are the findings and the reasons which substantiates the findings. a. Mode Of acquisition Of the shares: The assessee purchased 1,81,000 shares of SHREENATH Commercial and Finance Ltd. for Rs.40,37,842/-. Further, the company issued bonus shares in the ratio of 1:1 on 17.03,2011 to the assessee. Subsequently, the assessee had total of 3,62,000 shares. b. Sale of shares and unusual rise in the price: 3,62,000 Shares of Shreenath Ltd. are sold at a price of Rs. 2,97,26,257/- and a long term capital gain of 2,56,67,731/-has been claimed. This sale is off the market sale so contract notes are available. As discussed the rise in share prices is not holding to any commercial principles and market factors. c. Findings of Investigation wing: The findings of the Directorate of Investigation of Mumbai and Kolkata as discussed above have proved that Shri Anil Agarwal and associated brokers, entry operators and the assessee had worked out an arrangement in which the shares were acquired by the assessee, the share prices were rigged and then with the help of entry operators by routing the cash, shares were sold at high price to arrive at tax free capital gains. d. Analysis of transactions: Facts revealed that such trading transactions of purchase and sale of shares are not been effected, for commercial purpose but to create artificial gains, with a-view to evade taxes. i. Transactions of shares were not governed by market factors prevalent at relevant time in such trade, but same were product of design and mutual connivance on part of assessee and the operators.
Page No. 5 Abhishek Tejraj Doshi ii. The assessee resorted to a preconceived scheme to procure longterm capital gains by way of price difference in share transactions not supported by market factors. iii. Cumulative events in such transactions of shares revealed that same were devoid of any commercial nature and fell in realm of not being bona fide and, hence, impugned long term capital gain is not allowable. iv. The order of SEBI referred above has also given the similar finding that the prices of the shares were determined artificial by manipulations and cannot be a product of market factors and commercial principals. e. Failure of Assessee to discharge his onus: The assessee has not been able to prove the unusal rise and fall of share prices to be natural and based on the market forces. It is evident •that such share transactions were closed circuit transactions and clearly structured one. f. Ignorance of the assesee about shares and penny stock companies: Assessee has failed to show of having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies. g. Financial analysis of the penny stock companies: The net worth of the penny stock company is negligible. Even though the net worth of the company and the business activity of the company is negligible the share prices have been artificially rigged to unusual high. h. Order of the SEBI: SEBI has passed an order where the main operator Shri Anil Agarwal and M/S Comfort fincorp are said to be indulging in to share manipulations. i. Cash trail in the accounts of the entry providers: The investigations in the fund flow analyzed in the accounts of the entry providers have established that the cash has been routed from various accounts to provide accommodations to assessee. j. Arranged transactions: The transactions entered by the assessee involve the series of preconceived steps, the performance of each of which is depending on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sole intent, to evade taxes.
Page No. 6 Abhishek Tejraj Doshi 14.2 The facts and circumstances of the case, as recorded above, clearly suggest that the revenue cannot take or accept such make- believe transactions, as presented by the assessee. Truth or genuineness of such transactions must prevail over the smoke screen, created by way of pre-meditated series of steps taken by the assessee, with a view to imparting a colour of genuineness and character of commercial nature, to such share transactions. Needless to say that one has to look at the whole transactions and a series of steps taken to accomplish such share transactions, in an integrated manner. 14.3 The case laws in support of revenue to be added. The synopsis and the case laws are made available to all the AOs as Annexure 6 of the SOP. Sanjay Bimalchand Jain L/ H Shantidevi Bimalchand Jain Vs PCIT (ITA No. 18/2017 Bombay High Court (Nagpur Bench) The assessee had purchased shares of two penny stocks of Kolkata based companies i.e., 8000 shares at the rate of Rs.5.50 per share on 08.08.2003 and 4000 shares at the rate of Rs.4/per share on 05.08.2003. The assessee sold 2200 shares at an exorbitant rate of Rs.486.55 per share on 07,06.2005 and 800 shares on 20.06.2005 at the rate of Rs.485.65. the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/ had jumped to Rs.485/ in no time. Addition confirmed Chandan Gupta Vs CIT [20151 54 taxmann.com 10 (Punjab & Haryana ) [2015] 229 Taxman 173 Hon’ble Punjab & Haryana High Court held that where assessee could not explain receipt of alleged share transactions profits credited in his bank accounts, then sale proceeds had to be added as income of assessee under section 68 Balbir Chand Maini vs CIT [20111 12 taxmann.com 276 (Punjab & Haryand) [2011] 201 Taxman 94 (Punjab & Haryana) (MAG.) / [2012] 340 ITR 161 (Punjab & 247 CTR 468 (Punjab & Haryana) Section 69 of the Income-tax Act, 1961 - Unexplained investments - Assessment year 1998-99 - During assessment proceedings, Assessing Officer found that assessee had purchased certain shares of a company at rate between Rs. 2.50 and Rs. 3.40 per share in month of April, 1997 and part of those shares were sold through a broker at Rs. 55 per share - He came to opinion that value of said shares could not be as high as Rs. 55 per share - He recorded statement of broker who admitted to have purchased shares in Page No. 7 Abhishek Tejraj Doshi question but failed to produce books of account and other relevant documents - He also found that alleged sale of shares had not taken place through any stock exchange - On scrutiny of books of account of broker, it was found that there were cash deposits in its bank account preceding issue of cheques in name of assessee for purchase of shares claimed to be sale proceeds of same shares received in advance - Broker could not give details of purchaser of shares - Moreover, shares claimed to have been sold through broker had not been transferred even at time of making enquiry by Assessing Officer and same continued to be registered in name of assessee - In those circumstances, Assessing Officer held that transaction of sale of shares was an ingenuine transaction and made addition of alleged sale consideration to assessee's income as income from undisclosed sources - Whether on facts, addition made by Assessing Officer was justified - Held, yes. 14.4 Reliance is placed on the decision of Hon'ble Supreme Court in the case of McDowell and Co. Ltd Vs. CTO 154 ITR 148 wherein it is held that "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. It is obligation of every citizen to pay his taxes honestly without resorting to subterfuges." Further reliance is also placed on the decision Of Honble Supreme Court in the case of CIT Vs. Durga Prasad 82 ITR 540 (SC) and Sumati Dayal Vs. CIT 214 ITR 801(SC) 14.5 The exceptional luck enjoyed by the assessee was held to be beyond preponderance of probability. It will not be unreasonable to infer that the assessee had not really participated in any of the race except to the extent for purchasing the winning tickets after the events presumably with unaccounted funds. The transactions of the assessee can be no stretch of imagination be considered as investment transactions but they are only make believe transaction. The fantastic sale price realization is not at all humbly probable, as there is no economic or financial basis that the share of little known company would jump from Rs. 11.15/- to average price Of Rs. 82/-. Assessee had not tendered cogent evidences to explain as to how the share in an unknown company worth Rs. 11.15/- had jumped to average price Of Rs. 82/- in no time.
Thus considering the findings of the search/ survey, inquiries conducted in the case of assessee, brokers, operators and the entry providers and the nature of transaction entered into by the assessee the LTCG of Rs. 2,56,67,731/- claimed exempt u/ s 10(38) of the act by the assessee cannot be allowed and the amount of Rs. 2,97,26,257/- received as sales proceeds on sale of shares is being added to the total income of the assessee u/s 68 of Page No. 8 Abhishek Tejraj Doshi the Act. Penalty proceeding u/ s 271 is initiated for furnishing inaccurate particulars of income with a view to concealment of income, 16. Further, an amount of Rs. 5,94,525/- i.e. 2% of Rs.2,97,26,257/- (commission paid to the entry provider) is being added to the total income of the assessee u/s. 69C of IT Act, 1961 on account of unexplained expenditure. Penalty proceeding u/s 271(1)(c) is initiated for furnishing inaccurate particulars of income with a view to concealment of income.”
7. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) and filed detailed submissions. After considering the detailed submissions of the assessee and findings of the Assessing Officer, Ld. CIT(A) dismissed the grounds raised by relying on the case laws and various materials relied by the assessing officer. He has sustained the addition made by the AO alongwith the connected commission of 2% as non genuine transactions.
Aggrieved with the above appellate order, Assessee is in appeal before us raising following grounds in his appeal: -
The reassessment is bad in law as the assessment was reopened based only on the information from the investigation wing. The statements made by brokers in no way related to the appellant, or his transactions cannot be considered as tangible material to form a belief that the income has escaped assessment. No copies of statements are provided to appellant thereby not providing cross examination.
2. The learned CIT(A) erred in upholding the action of the assessing officer in treating the long-term capital gains accruing to the appellant as non-genuine only on the basis of general finding of Directorate of Investigation and various statements recorded by it without any cogent material on record and no nexus / connection
Page No. 9 Abhishek Tejraj Doshi with the appellant being established to prove the impugned transaction as bogus.
3. The learned CIT(A) failed to take cognizance of documentary evidence provided by the appellant such as bank statements, brokers' contract notes and ledger accounts, demat accounts, etc. to substantiate the transactions of purchase and sale of shares. The addition made u/s 68 is merely on presumptions, suspicion, surmises, and conjectures disregarding the direct evidence placed on record.
4. The learned CIT(A) failed to confirm the action of the AO that the sale is off the market sale which is stated at para 14. b. at page no. 15 of the assessment order although the appellant has transacted via stock exchange and has also filed the demat account and contract notes on record.
5. The learned CIT(A) erred in confirming the action of the AO denying the exemption under sec. 10(38) of the Act to the appellant to the extent of Rs 2,56,67,731 when all the conditions for claiming exemption are satisfied by the appellant 6. The learned CIT(A) erred in treating the transaction of the appellant as non-genuine relying only on circumstantial evidence such as price movements of the equity share which is beyond the control of the appellant.
The learned CIT(A) erred in relying on certain judicial pronouncements facts of which were distinct and distinguishable, and ignoring other decisions including that of the jurisdictional High Court.
8. The learned Pr. CIT(A) erred upholding the addition of unexplained expenditure u/s 69C of Rs. 5,94,525/- being two percent of the sale proceeds on account of alleged commission expenses, without there being any corroborative evidence.
9. Without prejudice to the above and strictly in the alternative the learned CIT(A), erred in not appreciating that if the transaction of sale is to be treated as nongenuine, the addition should be restricted to Rs, 2,56,67,731 the net gain made by the appellant 10. The appellant craves leave to add, alter or amend any of the grounds of the appeal, at any time before or at the time of hearing.
At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts relating to the case and reiterated the submissions made before the Ld. CIT(A) and contended the action of the Ld. CIT(A) in sustaining the action of the Assessing Officer. Ld.AR of the assessee
Page No. 10 Abhishek Tejraj Doshi submitted various documentary evidences in support of the Long Term Capital Gain transaction and he brought to our notice contract notes of sales of shares, details of cheque issued by stock broker of the assessee towards sales, bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities.
Further, Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee, the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine.
Further, Ld.AR of the assessee brought to our notice the decision of the Coordinate Bench in the case of Smt. Veena chaturvedi v. DCIT [2023] 156 taxmann.com 457 (Mumbai – Trib) and submitted that on similar facts which are identical to the present case and also involving the similar scrip, the Coordinate Bench has decided the issue in favour
Page No. 11 Abhishek Tejraj Doshi of assessee by deleing the addition made by the Assessing Officer. Ld.AR of the assessee filed a comparative summary to establish the decision of Smt. Veena chaturvedi v. DCIT (supra) is applicable to the facts of the assessee’s case. For the sake of clarity, it is reproduced below: - Parameters for Veena Chaturvedi Abhishek Doshi vs SrNo comparison vs DCIT lTO 1 Scrip traded Shreenath Shreenath Commercial Commercial and and Finance Ltd Finance Ltd 2 Purchase on stock exchange Yes Yes 3 Sale on stock exchange Yes Yes 4 Period of purchase Mar-11 Mar-11 5 Period of sale Jan-13 Jan-13 6 Payment mode Banking channels Banking channels 7 Scrip banned No No 8 Contract Notes submitted Yes Yes 9 Demat account reflecting Yes Yes sale and purchase 2. In the case of Veena Chaturvedi, the AO had reproduced the statements of various brokers but none of them referred to or mentioned the appellant therein. The case of the appellant is on a much better footing as the AO has not reproduced a single statement of any broker or exit provider.
3. In the case of Veena Chaturvedi, the AO had issued notices under section 133(6), and some of them had responded but no connection with the appellant therein was established. The case of the appellant is on a much better footing as in this case the AO, has not issued any such notices or has not made any effort whatsoever to investigate/ examine the record.
4. As in the case of a Veena Chaturvedi, the appellant's case as well AO relied only on the investigation report, wherein there was no specific reference to the appellant. The assertions as in that case are absolutely bland assertions with no evidence whatsoever.
Page No. 12 Abhishek Tejraj Doshi 5. In the circumstances the case of the appellant is on all fours, with the case of Veena Chaturvedi, and the ratio decided therein needs to be followed in the case of the appellant as well.
On the other hand, Ld. DR objected to the submissions of the Ld.AR of the assessee and relied on the orders of the lower authorities by submitting that there is substance in the findings of the lower authorities.
Considered the rival submissions and material placed on record, We observe from the record that the scrip under consideration is same as in the case relied by the Ld AR and in the case of Veena Chaturvedi (supra) the coordinate bench has elaborately dealt with the issue under consideration. It considered the various issues associated with the scrip Shreenath Commercial and Finance Ltd and held it in favour of the assessee. The facts are exactly similar in the case under consideration, the Coordinate Bench of the Tribunal in the case of Smt. Veena chaturvedi v. DCIT in dated 18.09.2023 dealt with identical scrip wherein the assessees have also earned Long Term Capital Gain at the high volume and it ultimately decided the issue in favour of assessee. For ready reference, the conclusion drawn by the ITAT is reproduced below: -
Page No. 13 Abhishek Tejraj Doshi “18 We have heard the rival submissions and perused the relevant finding given in the impugned orders as well as material referred to before us. It is an undisputed fact that assessee has purchased 4,97,500 shares of Shreenath Commercial and Finance Limited from 10/03/2011 to 11/03/2011 in the open market on the Online Trading Portal of the Stock Exchange through registered Broker, RBK Share Broking Limited. One important fact to be noted here that in so far as RBK Share Broking Ltd. is concerned, nothing adverse has been found nor there is an enquiry that the said broker has provided any kind of accommodation entry or was involved in any such dubious transaction. On 22/03/2011 bonus shares were issued at the ratio of 1:1 and accordingly, assessee had held that 9,95,000 shares were sold after almost 2 years from 16/01/2013 to 21/01/2013 for sums aggregating to Rs. 8,29,88,876/-, on which assessee had earned a long-term capital gain of Rs. 7,29,88,736/- which claimed as exempt. Apart from that, all the documentary evidences in the form of contract note for purchase and sale of shares; copy of Demat Account reflecting receipt and transfer of shares; ledger account of Share Broker in assessee's books of accounts and bank statement reflecting payment on purchase and receipt of consideration on sale of shares were filed. We have already noted the various contentions raised by the Assessing Officer and his observations and the counter submissions made by the assessee before the authorities below as well as before us. From the perusal of the statement of Shri Rajendra Chaturvedi, husband of the assessee, it is noted that, he has stated that he had made investments in more than 50 scrips on behalf of himself and his family members and the investment in the shares of M/s. Shreenath Commercial & Finance Ltd. was made by him only on behalf his wife, the assessee. The average purchase rate of the shares was Rs.20/- per share and average sale rate was between Rs.79/- to Rs.86/- per share. He has also stated that the entire shares of purchases through stock exchange by online through registered broker and the shares were purchased when the financial condition of the said company was good and the profits were substantially increased including the turnover which was in several crores. He has also stated that the assessee nor any of the family member had any connection or business with the promoters of the company or any kind of alleged exit providers. Now in the case of her husband, Shri Rajendra Chaturvedi, the coordinate
Page No. 14 Abhishek Tejraj Doshi bench on exactly similar facts and reasoning of the AO and CIT (A) has deleted the said addition.
The AO has observed that the prices of the shares had reached upto 500/- per share to show assessee has gained multifold, however, assessee had sold the price changing price between Rs.79 to Rs.86/- per share which was quoted price in the Bombay Stock Exchange on which rate such shares were traded and had bought the shares at average price of Rs. 20/- per share. However, the main point which has been discussed at length by the ld. AO in his order that in the case of exit providers, there is the order of the SEBI dated 04/12/2014 in the case of Moryo Industries Ltd., who was one of the six exit providers of the impugned shares of Chaturvedi family. On this ground, the ld. AO has endeavored to depict nexus between the exit providers and Shreenath Commercial & Finance Ltd., and all the concerns have common promoter Shri Giriraj Kishore Agarwal. Therefore there was whole nexus which was found by the SEBI and these exit providers were banned by the order of the SEBI on 04/12/2014. As per the Interim order of the SEBI dated 04/12/2014, wherein primary investigation was undertaken on the dealings in the scrip of Moryo Industries Limited on noticing huge rise in the traded volumes and price of the said scrip on the Bombay Stock Exchange from 15/01/2013 to 31/08/2014. In the said interim order, a tenuous connection was drawn between 91 persons/entities comprising of Moryo Industries Limited, Promoters, Directors and Preferential Allottees and they were temporarily restrained from buying, selling or dealing in the securities market. The said SEBI order is only in respect of scrip of Moryo Industries Ltd. and nowhere there is any whisper or mention about the scrip of M/s. Shreenath Commercial & Finance Ltd.; nor in the said list of 91 persons/entities, contain the name of either Shreenath Commercial and Finance Limited or the assessee or family members. Thus, per se, the said interim SEBI order does not impinge upon the assessee or the transaction of the scrip of Shreenath Commercial and Finance Limited in the Bombay stock exchange. Moreover, one very important fact which was brought on record before the authorities below that SEBI vide final order dated 21/09/2017 had revoked the earlier interim order dated 04/12/2014 by categorically holding that there are no adverse findings against the said persons with respect to their role in the price manipulation in the scrip of Moryo Industries Limited. Thus, the entire basis and premise of the ld. AO to draw his adverse inference on the basis of Page No. 15 Abhishek Tejraj Doshi interim SEBI order dated 04/12/2014 has no legs to stand. One of the major contentions of the ld. AO was that in the case of exit providers, SEBI has given an adverse remark and all the observation on preliminary investigation by SEBI has been referred and relied upon the AO, therefore, the inference drawn by the ld. AO about the purchase of the scrips by these entities from the assessee, which has now been found by SEBI in its final order that there was no such manipulation by the these entities. In any case, firstly, the said SEBI order has nothing to do with the scrip of M/s. Shreenath Commercial & Finance Ltd. and secondly, the revocation of this order by the SEBI in its final order dated 21/09/2017 itself demolishes the entire foundation of the AO’s inference.
Apart from that, no enquiry either by the SEBI or any Government agencies has been done in the case of M/s. Shreenath Commercial & Finance Ltd. or the broker from whom assessee has purchased online or the assessee or the family member. In so far as one of his observations that one Shri. Giriraj Kishore Agarwal was the promoter, Director of various entities including M/s. Shreenath Commercial & Finance Ltd., he became the Director of this company on 10/11/2016. i.e., after more than 3 ½ years, when the assessee had sold shares through Bombay Stock Exchange. In any case, the adverse inference of common link of Shri Giriraj Kishore Agarwal was discharged by the final SEBI order dated 29/11/2017. Therefore, tenuous connection made by the ld. AO to link M/s. Shreenath Commercial & Finance Ltd. with Moryo Industries Limited and other alleged exit providers through Shri Giriraj Kishore Agarwal does not hold any ground.
In so far as general observation in respect of share brokers on whom survey action was conducted by Directorate of Investigation Wing of Kolkata who had allegedly accepted the role in providing accommodation entry of bogus/ long term capital gain first of all such a reference is wholly out of context because assessee has not dealt with any of these brokers. Two statements of such brokers were also provided to the assessee by the ld. AO but no way they were connected to the assessee nor assessee has dealt with them nor is assessee’s name figuring anywhere. The assessee had made transaction of purchase and sale of shares through RBK Share Broking Limited against which there is no such enquiry or information that this broking entity was involved in any kind of accommodation entry. Although these brokers have given the list of Page No. 16 Abhishek Tejraj Doshi various scrips in which they have done the trading in shares for providing accommodation entry and one of the scrip mentioned was M/s. Shreenath Commercial & Finance Ltd. As per the statement of Shri Ritesh Jain, it was also alleged that M/s. Manu Stock Broking is a broking house for some of the exit providers related to sale of shares by Chaturvedi Family, however, in his statement there is no mention about the scrip and M/s. Shreenath Commercial & Finance Ltd. The said statement is part of the assessment order and nowhere in the said statement there is any whisper about the said credit or assessee or her family. When his statement was confronted to Mr. Rajendra Chaturvedi, then also in his statement he has not admitted that he had any connection with any of the four alleged share brokers nor there any mention in the statement of Shri Ritesh Jain. In so far as notices u/s. 133(6) issued by the ld. AO to the exit providers and only few of them had replied. The only conclusion which has been drawn by the ld. AO that they had offered a very meager income and do not have any substance. However, in none of the replies which AO has noted, that they have stated that they had any transaction with the assessee. Further, ld. AO has not provided and how these entities were connected with scrip of M/s. Shreenath Commercial & Finance Ltd. and how they were involved in the alleged modus operandi adopted by the accommodation entry provider for bogus capital gain including the assessee, at least there has to be some primafacie or some mention about the assessee or about the scrip from such enquiry so as to draw some kind of adverse inference.
In so far as various reports of the ld. AO and ld. CIT (A) by and large are same and ld. AO has stated that nothing new has been brought on record. Though there are decisions cited by both the parties and also assessee had cited various decisions of the Hon’ble Bombay High Court as mentioned above wherein the Hon’ble Bombay High Court had held that where the transactions have been made both purchase and sales through online and there is no adverse material or information except with some brokers have stated in their statement that they have provided accommodation entry in various scrips in one such scrip involved, that does not lead to drawing any adverse inference to treat the share transactions as bogus done through stock exchange.
Be that as may be, we find that on exactly similar set of facts and identical finding, this Tribunal in the case of the assessee’s
Page No. 17 Abhishek Tejraj Doshi husband Shri Rajendra Chaturvedi and Mrs. Pallavi Pandey supra, the Co-ordinate Bench has deleted the said addition after observing as under:- “We have heard the rival submissions of both the parties and perused the material on record including the various case laws referred by the rival parties during the course of hearing. The undisputed facts are that the assessee has purchased 28 lakhs of shares of M/s. Shrinath Commercial and Finance Ltd. between 04.03.2011 to 15.03.2011 M/s. Shrinath Commercial and Finance Ltd thereafter Issued bonus shares in the ratio of 1:1 on 22.03.2011 and thus the assessee came to hold 56 lakh shares in the said company. We note that these shares were purchased through recognised stock exchange through registered broker and were credited in the D-mat account of the assessee. Similarly, the bonus shares were also credited in the said D- mat account held by the assessee. All these purchases of shares were supported by the contract notes issued by the authorised brokers of the stock exchange and the payments were made through banking channels. Thereafter, the assessee sold these shares during the period commencing on 23.08.2012 to 08.02.2013 for a total consideration of Rs 41,48,39,241/- and was received through banking channel thereby making a longterm capital gain of Rs 35,44,38,501/- which was claimed as exempt under section 10(38) of the Act as long term capital gain on sale of shares. We notice that all these transactions were carried out on a recognised stock exchange by the assessee through registered brokers duly evidenced by the contract notes and entries in the D- mat account and the sale and purchase consideration reached through banking channels. The AO has also only relied on the Investigation carried out by the Investigation wing, Kolkata and Mumbal that assessee is a beneficiary of these bogus long term capital gain entries. Nowhere the AO has brought on record any other evidence than relying on the report of investigation wing that the assessee is beneficiary of this huge racket of taking bogus entries of longterm capital gain. The 40 has disbelieved these documents by observing that these are sham and bogus documents without pointing out any specific defect or infirmity as these were issued as per the system of the Page No. 18 Abhishek Tejraj Doshi recognised stock exchange through registered brokers. Similarly, the Ld. CIT(A) has upheld the order of AO by holding that the assessee is beneficiary of a big racket whereby the prices of the shares were rigged and manipulated to yield bogus gain to various entities/individuals of which assessee was one. Thus, we find merit in the arguments of the Ld AR that assessee has furnished all the information. details, documentary evidences before the AO but the AO has not done any further verification to find out the truth or done anything to prove the money trail of the funds as has been alleged in the order. Under these circumstances, we are not in a position to sustain the order of Ld. CIT(A) upholding the order of AO wherein the long-term capital gain has been held to be nongenuine and bogus."
Once on the same set of facts the Co-ordinate Bench have deleted the said addition, then in the case of the assessee, no different view can be taken. Respectfully following the same, addition made by the ld. AO is deleted including the addition of alleged commission made u/s.69C, which is deleted. Thus, on merits, appeal of the assessee is allowed.
However, in so far as validity of reopening is concerned, the same is left open and the same is purely academic and allow the appeal of the assessee on merits.”
Further, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, the revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as an Page No. 19 Abhishek Tejraj Doshi investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 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 demated 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?"
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 assessee that it has participated in any price rigging in the market on the shares of RFL.
3. Therefore we find nothing perverse in the order of the Tribunal.
Page No. 20 Abhishek Tejraj Doshi 4. 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. 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.
6. The appeal is devoid of merits and it is dismissed with no order as to costs.”
15. Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld.CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider. Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the Ground Nos. 1 to 7 raised by the assessee are allowed.
With regard to Ground No. 8 relating to addition on account of commission paid on alleged bogus share transaction. Ld.AR of the assessee submitted that the above grounds are consequential to the Page No. 21 Abhishek Tejraj Doshi Ground Nos. 1 to 7 as stated above. Thus, once the share transaction is held genuine and explained, the said addition shall also be deleted. He Further, submitted that the addition has been made by Assessing Officer merely on surmises without any evidence on record and thus may kindly be deleted.
On the other hand, Ld DR objected to the above submissions and prayed that both the bogus LTCG and commissions paid on the same may be sustained.
Considered the rival submissions and material placed on record, we already held that the transaction involving the LTCG is genuine and in favour of the assessee, the consequential addition relating to the above transaction is also deleted. Accordingly, we direct the Assessing Officer to delete the above addition made u/s 69 of the Act.
In the result, appeal filed by the assessee is allowed.