SHEETAL RUPESH SALVA,MUMBAI vs. ITO, WARD-20(3)(3), MUMBAI

Brief facts are that the assessee is an individual and had filed her return of income on 23.07.2011 for Assessment Year 2011-12 declaring total income of Rs.11,10,750/-. Later, the assessment was reopened under section 147 of the Act; and the AO noted that the assessee had shown long term capital gains (LTCG) on sale of two (2) scrips of M/s KGN Industries

However, the AO didn’t agree. According to him, the gain shown by the assessee were from sale of penny scrips. According to AO, shares of M/s KGN and M/s AGSSL was classified as penny scrips which were used for providing accommodation entries to beneficiaries like assessee in the form of bogus capital gain/losses. Thereafter, the AO discussed about the investigation report of the wing which spelled out the modus operandi of unscrupulous entry providers from para nos. 4.2 to 4.7 and 5.1,5.2 and 5.7 to 5.10 of the assessment order; and made general assertions and observations, which according to him, is the manner and mode used by entry operators in active connivance with exit providers to accommodate bogus LTCG and losses in transactions of these penny scrips. The relevant facts concerning the assessee case, is noted by the AO from para no. 3 and onwards. The AO is noted to have found from records that the assessee on 02.05.2008 had acquired 9000 shares of M/s. KGN at Rs.10/- per share, which were later split into 90,000 shares. And the assessee sold these shares in this AY. And the shares of M/s. AGSSL [previously known as Pee Jay International Ltd before June 2006, and then known as Kuvam International Fashions Ltd till May 2012] were allotted on 19.11.2009, 1,50,000 shares @ Rs 10/- per share were later reduced to Rs.1/- per share after split into 15,00,000 shares. In the relevant year, assessee sold 4,00,000 shares of M/s AGSSL on 4 A.Y. 2011-12 Sheetal Rupesh Savla various occasions and noted in chart format the scrip names (KGN/Kuvam), trade date, quantity, rate, trade value from page 2 to 7 of assessment order. According to AO, there was circumstantial and other material to suggest that transaction of sale of shares of M/s KGN/Kuvam (now known as AGSSL) are not natural but are arranged one. The AO issued SCN to assessee which contents he reproduced at page 8 and assessee’s reply has been reproduced at page 9 to 12 of his order and thereafter, AO at page 13, para 4.1, notes about the history of M/s KGN Industries and further notes that search took place in Globe Ecologies group, as well as in KGN Industries [previously known as Royal Finance Ltd] And that company (M/s KGN) was listed in BSE, and was suspended from trading in 2001 and it got relisted on 21.05.2008. AO noted the unusual price movement which he discussed in page 13 to 14 and noted the fluctuation/price movements at para 4.4 to 4.7 and was of the opinion that no prudent person would trade/invest in the shares of M/s KGN. And thereafter, the AO discussed about investigations carried out against entry operators at para 4.8 According to the AO, during and post search u/s 132 in the case of Shipbreaker group of Bhavnagar it was seen that KGN Industries and KGN Enterprises Ltd facilitated the members of the group to introduce unaccounted funds in the form of exempt LTCG. The AO also noted that as per the statement recorded u/s 133A(1) in the case Shri Jethalal Jivabhai Hirani (Ex CEO) and Shri Deepak Vrajlal Rawal (CEO and Company Secretary) dated 24.01.2015, they have admitted that the companies are not having any genuine business and are in fact paper companies; and the AO reproduced selected portions of their statement in the assessment order at page 15 and was of the opinion that assessee has taken accommodation entry of LTCG and therefore, rejected

Thereafter, AO discussed about the transaction in M/s AGSSL from para 5.1 and noted the share price movement from Rs.6.8 on 18.6.2009 to Rs.174 on 22.09.2010, Rs.140 on 16.02.2011 and came down to Rs.2.65 on 6.01.2012, were not based on any fundamental or extraordinary cause or performance of M/s. AGSSL. After extracting the financials of M/s AGSSL from para no. 5.3 of his order, the AO observed that there was no extraordinary events to justify price rise in share prices and thus held that the price was indeed rigged by operators to accommodate beneficiaries. The AO referred to the statements of some exit providers (anonymous) who all have confirmed that their bank account, DMAT account were misused by certain operators. The AO further refers to the statement of two directors of M/s AGSSL, Shri Bhavesh Makwana and Deepak Rathod, who according to him, were not able to substantiate and provide any logical explanation to support the rise in prices of the shares in the market. According to AO, foregoing facts shows that transaction and resultant LTCG was bogus. However, AO acknowledged that assessee submitted reply dated 21.12.2018 wherein she pointed out that the whole transaction of buying and selling of shares happened through banking channel; the sale of shares was through the Bombay Stock Exchange through registered broker; shares were demated; and filed all the relevant evidences in the form of contract notes, share certificates, bank statements. The assessee relied on few case laws of Hon’ble Bombay High Court in CIT Vs. Shri Mukesh Ratilal Marolia and CIT Vs Shyam Pawar, CIT Vs Jamna Devi Agarwal and Tribunal order in GTC Industries V ACIT. However, the AO rejected the plea of assessee on the basis of report of investigation wing wherein modus operandi of 6 A.Y. 2011-12 Sheetal Rupesh Savla unscrupulous entry providers have been explained in detail. So, according to AO, surrounding circumstances, human conduct and preponderance of probability lien in favour of revenue to disbelieve the documentary evidence; and he was of the opinion that the sale proceeds of shares was found to be not explained to his satisfaction; and further according to AO, SEBI has acted against one Jigar Group for indulging in price rigging of shares of M/s PIL, M/s Gemstone and M/s KGN; and thereafter he held that assessee has resorted to the transaction from which LTCG was earned was intended for bringing in her books, unaccounted money without giving tax. Thus according to the AO, the LTCG on sale of shares of M/s AGGSL shown by assessee is not genuine and represent undisclosed income of the assessee and made an addition of Rs.1,02,20,000. And made a total addition under section 68 of the Act to the tune of Rs.3,17,12,750 (Rs.2,14,92,750 + Rs.1,02,20,000).

On appeal, the Ld. CIT(A) upheld the action of the AO. The Ld. CIT(A) is noted to have rejected the submissions put forth by the assessee. Aggrieved, the assessee is before us.

Assailing the action of the Lower Authorities, the Ld AR pointed out that AO as well as Ld. CIT(A) has not doubted the purchase/investment of 90000 shares of M/s. KGN on 02.05.2008 and 1500000 share in M/s AGSSL on 19.112009 ; and the sales of the aforesaid shares through broker M/s.JM Financial Services Ltd during the financial year through BSE in the case of M/s KGN for Rs.2,14,92,750/- and M/s AGSSL for Rs.1,02,20,000/- on which assessee claimed LTCG of Rs.2,14,02,750/- on M/s KGN and Rs.93,40,000/- on M/s AGSSL; and contended that the claim of LTCG and resultant exemption u/s 10(38) of the Act ought not to have been denied to 7 A.Y. 2011-12 Sheetal Rupesh Savla assessee, since sale of share took place at the Bombay Stock Exchange wherein STT was paid; and the transaction of purchase and sales happened through banking channel. According to Ld. AR, when the purchases and sales and holding period of shares have been accepted by both the authorities, merely on suspicion and surmises, the impugned action of disallowing the LTCG/exemption is erroneous. Therefore, the action of AO/Ld. CIT(A) to disallow the LTCG claim is un-sustainable in law. According to him, findings rendered by them were factually misplaced and unjustified. The Ld AR submitted that the assessee is not responsible nor has any role in the price of M/s KGN and M/s AGSSL and it is governed by market forces.

Further, according to the Ld. AR, the assessee was not a first time investor but rather she was a regular investor and drew our attention to the investment made by the assessee over the years stood at Rs.46,93,781 as at 31.3.2008; Rs.40,99,067 as at 31.3.2009; Rs.86,97,815 as at 31.3.2010; Rs.1,96,40,264 as at 31.3.2011; Rs.3,37,02,974 as at 31.3.2012; Rs.8,48,20,169 as at 31.3.2013; Rs.9,79,51,724/- as at 31.3.2014; Rs.12,29,11,798/- as at 31.3.2015; Rs.12,29,51,719 as at 31.3.2016 and Rs.12,29,39,582 as at 31.3.2017. And therefore, according to him, assessee’s action of investing in shares of M/s. KGN and M/s AGSSL could not be doubted when both the authorities [AO/Ld. CIT(A)] could not dispute the genuineness of the purchase/dematerialization of the shares/bank transaction/sale through Bombay Stock Exchange on which STT was paid and relevant evidences consisting Shares Certificates, Demat Statement, Sales Contract Notes, STT Certificate and Bank statements thereof could not have been brushed aside. In respect of the statements recorded as asserted by the AO, the Ld. AR pointed out that the assessee had never dealt

Further according to the Ld AR, the findings rendered by the AO/CIT(A) were factually misplaced and unjustified and took us through the contemporaneous evidences placed on record to show that the transaction in shares of KGN and AGSSL were properly documented. He argued that neither the AO nor the Ld. CIT(A) had pointed out any specific defect or infirmity therein and rather both of them had cited extraneous considerations to make the impugned addition. The Assessee has provided several documents in support of the transaction of LTCG consisting of Share Certificates, Contract notes for sale of shares, Form 10DB ie STT certificate, Bank Statements reflecting payments / receipts for purchase and 9 A.Y. 2011-12 Sheetal Rupesh Savla sales of shares. The Ld. AR drew our attention to the assessment order for AY 2012-13 (Pages 2 to 10) and pointed out in Para 6 from Pages 2 to 10, the AO had acknowledged that he summoned the assessee under section 131 of the Act , and the assessee presented herself before him and that AO had recorded her statement on 9.12.2019, where she was questioned in detail about the investments in M/s AGSSL and M/s Kyra Landscape Ltd, and she satisfactorily explained the transaction of purchase and sale of shares giving complete information and evidences about the transaction and withstood the cross examination and the AO could not elicit any wrong doing / illegal action on the part of the assessee. The Ld. AR thus submitted that when the transactions were supported by corroborative evidences which remained undisputed, these irrelevant surrounding circumstances cited by the lower authorities to make the impugned addition was unsustainable both on facts and in law. He thus urged that the orders of the lower authorities be reversed and the impugned additions be deleted. The Ld AR also referred to various decisions and case laws to substantiate his case.

Per contra, the Ld. DR appearing for the revenue supported the orders of the lower authorities. The Ld. DR submitted that shares of both were purchased off-line by assessee for meagre cost and later sold when the prices have been artificially rigged/increased by synchronous trading; and as pre-planned, the shares were sold to exit entry operators at an exorbitant price. According to the Ld. DR, by this modus operandi undue benefit in the form of exempted gains was claimed by assessee. According to Ld. DR, assessee couldn’t explain why she invested in M/s. KGN and M/s AGSSL and pointed out to the financials of M/s. KGN and M/s AGSSL, and wondered as to how such a company can fetch such high price unless it was pre-fixed by unscrupulous entry providers as revealed by the investigation

In his rejoinder, the Ld. AR rebutted the submission of Ld. DR and contended that there was no incriminating statement or/documentary material against assessee to show that the assessee had indulged in any wrongdoing and that the assessee had discharged the burden to prove the purchase/sale of shares in question and the AO, without any evidence / material to link the assessee or her broker with any of the entry providers could not have drawn adverse view against the assessee’s claim of LTCG.

We have heard both the parties and perused the records; and we find that AO/Ld. CIT(A) has not found any infirmity in the primary documents produced by the assessee in support of claim of exemption of LTCG u/s 10(38) of the Act. We find that AO during assessment proceedings had asked the assessee to prove the claim of LTCG of Rs. 2,14,02,750/- from sale of shares of M/s KGN, and LTCG claim of Rs.93,40,000/- from sale of Shares of M/s AGSSL, pursuant to which, the assessee filed documents (refer page no. 16-36 of PB along with documents) to prove the claim, which documents have not been found by AO to suffer from any infirmity. The assessee placed evidence to prove the purchases of shares of M/s. KGN and allotment of physical share certificate no 2532, under Registered Folio No. 013658 dated 11.08.2009, for allotment of 90000 shares, a copy of which is seen from perusal of page no. 16 of PB; and likewise, assessee filed evidence to prove the purchases of shares of M/s. AGSSL and allotment of physical share certificate no 00015524, under Registered

The main plea of the assessee is that such an action of the AO/Ld. CIT(A) cannot be legally sustained in the light of the fact that assessee has discharged the burden of proving the genuineness of claim regarding LTCG by submitting primary documents to substantiate the claim (LTCG) by proving the events of purchase of shares, dematerialization of the shares, allotment of share of M/s. KGN and M/s. AGSSL; and transfer of shares to demat account, and the sale happening through Bombay Stock Exchange Electronic platform. Therefore, according to Ld. AR, AO could not have 13 A.Y. 2011-12 Sheetal Rupesh Savla drawn adverse view against the claim made by assessee without first finding any infirmity in the primary documents filed by the assessee, which in this case AO/Ld. CIT(A) have not alleged the veracity of the documents. In such a scenario, according to Ld. AR, the AO was duty bound to show from the incriminating evidences, he relies upon in the assessment order (like report of investigation wing, SEBI order, statement of director/entry providers, etc) that assessee was participant in the modus operandi to convert black money of assessee in active connivance with these statement- makers. Unless AO is able to point out from the report/statement of entry operator the role of assessee as a wrong doer or participant in the modus- operandi (as stated in the investigation wing), the impugned action of AO/Ld CIT(A), in the light of primary documents has to fall.

As noted (supra), AO/Ld. CIT(A) has been influenced by the investigation report submitted by the Investigation Wing of the Department functioning at Ahmedabad/Mumbai/Jamnagar/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, loans etc. But the discussion of lower authorities, we find 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’s Report. Since there is no evidence incriminating assessee in the investigation report or being part of the nefarious conspiracy or abetment, such a report of investigation wing cannot be of any aid to the revenue and both the authorities erred in placing reliance on such report to draw adverse inference against assessee.

As noted (supra), the lower authorities have not doubted the documents which were furnished in support of the purchases. Rather the lower authorities doubted the investment rationale of the assessee purchasing the shares of M/s. KGN and M/s AGSSL. The AO wondered as to how the assessee could have invested in such an entity which did not have any future outlook at the time of purchase, which according to him was unusual and suspicious. Moreover, the AO have not brought on record any evidence/material to show that assessee’s investment in M/s. KGN and M/s. AGSSL was the outcome of any pre-planned scheme for facilitating huge gain by rigging the share market. Other than citing bald statements of Mr. Deepak Vrajlal Rawal and (CEO and Company Secretary) Mr. Jethlal Jivabhai Hirani (Ex-CEO) of M/s KGN of Shri Bhavesh Makwana and Shri Deepak Rathod, directors of M/s AGSSL there is no iota of evidence/material to connect the aforesaid persons with assessee or anyone associated with assessee in any wrong doing. And it is not the case of AO that the aforesaid persons has imputed any role of assessee in the alleged modus-operandi to rig the share market or that assessee was a beneficiary of accommodation entry. Without any incriminating material to connect assessee with the aforesaid persons; their statement cannot in anyway discredit the LTCG claim of assessee on sale of shares of M/s. KGN and M/s. AGSSL. Therefore, we find that statements referred by AO (of Mr. Deepak Vrajlal Rawal (CEO and Company Secretary) and Mr. Jethlal Jivabhai Hirani (Ex-CEO) of M/s KGN of Shri Bhavesh Makwana and Shri Deepak Rathod , directors of M/s AGSSL) is of any use to disbelieve/discredit the documents submitted by assessee to claim the LTCG.

As noted (supra), during the year in several lots, shares of M/s. KGN and M/s. AGSSL were sold. The assessee has placed before us the contract notes issued by registered stock broker M/s. JM Financial Services Ltd which fact is evident from page 23 to 33 of PB. The purchase/sale transaction has happened through the banking channel which has not been disputed. It is noted that none of these documents to have been found to be defective or false by any of the lower authorities. It is also noted that the broker through whom assessee had conducted then transaction M/s. JM Financial Services Ltd has also not been alleged to be guilty of any wrongdoing or manipulation. It is also not the case of the revenue that the shares were not sold at the prices at the prevailing price on the floor of Bombay Stock Exchange on the given date of sale. Thus, we find that the assessee had discharged her burden of substantiating the sale of the listed shares which were subjected to STT, on the floor of stock exchange in order to avail the benefit of the exemption set-out in section 10(38) of the Act.

AO have doubted the genuineness of the sale of the share of M/s. KGN and M/s AGSSL on the basis of unusual rise in the share prices, which according to him was not supported neither by any market factors nor the fundamentals of the scrip itself. According to him, the assessee could not properly explain the unusual price rise over two years, and therefore, the sale of shares were held to be not genuine. According to us, merely because the price of shares have gone up cannot be the basis of branding the purchase & sale of shares of M/s. KGN and M/s. AGSSL as bogus. And it is common knowledge that the prices of shares listed in a stock exchange are subject to upper and lower circuits placed by stock exchanges / SEBI and these are monitored very closely by Stock exchanges and SEBI. The fact that during the tenure of holding of shares by the assessee (from 2.05.2008

We note that the AO has relied on the selective statement of Mr. Deepak Vrajlal Rawal (CEO and Company Secretary) and Mr. Jethlal Jivabhai Hirani (Ex-CEO) of M/s KGN who, according to AO admitted that M/s KGN is a paper entity and the AO also referred to the statement of Shri Bhavesh Makwana and Shri Deepak Rathod , directors of M/s AGSSL who was not able to justify the increase in the price of M/s. AGSSL and therefore according to AO, these statements confirm that the asssessee’s claim of LTCG is bogus. However, the Ld. AR pointed out that statements of Mr. Deepak Vrajlal Rawal (CEO and Company Secretary) and Mr. Jethlal Jivabhai Hirani (Ex-CEO) of M/s KGN of Shri Bhavesh Makwana and Shri Deepak Rathod , directors of M/s AGSSL cannot be relied upon by AO/Ld. CIT(A) because it was neither recorded in assessee’s presence nor confronted to the assessee nor the AO allowed assessee to cross-examine them in spite of requesting him vide the assessee’s reply dated 21.12.2018. Therefore, according to Ld AR, those statements even if incriminating cannot be used against the assessee unless cross-examined as held by Hon’ble Supreme Court in Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC). Moreover, Ld. AR pointed out that the statements (reproduced by the AO in the assessment order) of these persons would reveal that they have not made any allegation against the assessee or her broker of any misconduct or wrong doing or being part of any illegal acts/modus-operandi to convert unaccounted money. This assertion of Ld. AR could not be controverted by revenue before us. Therefore, nothing

The Ld. AR has also brought to our notice that the similar case came up before the Tribunal (LTCG claim on sale of shares of M/s.KGN ) wherein the Tribunal in the case of DCIT,CC 6(2) Vs Dilip Jiwarka ITA No 2349/M/2021 where the department has accepted the genuineness of capital gains in shares of KGN Industries Ltd. The Ld AR also brought to our notice the decision of Hon’ble Delhi High Court in the case of PCIT Delhi Vs Suman Agarwal ITA No 167/2022 & CM Appl 25301/2022 where the Hon’ble High Court confirmed the action of Tribunal deleting the addition on account of rejection of claim of LTCG on shares of KGN Industries Ltd by observing as under :

The addition has been made by the AO with respect to the LTCG earned on sale of shares of M/s KGN Industries Limited.

We have perused the statement dated 3rd August, 2015 and the contents of the letter dated 31st July, 2015, both authored by Sh. Madho Gopal Agarwal. There is no reference to M/s KGN Industries Limited in either of the said documents. No other material found during search pertaining to M/s KGN Industries Ltd. has been placed on record. The Revenue has not placed on record any incriminating material which was found as a result of the search conducted on the assesee herein. It is also the contention of the assessee that there was no surrender by her unlike Sh. Madho Gopal Agarwal and she, therefore, specifically disputed that any notice under Section 153A of the Act could have been initiated against her. The said facts are not disputed by the counsel for the Revenue.

On the date of search, admittedly, the assessment with respect to the AY under consideration 2011-12 admittedly stood completed. Since no assessment was pending for the relevant AY 2011-12 on the date of search and no incriminating material was found during the course of search, the issue is covered in favour of the assessee by the judgment of this Court in the case of Commissioner of Income Tax v. Kabul Chawla (supra) and Principal CIT vs. Meeta Gutgutia (2017) 395 ITR 526. The relevant paragraphs are reproduced hereinbelow:- …..

In this view of the matter there is no infirmity in the order passed by the ITAT. In the aforesaid facts, no substantial questions of law arise for consideration. Accordingly, the present appeal is dismissed.

The Ld AR also brought to our notice the decision of the Tribunal in the case of ITO Vs Shri Champalal Gopiram Agarwal [ITA 592/Ahd/2020] where the Tribunal deleted the addition made on account of rejecting the claim of LTCG on sale of Shares of M/s Arya Global Shares & Securities Ltd [AGSSL] as under;-

1 From the preceding discussion we note that the entire basis of AO to treat the transaction as bogus was based on the information received from DDIT(Inv.), unit-6(2) Mumbai that the impugned two scrips were penny stock. However, the AO nowhere pointed out any adverse finding in such report against the assessee. We further note that assessee carried out the transaction in impugned scrip namely M/s Arya Global Shares & Securities Ltd and Vax Housing Finance Corp. Ltd at stock exchange through registered broker which was duly supported by the documentary evidences such as bills, Demat account, and bank statements, showing payment were done through banking channel. The AO nowhere found any discrepancies in the documentary evidences. The dominant basis of treating the impugned transaction as bogus was based on assumption of the AO that the impugned scrip was found as penny stock by the DDIT(Inv.), unit-6(2) Mumbai. Thus, it was the onus upon the AO to bring such facts on record before making any allegations against the assessee. In the present case, the learned CIT-A after detailed verification has reached to the conclusion that the transaction carried out by the assessee was genuine and based on the documentary evidence. At the time of hearing, the learned DR has not 19 A.Y. 2011-12 Sheetal Rupesh Savla brought any iota of evidence against the finding of the learned CIT-A. At the same time, we also note that there was no allegation against the broker through whom the assessee has purchased and sold the impugned script. What has been adopted by the AO for making the addition/disallowances was the mere assumption. To our understanding, the mere assumption, surmises and conjecture cannot the basis of making the addition or treating the transaction in sale of share of impinged company as bogus until and unless it is supported by the material documents.

2 In our view, the income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and assumptions of certain facts. In order to hold income earned or loss incurred 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 arrangements. In absence of such finding, no adverse inference can be drawn against the assessee.

3 Now the controversy also arises whether a person who genuinely entered into purchase and sale of particular shares at stock exchange which was rigged up by some other person or group of persons, therefore, he enjoyed the windfall from such action of other person, can he be disallowed the benefit of tax exemption or carry forward of loss. To our mind the Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Arya Global Shares & Securities Ltd and Vax Housing Finance Corp. Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith.

4 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:

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 20 A.Y. 2011-12 Sheetal Rupesh Savla 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 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 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,

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.

5 Respectfully following the judgment of Hon’ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee, the assessee cannot be held to be guilty or linked to the wrong acts merely on basis of surmises and assumptions. In view of the above discussion, we hold that the income earned by the assessee on the scrip of M/s Arya Global Shares & Securities Ltd and loss incurred on the scrip of Vax Housing Finance Corp. limited cannot be held bogus merely on the basis of some assumption of the AO unless cogent materials are brought on record. Therefore, we don’t find any reason to disturb the finding of the learned CIT(A) and direct the AO to delete the addition and disallowances made by him. Hence the grounds of Revenue’s appeal is hereby dismissed.”

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;

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 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

At this juncture, we may gainfully refer to the decision of the Hon’ble taxmann.com 176). In the decided case also, the 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 28 A.Y. 2011-12 Sheetal Rupesh Savla

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."

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

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:

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 31 A.Y. 2011-12 Sheetal Rupesh Savla appeal of the Revenue. The relevant findings of the Hon’ble High Court which is binding upon us, are as follows :-

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?

The Ld. AR of the appellant has relied on another judgment of the Hon’ble Rajashthan 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 claim/exemption u/s 10(38) of the Act on sale of scrip of M/s Sunrise Asean Limited. The observations of the Hon’ble Court are as under: -

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 34 A.Y. 2011-12 Sheetal Rupesh Savla 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.

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 35 A.Y. 2011-12 Sheetal Rupesh Savla 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.

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: -

Further, the decision of Tribunal in the case of Pooja Ajmani V ITO (ITA No.5714/Del/2018) is rendered in 2019 where the assesse was deficient in furnishing in the documents in support of her claim of LTCG and therefore the decision was given against her but in the case of assesse , she has furnished all the evidences in support of purchase and sale of shares and therefore the case is not applicable.

In the case of Sanjay Bimalchand Jain Vs PCIT (supra) cited by the Revenue, the assessee had made payments in cash for acquisition of shares and therefore genuineness of purchase was held to be in doubt. It was also found that the address of the listed shares purchased and the address of the stock broker was the same which was found to be peculiar and there was no response to the notices issued by the AO. We find that there are no such facts present in the assessee’s case and therefore this judgment relied upon by the Revenue is also found to be factually distinguishable.

The case of Udit Kalra (ITA 220/2019) has been distinguished in the case of Seema Tayal (supra) discussed above.

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

In the result, the appeal of the assessee is allowed.