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 26.07.2012 for Assessment Year 2012-13 declaring total income of Rs.8,26,720/-. Later on, the assessment was reopened under section 147 of the Act; and the AO noted that the assessee has shown long term capital gains (LTCG) on sale of Shares of M/s Arya Global Shares and 2 A.Y. 2012-13 Sheetal Rupesh Savla Securities Limited (hereinafter M/s AGSSL), which assessee claimed to be exempt under section 10(38) of the Act. According to AO, assessee has shown to have received Rs.73,24,001/- from sale of shares of M/s AGSSL on which Securities Transaction Tax (STT) was paid, therefore , assessee claimed the LTCG of Rs.66,64,001/- and claimed it as exempt u/s 10(38) of the Act. In order to verify the genuineness of the claim, the AO called for the details of the transaction; and pursuant to which, the assessee brought to the AO’s notice that she had applied for 1,50,000 shares of M/s AGSSL on preferential basis which were allotted on 19.11.2009 for a consideration of Rs.33,00,000/- which were split into 15,00,000 shares on 23.09.2010. Later, in relevant assessment year 2012-13, 3,00,000 shares of M/s AGSSL were sold on the floor of Bombay Stock Exchange through the brokers M/s JM Financial Services Ltd which yielded LTCG which was claimed as exempt u/s 10(38) of the Act. The total sales consideration for sale of 3,00,000 shares of M/s AGSSL was Rs.73,24,001/- and the LTCG claimed exempt was Rs.66,64,001/. The assessee produced evidence before AO to substantiate the allotment/purchase of the shares by producing by producing the respective Share Certificates; and that purchase as well as the sale consideration has passed through the banking channel; and that the shares were duly dematerialized; and the shares were sold through recognized stockbroker M/s. JM Financial Services Ltd in the electronic platform of BSE after remitting STT and contended that it has fulfilled the requirement of law to claim the LTCG from sale of shares as exempt u/s 10(38) of the Act.

However, the AO didn’t agree. According to him, the gain shown by the assessee were from sale of penny scrip. According to AO, shares of M/s AGSSL was classified as penny scrip which were used for providing

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 1,50,000 shares in M/s AGSSL on 19.11.2009; 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 AGSSL for Rs.73,24,001/- on which assessee claimed LTCG of Rs.66,64,001/-; and contended that the claim of LTCG and resultant exemption u/s 10(38) of the Act ought not to have been denied to 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

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 Rs.12,29,39,582 as at 31.3.2017. And therefore, according to him, assessee’s action of investing in share of 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, Sales Contract Notes, and Bank statements thereof could not have been brushed aside. With regard to the assertion by the AO that the notices u/s 133(6) issued to parties who had purchased shares through the Bombay Stock Exchange were returned back by the postal authorities, the Ld AR pointed out that the AO has not given the names of the so called exit providers nor confronted the assessee with the details of the exit providers and without confronting the assessee with at least the name of the exit providers while recording her statement on 9.12.2019, the AO could not have mentioned in the assessment order, his enquiries; and moreover, according to Ld AR, the AO failed to bring out the nexus between the assessee / her broker with the so called exit providers. In respect of the statements recorded as asserted by the AO, the Ld. AR pointed out that the assessee had never dealt with any of 7 A.Y. 2012-13 Sheetal Rupesh Savla the persons whose names are mentioned in the assessment order viz Shri Bhavesh Makwana and Shri Deepak Rathod, directors of M/s AGSSL. According to the Ld. AR, these statements cannot be used against assessee for the simple reason that admittedly they were recorded behind the back of the assessee, and neither the copies of these statements were provided to the assessee during the course of assessments nor the AO gave an opportunity to cross-examine the makers of the statements. And therefore, according to Ld. AR neither the statement nor the contents of the statement could be used against the assessee. Anyway the Ld. AR pointed out that the statements of Shri Bhavesh Makwana and Shri Deepak Rathod, directors of M/s AGSSL doesn’t contain anything to incriminate or implicate the assessee / broker of any wrong doing. And therefore, assessee being an investor in so many companies had also genuinely invested in the shares of M/s AGSSL.

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 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, Bank Statements reflecting payments / receipts for purchase and sales of shares. The Ld. AR pointed out that in response to summons u/s 131 of the Act, the assessee appeared before the AO and gave a statement before the AO on 9.12.2019, where she was questioned in detail about the investments in M/s AGSSL, she satisfactorily explained the transaction of purchase and sale of shares

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 AGSSL and pointed out to the financials of 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 report of the Investigation Wing of Department. Therefore, he does not want us to interfere with the action of the Ld. CIT(A) and prayed for dismissing the appeal of the assessee.

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 9 A.Y. 2012-13 Sheetal Rupesh Savla 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.66,64,001/- from sale of Shares of M/s AGSSL pursuant to which, the assessee filed documents (refer page no. 115 to 127 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. AGSSL and allotment letter dated 19.11.2009 for allotment of 150,000 shares referring to the share certificate no 00015524 under Registered Folio No. 0005202 for 150000 shares, a copy of which is seen from perusal of page no. 115 of PB, thus the purchase of the shares by assessee cannot be disputed. And further, we note that assessee has purchased 150,000 shares of M/s. AGSSL on 19.11.2009 for total consideration of Rs.33,00,000/- @ Rs. 22 per share which consideration was given through Cheque 607880 for Rs.8,25,000/- from Bank of Baroda A/c 09330100004483, Usmanpura, Ahmedabad Branch of Bank of Baroda and Cheque no 615755 for Rs.24,75,000/- drawn on HDFC Bank A/c No 00061330001791 Navrangpura Branch, Ahmedabad as evidenced by perusal of Bank Statement at Pages 116 and 117 of PB; and thereafter,the shares were dematerialized. It is further noted that, assessee was allotted 150,000 Shares of M/s AGSSL which was later split in to 15,00,000 shares of M/s AGSSL

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. 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 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 made any allegation about it. 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/statements of entry operators 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 Mumbai. 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 or Report. Since there is no evidence incriminating assessee in the investigation report of being part of the nefarious acts, 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 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. AGSSL was the outcome of any pre-planned scheme for facilitating huge gain by rigging the share market. Other than citing bald statement 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 have imputed any role of assessee in the 13 A.Y. 2012-13 Sheetal Rupesh Savla 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. AGSSL. Therefore, we find that statements referred by AO 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. 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 120 to 125 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 wrong doing 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. The Ld AR submitted that an adverse view cannot be formed from the fact that notices sent under section 133(6) to the buyers of shares of M/s AGSSL through the Bombay Stock Exchange were returned by postal authorities, since it is common knowledge that there is no scope for sellers of shares in stock market to know who has purchased the shares in the market. It is noted that the AO has not spelled out the name of the so called exit providers and therefore in such a scenario, without bringing any evidence / material about the identity of exit provider and the 14 A.Y. 2012-13 Sheetal Rupesh Savla nexus of such an entity with the assessee / broker, no adverse view could have been taken against the assessee in the given facts and circumstances of the case. 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 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 shares of M/s. AGSSL and LTCG claim as bogus. Because 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 19.11.2009 to26.05.2011) no action was taken by SEBI against the assessee or her broker for price rigging or to be part of any illegal activity in respect of price rigging proves the fact that the assessee has nothing to do with the change in prices of M/s AGSSL.

We note that the AO has referred to the statement of Shri Bhavesh Makwana and Shri Deepak Rathod , directors of M/s AGSSL who were 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 Shri

The Ld AR also brought to our notice the decision of Tribunal in the case of ITA 592/Ahd/2020 ITO Vs Shri Champalal Gopiram Agarwal where the Tribunal deleted the addition made on account of rejecting the claim of LTCG on sale of Shares of AGSSL.

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 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

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 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 18 A.Y. 2012-13 Sheetal Rupesh Savla 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, prevailed upon the ITAT to take a different view. Before us, Mr.

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

We may also gainfully refer to the decision rendered by this Tribunal in the case of DCIT Vs Mukesh R Marolia (6 SOT 247) (affirmed by the Hon’ble Bombay High Court in their order in ITA No. 456 of 2007 dated 07-09-2011 ) wherein on similar facts and circumstances the addition made by the AO on account of purported bogus LTCG derived on purchase/sale of shares (off-market) was deleted by observing as under:

At this juncture, we may gainfully refer to the decision of the Hon’ble Gujarat High Court in the case of Pr.CIT Vs Parasben K. Kochar (130 taxmann.com 176). In the decided case also, the assessee had furnished all relevant documents such as contract notes, demat statements, bank statements, ledgers, bills etc. to substantiate the LTCG derived on sale of listed shares. The AO, however, disputed the genuineness of the same by placing reliance on statements of certain persons obtained by the Investigation Wing. On appeal the Hon’ble Gujarat High Court is noted to have upheld the order of this Tribunal holding that since the assessee was not given opportunity to cross-examine these persons, the addition was unsustainable. The relevant findings of the Hon’ble High Court were as follows :-

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

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 that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under section 260-A of the Act, 1961.”

The Ld. AR of the appellant has rightly relied on another judgment of the Hon’ble Bombay High Court in the case of CIT Vs Jamna Devi Agarwal (328 ITR 656). In the decided case, also the Revenue had disputed

The Ld AR also bought to our notice the recent judgment rendered by the Hon’ble juri ictional Bombay High Court in the case of PCIT v. Ziauddin A Siddique (ITA No. 2012 of 2017) dated 04.03.2022 which is found to be relevant in the facts involved in the present case. In the decided case, the issue before the Hon’ble High Court was whether this Tribunal was right in law in deleting the addition made u/s 68 of the ACT in relation to LTCG derived on sale of shares, ignoring the fact that the shares were purchased from off-market sources and that the sharp rise in prices were not supported by financials. Answering the question raised by the Revenue in the negative, the Hon’ble High Court held that there was a finding of fact that the purchase & sale of shares occured on the platform of stock exchang, upon payment of STT and were supported by documentary ecidences and therefore there was no perversity in the order of this Tribunal. The Court further noted that there was no allegation against the assessee that he had participated in price rigging in the market and therefore dismissed the appeal of the Revenue. The relevant findings of the Hon’ble High Court which is binding upon us, are as follows :-

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?

We also gainfully refer to the decisions cited by the Ld. AR, rendered by the coordinate Benches of this Tribunal wherein also, on similar facts and circumstances, following the above referred judgments of the 32 A.Y. 2012-13 Sheetal Rupesh Savla juri ictional High Court, this Tribunal deleted the addition/s made by the AO u/s 68 of the Act in relation to the long-term capital gains derived on these listed shares of TTL. The Ld. AR had brought to our notice that, the coordinate Bench at Delhi in the case of Seema Tayal Vs. ITO (ITA. No.1132/Del/2018) dated 28.06.2019 was pleased to delete similar addition on account of alleged bogus LTCG made by the AO in relation to sale of shares of TTL by the assessee by holding as under: - “17. That on going through the aforesaid judgment, we find that no question of law was formulated by Hon’ble High Court of Delhi in the said case and there is only dismissal of appeal in limine and the Hon’ble High Court found that the issue involved is a question of fact. Thus, the judgment of the Hon’ble High Court has to be seen if similar facts are permeating in the present appeal also and if there is difference on facts, then the judgment cannot be applied. In the judgment of Hon’ble Apex Court in Kunhayyammed vs State of Kerala reported in 245 ITR 360 and also in CIT vs. Rashtradoot (HUF) reported in 412 ITR 17, the Hon’ble (supra) is distinguishable as in that case the company was into consistent losses, whereas, the scrip in which assessee has dealt is a growing and high turnover company and dividend paying company. As TTL was having turnovers of Rs. 117.39 crores (AY 2014-15); Rs.150.59 crores (AY 2015-16); Rs 154.88 crores (AY 2016-17); and Rs. 146. 23 crores (AY 2017-18). The financial statements of said company are available in public domain, which have also been placed at Pages 325 to 370 of PB– II by assessee. That further, the interim order of SEBI in the case of TTL banning trading has been uplifted and cooled down by subsequent order of SEBI vide order dated 31.10.2018 placed before us at Pages 305 to 324 of PB– II by assessee. Thus, the growth in prices of TTL was backed by sound financials and as such, the case of Udit Kalra vs ITO relied by ld. DR is clearly distinguishable on facts and is not applicable to the facts of assessee. Thus, we hold that the case of assessee is factually and 33 A.Y. 2012-13 18. ………….

On the above facts and circumstances, we find that the transaction of the assessee of deriving long term capital gains of Rs. 1, 93, 56, 813/- by selling shares of M/s Trinity Tradelink Ltd. was treated as bogus by the Revenue only on the basis of suspicion and probability and without finding any defect in the various documentary evidences filed by the assessee and further, the finding recorded by ld CIT (A) on page 26 of his order that the addition has been made on independent analysis of the documents, is contrary to material available on record. As on perusal of the order of assessment, we find that no independent inquiry was made with regards to alleged entry operator Sh. Vikrant Kayan. Whereas, the sole basis of making the impugned addition was statement of Sh. Vikrant Kayan, which too was recorded behind the back of assessee by DIT (Inv) Kolkata and the statement alone cannot be the conclusive evidence to nail the assessee and hence needs to be excluded for consideration as the said person has not been allowed cross examination by assessee, even though various requests were made by assessee. As such, the transaction of the assessee was duly supported by relevant documentary evidences without there being any rebuttal by lower authorities; the addition made by the Assessing Officer of Rs. 1,93,56,813/- by treating the LTCG as bogus is unsustainable. In view of our above finding, we, therefore, delete the addition of Rs.1,93, 56,813/-.

As we find the transaction of long term capital gains of Rs.1,93,56,813/- derived by the assessee as genuine and as such, further addition of Rs. 3,87,136/- made by the Assessing Officer on account of alleged commission is consequential and is also liable to be deleted and accordingly, the same is also hereby deleted.”

The Ld. AR of the appellant has relied on another judgment of the Hon’ble Rajashthan High Court in the case of PCIT Vs Ritu Agarwal Shreeram Bhawan (453 ITR 520) which has been confirmed by the 34 A.Y. 2012-13 Sheetal Rupesh Savla 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 Asian 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 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

The A.O. did not accept respondent’s claim of long term capital gain and added the same in respondent’s income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.

We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises.

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 (supra) Ritu Agarwal Shreeram Bhawan (supra) we hold that, the Ld. CIT(A) had erred both on facts and in law in upholding the AO’s action of making addition u/s 68 of the Act, in relation to the proceeds derived on sale of shares of AGSSL alleging it to be bogus. We therefore direct the AO to delete the addition of Rs 73,11,760/- made u/s 68 of the Act and allow the claim of LTCG/exemption claimed u/s 10(38) of the Act.

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