MANOHAR LAL CHUGH,JAIPUR vs. ITO, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM+ deys'k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 312/JP/2021 fu/kZkj.k o"kZ@Assessment Year : 2010-11. cuke Shri Manohar Lal Chugh, Income Tax Officer, Vs. C-260, Hans Marg, Malviya Nagar, Ward 6(1), Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAKPC 4318 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri H.M. Singhvi (CA) jktLo dh vksj ls@ Revenue by : Smt. Monisha Choudhary (JCIT)

lquokbZ dh rkjh[k@ Date of Hearing : 14/07/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 31/08/2022 vkns'k@ ORDER

PER: SANDEEP GOSAIN, J.M. This appeal by the assessee is directed against the order dated 02.11.2021 of ld. CIT (A), National Faceless Appeal Centre (NFAC), Delhi passed under section 250 of the Income Tax Act, 1961 for the assessment year 2010-11. The assessee has raised the following grounds :-

2 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

28.06.2010 for the assessment year 2010-11 declaring total income of Rs. 70,260/-

claiming exempt Long Term Capital Gain of Rs. 13,53,298/- under section 10(38) of

the Income Tax Act, 1961. Information was received from Directorate of

Investigation that an organized racket of generating bogus entries of LTCG in penny

stocks has been unearthed as a result of detailed investigations. Statements were

recorded under section 132(4)/131 of the IT Act. SEBI had passed some orders on

issue of manipulation of Share market for providing accommodation entries of LTCG

in 11 scrips with a finding that price in these scrips are rigged and banned trading in

such scrips. As a result of such investigations and search/survey the beneficiaries of

such bogus LTCG were identified. The assessee appellant is also one of the

beneficiary and details of transactions in case of assessee from bogus scrip during

the year is as under :-

3 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

Sr. No. Name or Scrip Trade Value Exempt income declared in the return of income. 1 Nouvea Multi Media Ltd. 20,07,350 13,70,805/-

On the basis of analysis of said information, the case of assessee appellant was

reopened under section 147 of the Act. Notice under section 148 was issued on

29.03.2017 after taking prior approval of PCIT-II, Jaipur. Return was filed in

response to notice under section 148 showing the same income as returned earlier

under section 139(1). Copy of reasons recorded was provided to the appellant.

Statutory notices under section 142(1) and 143(2) were issued. Appellant raised

objections to reopening of case under section 147 and same were disposed off by

the AO on 22.11.2017.

2.1. During the assessment proceedings on verification of records, the A.O. noted

that the assessee appellant had claimed exempt income on Long Term Capital Gain

of Rs. 13,70,805/- on sale of shares of Nouveda Multimedia Ltd.(NMML). As per ITS

data, assessee had sold shares of NMML of Rs. 20,13,350/- during the year under

consideration. It was also detected that M/s. Nouvea Multimedia Ltd. is a penny

stock listed company with a small capital base but huge market capitalization.

Information in respect of trading of penny stock i.e. M/s. Nouvea Multi Media Ltd. is

available in ITS data/AIR. In the statement recorded by the Investigation Wing, Shri

Manoj Kumar Agarwal admitted about complete procedure of pre-arranged LTCG

entries and his involvement through brokerage company i.e. M/s. Destiny Securities

Ltd. In reply to Q. No. 25, he confirmed about involvement of Penny Stock company

i.e. M/s. Nouvea Multimedia Ltd. in such arrangement. Accordingly, a show cause

notice was issued to the assessee vide letter dated 29.11.2017 asking the assessee

4 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

to furnish explanation on or before 07.12.2017 failing which it was proposed that the

whole scheme would be treated as an attempt to introduce undisclosed income and

LTCG amounting to Rs. 13,70,805/- was proposed to be added on account of

undisclosed income. The assessee vide reply dated 07.12.2017 enclosed relevant

documents and submitted as under :

1) Purchase was made through account payee cheque.

2) Shares were allotted after paying STT

3) It is a genuine transaction.

4) Copy of Bank statement, demat account, brokers notes etc. were filed.

5) 20,000 equity shares were purchased through Mawerick Brokers Pvt. Ltd. (registered on BSE) vide bill dated 09.01.2008 and 15.01.2008 for Rs. 6,33,124/- inclusive of STT, Stamp duty etc.

6) Shares were deposited in Demat account in Jaipur and were credited on 24.01.2008.

7) 20,000 shares were sold in FY 2009-10 for Rs. 20,03,929/- which was credited in bank account on 22.03.2010.

The AO considered the above submissions of the assessee but did not accept the

contentions of the assessee. The AO concluded that the alleged LTCG shown by the

appellant on account of sale/purchase of shares of NMML is a bogus transaction and

it actually represents unaccounted money routed back to appellant in the garb of

LTCG. The AO also noted that one beneficiary in statement recorded under section

132(4) of the Act stated that he paid commission @ 6% in cash in lieu of bogus

LTCG entry shown from artificial trading in penny stock bogus i.e. NMML. Thus, the

AO added Rs. 13,70,805/- to total income of assessee under section 68 of the Act

and commission paid @ 6% to the tune of Rs. 82,248/- was added total income of

5 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

the assessee under section 69C of the Act. The AO further disallowed claim of the

assessee under Chapter VIA of Rs. 1,00,000/- as the assessee failed to furnish any

documentary evidence in support of the same. Thus the AO completed the

assessment at the total income of Rs. 16,23,310/-. Aggrieved by the order of AO,

the assessee preferred appeal before the ld. CIT(A). The ld. CIT (A) after detailed

discussion and considering various judicial pronouncements, sustained the additions

of Rs. 13,70,805/- under section 68 on account of sale of shares claiming exempt

LTCG under section 10(38) and Rs. 82,248/- under section 69C on account of

commission.

Now the assessee is in appeal before us.

Ground No. 1: relates to validity of initiation of proceedings under

section 147/148 of the Act.

record. The return of income filed by the assessee under section 139 of the IT Act

was processed under section 143(1) of the IT Act, 1961 at total income of Rs.

70,260/- on 20.04.2011. Subsequently, the AO received the information from

Directorate of Investigation, Kolkata that an organized racket of generating bogus

entries of LTCG in penny stock has been unearthed as a result of investigation

carried out through-out the country. The Directorate of Investigation has recorded

statements under section 132(4)/131 and the Directorate has made available various

confidential statements of entries involved in the transaction for generating such

bogus claims of LTCG. The AO also noted that Securities and Exchange Board of

India (SEBI) has passed some orders on the issue of manipulation of share market

for providing accommodation entry of bogus LTCG in the recent past. SEBI

6 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

considering the inputs from Income Tax Department as well as its own surveillance

system and that of stock exchange has taken appropriate action in case of the

suspect scrips. Out of these scrips, an interim order has also been passed by SEBI in

case of 11 scrips, giving a finding that price in the scrip was rigged. The SEBI also

banned trading of such shares. On the basis of information collected during

search/survey operations beneficiaries of such bogus LTCG were also identified. The

AO found that assessee is also one of such beneficiary. The details of share

transaction in case of assessee from bogus scrip, as noted by the AO during the year

are as under :-

S.No. Name of Scrip Trade Value

The AO examined these evidences i.e. transactions entered into by the assessee vis-

à-vis the return of income of the assessee. The AO noted that the assessee has not

disclosed the above transaction in the return of income filed. After appraisal of

these materials on record, there is enough reason to believe that the assessee has

clearly failed to disclose all material facts for determination of income. This

information along with the material on record constitutes a tangible material to form

the belief that the income assessable to tax and claimed as exempt from tax has

escaped assessment. Therefore, once the original return of income was not taken

up for scrutiny assessment, then the said information and facts discovered by the

Investigation Wing Kolkata constitutes a material on the basis of which the AO can

reasonably form a belief that the income in the shape of long term capital gain

7 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

claimed as exempt has escaped assessment within the meaning of section 147 of

the IT Act. At the stage of reopening of the assessment what is required is prima

facie reason to believe that income assessable to tax has escaped assessment and

the AO is not required to establish the fact by legal evidence or conclusion.

Accordingly we do not find any error or illegality in the impugned order of ld. CIT (A)

qua this issue. This ground of the assessee is dismissed.

Ground No. 2, 4 & 5 are inter connected and relates to addition

made under section 68 on account of sale of shares claiming exempt LTCG

under section 10(38) of the Act.

“ That during the assessment year under appeal, he had sold listed equity shares of face value of 1 each of ‘Nouveau Global Ventures Limited’ through recognized stock exchange, the shares which were sold were held by the appellant as Investments in the Books of Accounts. It is relevant to mention that the shares held were Long Term Capital Asset within the meaning of the section 2(29A) of the Income Tax Act, 1961 On sale of the shares, the appellant had earned long term capital gain of Rs.1370805/-and had claimed exemption of this amount, which is strictly in conformity of section 10(38) of the Income Tax Act, 1961 and as per the norms of SEBI Rules.

During the assessment Proceedings, the Ld. AO has questioned the exemption of Rs.1370805/-claimed by the Appellant based on surmises and suspicion,despite detailed submissions along with corroborative evidences as well as legal documents by the Appellant.

Transaction of Purchase of the shares is genuine:

In this connection, the Appellant hereby submits that the transaction of Purchase of equity shares is proved and established by independent,

8 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

contemporaneous documentary evidences during the assessment proceedings. The payment for purchase of shares was made through banking channel on (cheque drawn on The Bank of Rajasthan Ltd) only and the shares were kept as an Investment in the books of accounts. The Appellant has purchased the shares through Maverik Share Broker Pvt. Ltd. These shares were deposited in Demat A/c with Alankit Assignment Ltd, Jaipur Appellant has already furnished following documents during the course of Scrutiny Proceedings vide letter dt.:- 07/12/2017 to justify the transaction of purchase of equity shares;

-Copy of the Transaction Statement/Demat A/c (See P.B. Pg. No.86)

-Copy of Contract note issued by the Broker. (See P.B. Pg. No.81-82)

-Copy of the Bank Statement (See P.B. Pg. No.87-101) -Copy of the Ledger account (See P.B. Pg. No.83-85)

It is relevant to mention the appellant had purchased 9000 equity shares of the Company on 09/01/2008 and 11000 shares on 15/01/2008 in DEMAT format, as it is evident from the Demat account.This is online transaction. The company is listed on Recognised Stock Exchange (BSE). This information is very vital and proves the fact that the Appellant had in fact purchased the equity shares of Nouveau Multi Ltd. Under these circumstances, there is absolutely no basis for the AO to presume that the transaction for purchase thereof was not genuine. It may further be noted here that the transaction of purchase of shares has been done directly from the Company. No broker/middleman was involved. The Scrip Company was listed on recognized stock exchange.Further, the AO has not proved that the cash emanated from the coffers of the appellant. In simple words the AO has not proved the cash by the assessee was paid to whom and when? In the absence of any evidence it cannot be held that the assessee

9 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

has introduced his own unaccounted money by way of bogus long term capital gain.

Transaction of Sale of the shares is genuine:

In view of the favourable market conditions, appellant has sold the equity shares through Recognized stock exchange during the year under appeal. The sale consideration was received in the in the Bank account of the Appellant. It is relevant to mention here that the appellant has paid the Security Transaction Tax (STT) on the sale of such shares. Appellant has already furnished the following document before Assessing Officer vide letter dt.:- 07/12/2017 to support the genuineness of the Sale transaction;

- Contract note of the Broker through whom the shares were sold (See P.B. Pg. No.102)

-Copy of Ledger Account maintained by him with the Broker (See P.B. Pg. No.103-105)

-Copy of transaction statement with Prabhat Financial Services Ltd (See P.B. Pg. No.106)

-Copy of Bank statement of the assesse (See P.B. Pg. No.107-109)

Despite furnishing of contemporaneous documentary evidence, Ld. AO has alleged that the transaction of sale of shares as non genuine without any cogent material in support of non genuine nor he has mentioned that purchases and sale transactions are bogus. Ld. AO is not justified in taking contrary view with regard to transaction of sale of shares. Show cause notices issued by the Assessing officer taking contrary view were merely on the basis of suspicion which should not be sustained in the eyes of law. As held many cases by Apex court that suspicion how so-ever strong, cannot take the place of proof. Reliance is placed on the following judgements:-

10 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

Ld. AO has not brought any conclusive material on record to support his contentions. Further, Appellant has duly discharged its onus to prove the genuineness of the transaction of sale of shares.

Ld. AO cannot make addition just because there is high difference in purchase price and sale price of the shares. Ld. AO has made unjustified allegation that by taking the support of unusually high sale price compared to purchase price which is on the basis of mere suspicion. Appellant hereby emphasizes that he has no control over the sentiments of secondary market. Appellant is independent from the price movement of the scrip on the recognized stock exchange. As a prudent share holder would stand static when the market is in upswing, appellant has sold the shares through recognized stock exchange on the basis of financially suitable market conditions.

The Ld. AO has heavily relied upon the statement of seven brokers recorded u/s 131 during the survey proceedings u/s 133A of the Act. First and Foremost, it is respectfully sumitted that the Ld. AO has not provided the copy of the said statement during the Assessment proceedings on which he has heavily relied upon to draw a conclusion which is against the Principle of Natural Justice. The action of Ld. AO was in violation of principle of natural justice which is bad in the eyes of law. No such opportunity of cross examination was given to Appellant at the stage of Assessment Proceedings before relying upon it to conclude the claim of Appellant as bogus to the extent it is adverse to the Appellant.

In the case of State of Kerela v. K.T. Shaduli Yusuff (1977) 39 STC 47811), the Hon’able Supreme Court held that “ One of the rules which constitutes a part of the principles of natural justice is the rule of audialteram partum which requires that no man should be condemned unheard. It is indeed a requirement of the duty to act fairly, which lies on all judicial authorities, and this duty has been etended also the

11 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

authorities holding admininstrative enquiries involving civil consequneces or affecting rights of parties.”

Further, the Apellant hereby respectfully submits that the Ld. AO has not properly appreciated the Modus Operandi followed in connection to transactions of shares. The assesee has purchased 9000 equity shares of the company on 09/01/2008 and 11000 shares on 15/01/2008 in DEMAT Account. These 20000 shares had been sold on 17/03/2010 for Rs. 2007350/- and allegedly earned LTCG of Rs. 1370805/- .The transaction of sale was carried out through Maverick Share Brokers (P) Ltd.. a member of BSE. STT was paid on the transaction. The copy of Bank account, Dmat accounts for the period of holding of these shares and statement of account confirmation from Maverick Share Brokers (P) Ltd were furnished to the AO. It may be mentioned that the Depository Participant (DP) verifies the purchases with the company whose shares are purchased. It is only after such verifications are completed with respective companies and the DP is satisfied about the accuracy with regard to the holder, that the DP credits the amounts to the Demat Account. Shares are then ready for trading in electronic platform of stock echanges. Thus, the moment these shares were demated after following the due procedure, all the previous steps starting from purchase culminating in demat form, stood validated as otherwise demat could not have been possible.

As regards sale, the shares were sold through recognized stock exchanges through reputed brokers. The appellant maintained account with Maverick Share Brokers (P) Ltd. STT was paid in all the transactions. The moment sales were effected, the demat accounts were debited. It is submitted for kind consideration that sale through a recognized stock exchange which were electronically operated cannot be manipulated. So also debit and credit entries in the Demat Account which were maintained by reputed and independent DPs. The process involved is automatic transmission of the information through electronic device regarding sale of shares. The sale

12 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

proceeds were then received by account payee cheques/drafts from the brokers where the appellants maintained trading account. These were credited in the bank accounts and recorded in regular books of the appellant in regular course. The bank accounts of the Appellant evidence receipt of sale consideration by account payee cheque/draft. The resultant gains were reflected in the books of accounts and shown in the returns filed in the regular course. Hence there is no scope for disbelieving transactions as bogus.

It is respectfully submitted that there is no material evidence on record against the Appellant except some vague, confusing enquiries sought by the Ld. AO to draw the conclusion which adversely affects the Appellant.

The Ld. AO has not appreciated the fact that there cannot be a sale without a purchase. There was no scope for suspecting these transactions. Therefore, assessment made by Ld. AO and confirmed by Ld. CIT(A) which is predominantly influenced by suspicion is liable to set aside. Reliance is placed on the Judgement of ITAT Hydrebad in the case of Santosh Kumar Goyal (ITA No. 168/Hyd/2011) which was reported on November 6, 2013. The ratio of the said judgement is to the effect that -

“ having been followed by the assesse from the stage of purchase till the shares are Dematted there is hardly any room to doubt or suspect that the transactions in purchase are not genuine.” “observations of the AO that the purchases and sales of shares were made with reference to penny stocks which were purchased at a nominal price and sold at a very high price, since all the sale transactions were made through stock exchanges there is harldy any scope for price manipulation. It is all the more so, since the assesse has paid STT.” “It is not possible to take any adverse view on the basis of mere suspicion that SEBI has initiated some action.” “ considering the absence of any positive corroborative evidence brought on record by the assessing officer to substantiate his allegation of the assessing officer as to the non genuine nature of the transactions, concluded that the

13 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

conclusions of the assessing officer are based on mere suspicion, surmises and conjectures and consequently, his orders cannot be sustained.” Reliance is placed on the following judgments:-

1) Hon’able Rajasthan High Court in the case of CIT v. Sumitra Devi (Raj.) 268 CTR 0351 has held:- (See P.B. of Judgements Pg. No.9-13)

Findings as ultimately recorded by AO had been based more on presumptions rather than on cogent proof. As found concurrently by the CIT(A) and the ITAT, the AO had failed to show that the material documents placed on record by the assessee like broker’s note, contract note, relevant extract of cash book, copies of share certificate, de-mat statement etc. were false, fabricated or fictitious. The appellate authorities have rightly observed that the facts as noticed by the AO, like the notice under Section 136 to the company having been returned unserved; delayed payment to the brokers; and de-materialisation of shares just before the sale would lead to suspicion and call for detailed examination and verification but then, for these facts alone, the transaction could not be rejected altogether, particularly in absence of any cogent evidence to the contrary.(Para7)

In an overall view of the matter, the finding as recorded by the appellate authorities after a thorough consideration of the material on record that the transaction of purchase and sale of shares could not be treated as non- genuine, remains a justified finding on facts; and we are unable to find any substantial question of law worth consideration in this case.(para 8)

In an overall analysis, the findings as concurrently recorded by the CIT(A) and the ITAT, that addition under Section 68 of the Act was not sustainable, remain essentially in the realm of appreciation of evidence. The Appellate Authorities have returned the finding of fact in favour of the assessee after due appreciation of evidence on record, on relevant considerations, and on sound reasonings. The finding neither appears suffering from any perversity nor is of such nature that cannot be reached at all. Hence, no substantial question of law is involved in this appeal.(Para 10) Where shares were sold by assessee for consideration through named stock broker and appellant furnished all the evidence to establish genuineness of transactions, AO was not justified in making addition u/s 68.

2) Hon’ble Rajasthan high Court in the case of CIT v. Pooja Agarwal , 160 DTR 0198 has held as under:- (See P.B. of Judgements Pg. No.14-19) However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into

14 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:-

"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants’s account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant’s case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant.”

15 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

The same was confirmed by CIT appeal, in view of this we are of the opinion that the view taken by the Tribunal as well as CIT is correct.

3) Hon’ble ITAT, Jaipur Bench in the Shri Pramod Jain, Shri Ankit Jain, Shri Sunil Jain, Smt. Nina Jain, Smt. Nisha Jain v. The DCIT has held:- (See P.B. of Judgements Pg. No.20-52)

“Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares: The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima fade the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B. C'. Purohit Group, The AO has also stated in the assessment order itself while discussing the modus opetandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. PK Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purohit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Shri P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K Agarwal in the order of Settlement Commission in the case of Shri Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant"

16 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account.

4) Hon’ble ITAT, Jodhpur Bench in ACIT v. Pankaj Raj Shah (ITA 330/Jod/2011 dated 28.06.2013) has held:- (See P.B. of JudgementsPg. No.53-63)

“We have considered the submissions of both the parties and carefully gone through the material available on record . In the present case, it appears that the assessee purchased the shares of M/s Shree Nidhi Trading Co. Ltd. from market at the price prevailing at that time and those shares were put into DEMAT account. The assessee purchased the shares on 26-062004 and acquired those shares before 17-06-2005 through Stock Exchange. Those shares were reflected in the balance sheet of the assessee for the year ended on 31-03-2005 and 31-03-2006. The holding of the shares was more than one year as shares were sold between the period 2508-2006 to 21-09-2006 at Rs. 15,11,870/-. The assessee also incurred the expenses in the form of Brokerage, Securities Transfer Tax, Service Tax, Stamps etc., those expenses were not doubted by the Assessing Officer. The assessee also furnished the Bank receipt note, Statement of Security Transaction Note, Contract Note etc. Therefore, the transaction was genuine and the Long Term Capital Gain on the sales of shares of M/s Shree Nidhi Trading Co. Ltd., amounting to Rs. 14,59,240/- was rightly claimed as exempt u/s 10(38) of the Act because the assessee fulfilled both the conditions for claiming exemption u/s 10(38) of the Act. The first condition was that transaction of those shares was to be entered into on or after the date on which Chapter VII of the Finance (No.2) Act, 2004 came into force i.e. 01-10-2004 and the transaction was chargeable to Securities Transaction Tax under this Chapter. In the present case, shares were acquired by the assessee on 17-06-2005 through Stock Exchange and put into DEMAT account. When those shares were sold, the assessee incurred the expenses of Rs. 1891/- on account of Securities Transaction Tax and those share were held for more than one year. Therefore, the profit earned on the sale of the shares was Long Term Capital Gain which was exempt u/s 10(38) of the Act. We therefore, considering the totality of the facts of the case as discussed hereinabove are of the view that the ld. CIT(A) rightly deleted the addition made by the Assessing Officer. In that view of the matter, we do not see any merit in this appeal of the Department.

3.0 In the result, the appeal filed by the Revenue is dismissed.”

17 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

5) Hon’ble Bombay High Court in CIT v. Shyam R. Pawar (2015) 54 taxmann.com 108 on a similar issue has held:

“Assessee declared capital gain in sale of shares of two companies-Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held such transaction as bogus and having been done to convert unaccounted money of assesse to accounted income and therefore, made addition u/s 68- On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus- Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted-Held- yes.”

6) Hon’able Gujarat High Court in PCIT v. Ramniwas Ramjivan Kasat (2017) 82 taxmann, com 458 (Gujarat) on a similar issue has held:

Section 68 of the Income-tax Act, 1961- Cash credits (Shares)-A.Y. 2006-07- During relevant year, assesse sold certain shares owned by him- Assessing Officer opined that purchase of shares in question itself was bogus and, thus, there was no question of sale of same-He thus added amount of sale proceeds of shares to assessee’s taxable income-Tribunal noted that shares had been purchased in previous assessment year-It was further found that assesseement for previous assessment year had been taken in scrutiny and in assessment order purchase of shares had been accepted as genuine- Tribunal thus concluded that no addition could be made with aid of section 68 when such shares were sold in relevant assessment year- Whether on facts, impunged order passed by Tribunal did not required any intereference-Held, yes.

7) Hon’able Bombay High Court in CIT v. Smt. Jamnadevi Agarwal [ 2010] 328 ITR 656 (Bom.):

In this case it was clearly held by the Hon’able Court that the fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary evidence was produced to establish the genuineness of the transaction. Further, even the ground that some transactions of shares were off- market transactions , was held to be an invalid ground for holding that the transactions were sham.

Hence, it was made clear that when an assesse, out of a group of assesses which bought same shares is able tto establish the genuineness of transactions entered into by him, he cannot be punished for buying the same shares and thus, addition cannot be made. However, the department is aming to make the addition in the hands of all assesses who bought a particular share/ scrip even if the assesses who traded in such scrip did not

18 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

belong to same group. This contention of the revenue is unparallel to the judgement prounounced.

8) Hon’able ITAT, Kolkata Bench in Dolarrai Hemani v. ITO (ITA 19/Kol/2014 dated 02.12.2016 on a similar issue has held:

“We find that the similar issue had been adjudicated by the co-ordinate bench of this tribunal in the case of DCIT vs Sunita Khemka in ITA Nos. 714 to 718/Kol/2011 dated 28.10.2015 and in the case of ITO vs Rajkumar Agarwal in ITA No. 1330 (Kol) of 2007 dated 10.8.2007 wherein it was held that when purchase and sale of shares were supported by proper contract notes , deliveries of shares were received through demat accounts http://www.itatonline.org 11 ITA No.19/Kol/2014 Dolarrai Hemani, AY 2005-06 maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion / connivance between the broker and the assessee for the introduction of its unaccounted money. 2.9.6. In view of the aforesaid facts and findings and the judicial precedents relied upon , we have no hesitation in directing the ld AO to accept the claim of exemption of LTCG of the assessee arising out of sale of shares of G.K.Consultants Ltd and accordingly allow the ground raised by the assessee in this regard.” 9) Hon’able ITAT, Ahmedabad Bench in Pratik Suryakant Shah & Other v. ITO (ITA 810/Ahd/2015 dated 21.10.2016) on a similar issue has held:

“For the sake of the completeness of the adjudication, even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn. ITA Nos. 810 to 815, 922 to 926/Ahd/2015 Shri Pratik Suryakant Shah & others – Total 11 Appls AYs 200607 & 2008-09 9 18. In the light of the decisions of the Hon’ble Supreme Court in the case of Andaman

19 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.”

10) Hon’able Allahabad High Court in CIT v. Udit Narain Agrawal [2013] 31 taxmann.com 76(All.):

In this case, it was contented by assessee’s counsel that after the allotment of shares, the same were transferred to Demat A/c, remained in demat account during the period of holding and transferred to the demat account of the buyer, itself proves the genuineness of the purchase/sale transaction of shares having regard to the relevant provisions contained in the Depository Act. The transaction made through demat account is in itself an evidence to prove the genuineness of share transaction. Merely because the sale of shares fetched a handsome price, which price is supported by official quotation issued by Magadh Stock Exchange, therefore, there can not be any reason to doubt the genuineness of the sale transaction of the shares. It is settled position of law by the decisions reported in 26 ITR 776(SC), 37 ITR 288(SC), 63 ITR 449(SC) and 1 SOT 90 (Mum) (supra) to support that suspicion even strong enough cannot take the character of evidence.

Considering the fact that the shares were allotted to the assesse which were kept in demat account, the decision was made in favour of assesse.

The ld. A/R thus prayed that the addition made be deleted.

and submitted that the order of the ld. CIT (A) be upheld.

and gone through the orders of the lower authorities. The AO has doubted the

transactions of purchase and sale of shares by the assessee of M/s. Nouvea Multi

Media Ltd. on the basis of information received from the Directorate of Investigation

that an organized racket of generating bogus entries of LTCG in penny stock has

been unearthed as a result of investigation carried out through-out the country,

wherein certain persons were found indulged in providing accommodation entries,

20 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

inter-alia bogus Long Term Capital Gains which is claimed as exempt under section

10(38) of the IT Act by the beneficiaries in order to facilitate the beneficiaries to

convert their black money into white without paying Income-tax. The AO has

narrated the modus operandi of various entry providers which is a general statement

so far as the indulgence of certain persons in providing the accommodation entry of

bogus long term capital gains as well as other transactions. However, in the said

narration of modus operandi there is nothing against the particular transaction of

purchase and sale of shares by the assessee. The AO has specifically mentioned that

during the course of enquiry in certain cases it has come to light that large scale

manipulation has been done in the market price of shares of certain companies listed

on Stock Exchange by a group of persons working as a syndicate for the purpose of

providing entry of tax exempt bogus long term capital gains to large number of

beneficiaries in lieu of unaccounted cash. These observations of the AO in the

assessment order cannot constitute any tangible material or evidence to show that

the transaction of the assessee is bogus being an accommodation entry. The AO in

the show cause notice though referred the statements of Directors/entry operators,

who have operated as entry providers/brokers, however, neither any documentary

reference is made in the show cause notice or any such reference is made in the

finding of the AO while holding the transaction as bogus by availing the

accommodation entry of long term capital gain. The AO has either discussed the

modus operandi of entry providers or the judgments on the issue but has not made

any reference of any material or documentary evidence which reveals that the

assessee has indulged in availing the accommodation entry of bogus long term

capital gain. There is no dispute that once the assessee has claimed the long term

21 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

capital gain from purchase and sale of shares which is exempt under section 10(38)

of the Act, the primary onus is on the assessee to substantiate his claim by

producing the supporting evidence. We find that the assessee is a regular investor

in shares. We also find that in the case in hand the assessee purchased 20,000

equity shares of M/s. Nouvea Multi Media Ltd. through Mawerick Share Broker Pvt

Ltd. who is registered in BSE for a sum of Rs. 6,33,124/- which includes STT, Stamp

Duty etc. vide Bill No. 546 dated 09.01.2008 and 0036 dated 15.01.2008. The shares

were deposited in DMAT A/c with M/s. Alankit Assignment Ltd., Jaipur and the

quantities of 20000 shares were credited on 24.01.2008. M/s. Nouvea Multi Media

Ltd. was listed in stock exchange and the shares were purchased at the rates

prevailing on the date of purchase in BSE. The assessee received 40000 Right

Shares issued by the company later on. We find that the assessee has duly reflected

all these shares in the Books of accounts as an Investment and on sale of shares,

the assessee has claimed exempt LTCG in the return of income for the assessment

year 2010-11. Thus it is clear that 20,000 shares acquired by the assessee on

15.01.2008 in Demat format as it is evident from the Demat Account and reflected in

the Books of account for the year under consideration. We further note that the

assessee produced the copy of purchase bills of these shares along with the bank

statement showing the purchase consideration paid by the assessee through cheque

along with copy of Transaction statement/Demat account, Contract note issued by

the broker, copy of ledger account. The shares acquired by the assessee are duly

reflected in the Demat account of the assessee. Once the shares are dematerialized

and credited in the Demat account of the assessee, the holding of the shares by the

assessee cannot be disputed. It is also not in dispute that assessee sold 20,000

22 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

shares held in the Demat account of the assessee during the year under appeal for a

consideration of Rs. 20,03,929/- which was credited in Bank on 22.03.2010. The AO

has treated the transaction of sale of 20,000 shares as bogus being accommodation

entry but has not doubted the holding of the shares by the assessee to the tune of

20,000 shares in the Demat account of the assessee. Once the assessee has

produced all the supporting evidences which include purchase bill, bank statement

showing the payment of purchase consideration, Demat account, holding of shares

in the Demat account, sale of the shares through Stock Exchange which are also

reflected in the Demat account of the assessee and receipt of the sale consideration

in the bank account of the assessee as it is evident from the bank account,

statement of the assessee, then in the absence of any contrary material or evidence

brought on record by the AO, the transaction of purchase and sale of the shares in

question cannot be held as bogus merely on the basis of the investigation carried

out by the Department in some other cases where some persons were found

indulged in providing accommodation entry. The AO in the entire assessment order

has not made reference to single documentary evidence which can be said to be an

incriminating material against the assessee to show that the assessee has availed

accommodation entry of bogus Long Term Capital Gain. Therefore, the mere

suspicion cannot be a ground for treating the transaction as bogus in the absence of

any evidence or material on record by the AO. In the case in hand the assessee

produced all the relevant documentary evidence to establish the genuineness of the

transaction. Even if the AO doubted the transaction, then to establish that the

transaction is bogus, the AO is required to produce the contrary material evidence so

that the evidence produced by the assessee can be controverted. In the absence of

23 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

such contrary material or evidence brought on record by the AO and the evidence

produced by the assessee is otherwise independently verifiable being the documents

in the shape of bank statement, Demat account, books of account and bills for which

the assessee has no control or say, therefore, the said evidence cannot be

manipulated by the assessee. Once the evidence produced by the assessee is not

prepared or beyond the scope of any manipulation by the assessee, then the

assessee has discharged his onus to prove the transaction of purchase and sale of

shares and consequential capital gain. The Ld. A/R has filed all the possible

documentary evidence relating to purchase and sale of the stock on which the LTCG

was earned. All the details are filed in assessee’s Paper Book and the same were

filed before the Ld. AO. The details filed are as under:

S.No. Particulars Paper Book Page No.

In short, after the AO confronted the appellant with circumstantial evidences the

Ld. A/R filed all possible documentary evidences in his possession. It is clear that

AO has based his addition u/s 68 of the Act on the basis of statement of the entry

operator and information received from the Investigation Wing of the Department.

However in the statement of entry operator no question was ever put to the entry

operator regarding transaction through the companies, through which alleged cash

24 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

of appellant was routed. On one hand the AO has oral statements/oral evidences in

the form of statement of entry operator (never confronted to the appellant); the

appellant has rebutted these oral evidences by filing documentary evidences listed

above. It is a settled law that documentary evidences will always carry more

weight than the oral statements. After the oral statements were available to the

AO, the appellant proved the oral statements to be incorrect by filing documentary

evidences. Thereafter the AO did not prove the documentary evidence to be

untrue/ bogus/ non genuine. The AO never confronted the documentary evidence

to the person whose oral statement was recorded & relied upon. Therefore the

oral statement losses their evidentiary value in light of the documentary evidences

placed by appellant. Even the oral statement is general and does not pin point or

mention appellant name anywhere. Neither does it mention anywhere that cash

from appellant was received & it was same cash which was routed back to the

appellant through bank account. Considering the above documentary evidences, it

clearly out weight the oral evidences relied upon.

6.1. It is settled position of law that addition cannot be made simply on the basis

of statement alone. The same has to be substantiated and corroborated either by

enquiries or by linking it with tangible material/ evidence. It is a settled law that statement, that too of 3rd person, alone cannot be treated as incriminating material

for the purposes of making addition for assessment completed u/s 143(3). It has

been held in many judgments that mere statement u/s 132(4) or u/s 131 is not

sufficient to make an addition. A statement made must be relatable to some

25 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

incriminating material or the statement must be made relatable to material by

subsequent inquiry/investigations.

Hon'ble High Court of Rajasthan in the case of Mantri Share Brokers PL ( 96

taxmann.com 279) have held as under:

Section 69B of the Income-tax Act, 1961 - Undisclosed investments (Burden of proof) - Whether where except statement of director of assessee-company offering additional income during survey in his premises, there was no other material either in form of cash, bullion, jewellery or document or in any other form to conclude that statement made was supported by some documentary evidence, said sum could not be added in hands of assessee as undisclosed investments - Held, yes Paras 10-11] [In favour of assessee]

Further, Hon'ble Delhi High Court in case of Harjeev Agarwal (2016) 70

taxmann.com 95 (Delhi) held thus:

"...A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act

26 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

are read in the context of Section 158BB (1) read with Section 158B (b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded...."

The Hon’ble High Court in the above case has also observed that statements

recorded under Section 132 (4) of the Act do not by themselves constitute

incriminating material.

6.2. Further, the Ld. A/R has also taken a legal plea that no cross

examination of the person, whose statement was relied upon, was granted

despite specific request made to the AO. The aspect of not granting cross

examination has specifically been answered by the Hon'ble ITAT Jaipur in the

case of Shri Pramod Jain & Others in ITA Nos. 368 to 372/JP/2017 dated

31.01.2018. The relevant extract on the issue at page 24 to 28 are as under:

"As regard the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:-

27 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

"5. We have heard Mr.KavinGulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnana, learned senior counsel who appeared for the revenue.

6.According to us, not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner as based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he as specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which could not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was no for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealer and what extraction the appellant wanted from them.

28 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in para 46 as under:-

"46. ln situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expense and it was their liability as per their mutual understanding with the assessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI of by the department that Assessee-company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. NirmlalaSundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee- company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the

29 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

presumption that assessee is bound to have some large share in so- called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee."

Therefore, in the absence of any contrary material or evidence brought on record by

the AO, the transaction of purchase and sale of the shares in question cannot be

held as bogus merely on the basis of Report of the Investigation Wing of the

Department in some other cases where some persons were found indulged in

providing accommodation entry, and further it cannot be held that the assessee has

introduced his own unaccounted money by way of bogus long term capital gain.

6.3. The issue of penny stock and consequent additions made has elaborately

dealt with by ITAT Jaipur Bench in the case of Pramod Jain & Others (supra) and

relying on the decision of Hon’ble Rajasthan High Court in the case of CIT vs.

Pooja Agarwal, 160 DTR 0198 (Raj.) deleted the addition by observing as under

:-

"In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any

30 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.

cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/ merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account."

On further appeal by the department to the Hon’ble Rajasthan High Court, the

Hon’ble High Court by referring to the decision of CIT vs. Pooja Agarwal in DB IT

Appeal No. 385/2011 dated 11.09.2017 (Raj)(HC) held that no substantial question

of law arise in this case.

6.4. Thus in view of the above discussion and taking into consideration various

documentary evidences produced by the assessee in support of his claim and further

relying upon various decisions of this Tribunal as well as the decision of Hon’ble

Jurisdictional High Court including the decision in case of CIT vs. Pooja Agarwal

(supra) as well as in case of PCIT vs. Pramod Jain & Others (supra), we allow the

claim of exemption under section 10(38) of the Act and accordingly delete the

addition made by the AO. The order of ld. CIT (A) is set aside.

consequential to the issue involved in ground no. 2, therefore, when we have given

a finding that the transaction of purchase and sale of shares and consequential Long

Term Capital Gain cannot be treated as bogus, then the addition made by the AO on

31 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur. account of notional commission paid treating the same as undisclosed expenditure under section 69C will not be sustainable being consequential hence the same is deleted. 6. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open court on 31/08/2022.

Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ jkBkSM+ deys'k t;arHkkbZ ½ (RATHOD KAMLESH JAYANTBHAI) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 31/08/2022. Das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Manohar Lal Chugh, Jaipur. 2. izR;FkhZ@ The Respondent- The ITO, Ward 6(1), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 312/JP/2021}

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

32 ITA No. 312/JP/2021 Shri Manohar Lal Chugh, Jaipur.