TARA SONI,DAUSA vs. ITO WARD, DAUSA, DAUSA
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Income Tax Appellate Tribunal, JAIPUR BENCHES, ‘SMC JAIPUR
Before: Honble SHRI SANDEEP GOSAIN
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, ‘’SMC” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ds le{k BEFORE: Hon’ble SHRI SANDEEP GOSAIN, JUDICIAL MEMBER vk;dj vihy la-@ITA No.13/JP/2024 fu/kZkj.k o"kZ@Assessment Year : 2015-16 Mrs. Tara Soni cuke The ITO Vs. W/o Shri Jagdish Prasad Soni Ward-Dausa J-423, Sangam Vihar Colony, Dausa 303303 Dausa LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ARFPS 6554 C vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by : Shri Rohan Sogani, CA jktLo dh vksj ls@Revenue by: Smt. Monisha Choudhary, Addl. CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 24/07/2024 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 17/09/2024 vkns'k@ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 08-11-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2015-16 raising therein following grounds of appeal. ‘’1. In the facts and circumstances the case and in law, Id. CIT(A)/ NFAC, has erred in confirming the action of the Id. AO, in treating the trading in securities as Bogus Transaction, thereby disallowing the exemption of Long Term Capital Gains of Rs. 5,42,187 and making addition under Section 69A,to the income of the assessee. The action of the Id. CIT(A)/NFAC in
2 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA confirming the actions of Id. AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by considering the gain on sale of listed equity shares as long- term capital gains and allowing consequential relief by deleting the entire additions of Rs. 5,42,187/-. 2. In the facts and circumstances the case and in law, Id. CIT(A) NFAC, has erred in confirming the action of the Id. AO, in making additions of Rs. 27,109/- as undisclosed expenditures under Section 69C, on account of alleged commission paid on obtaining Long Term Capital Gain. The action of the Id CIT(A)/NFAC in confirming the actions of Id. AO is illegal unjustified, arbitrary and against the facts of the case. Relief may please be granted by deleting the additions of Rs. 27,109/-. 3. In the facts and circumstances the case and in law, Id. CIT(A) NFAC, has erred in confirming the action of the Id. AO, in taking shelter of irrelevant considerations for coming to his prejudiced conclusion of treating the transaction as SHAM The action of the Id. CIT(A)/NFAC in confirming the actions of ld. AO is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the entire assessment order being based on irrelevant considerations as well as based on surmises and conjectures. Entire addition of Rs. 5,69,296 may please be deleted. 4. In the facts and circumstances of the case and in law, Id CIT(A)/NFAC has erred in, confirming the action of the f AO, in making additions to the income of the assessee without providing all the material used against the assessee for making additions of Rs. 5,69,296. The action of the Id. CIT(A)/NFAC in confirming the actions of Id. AO is illegal, unjustified arbitrary and in violation of principles of natural justice Relief may please be granted by quashing the assessment order passed by ld. AO and confirmed by Id. CIT(A)/NFAC being in violation of principles of natural justice.
3 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA 2.1 Brief facts of the case are that the assessee, an individual, for the year under consideration, filed her Return of Income on 29.03.2016, declaring total income of Rs.2,88,240 wherein the assessee claimed exemption of LTCG u/s 10(38) of Rs.5,42,187 on the scrip of M/s Eins Edutech Ltd. The Assessment was completed u/s 143(3), vide order dated 30.11.2017, wherein the returned income was accepted. It is noted that the case was then subjected to proceedings u/s 263 of the Act and PCIT- Alwar passed order u/s 263 dated 11.12.2019 setting aside the assessment with the direction to AO to examine the issue of LTCG on scrip of M/s Eins Edutech Ltd. In this case, the AO, in the set aside proceedings, vide order dated 19.09.2021 denied the exemption claimed by the assessee u/s 10(38) of the Act. It is noted at para 9 & 10 at page 23 of the assessment order wherein the AO observed that (9) Under these circumstances, it is held that assessee has introduced her income from undisclosed sources in a planner manner through colourful device. The LTCG of Rs.5,42,187/- claimed as exmpt u/s 10(38) of the Act cannot be allowed and is added back towards assessee’s taxable income under section 69A of the Act. (10) In addition to this fact that the accommodation entries regarding sale of shares have been obtained by the assessee after paying certain charges i.e. commission as in the case with al such penny stocks involving accommodation entries in the form of bogus LTCG. As these charges are not recorded in the books, such commission is presumed @ 5% of the quantum amount
4 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA of Rs.5,42,187/-. The amount of commission paid is accordingly arrived at Rs.27,109/- is added as unexplained expenditure u/s 69C of the Act for arranging accommodation entries. Conclusively, the AO made addition of Rs.5,42,187/-u/s 69A and Rs.27,109/- u/s 69C of the Act making the total addition of Rs.5,69,296/-. 2.2 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who confirmed the action of the AO by observing as under:-
‘’6.0 In view of the above detailed analysis of the transaction by the AO which has not been countered by the appellant factually, the view taken by the AO seems well founded. The appellant has taken recourse to legal arguments and case laws but not explained the facts/queries/issues raised by the AO. While the AO’s addition is based on documents discovered in a search action supported by statements recorded and investigations carried out by the Investigation Wing of the Department, the appellant reply is mostly academic in nature. Hence, the AO’s well reasoned order is upheld and the ground of appeal of the appellant is dismissed.’’ 2.3 During the course of hearing, the ld. AR of the assessee has filed a written submission praying therein that the addition confirmed by the ld. CIT(A) has no merit and the same deserves to be deleted in toto. ‘’SUBMISSIONS 1. During the assessment proceedings, original and set aside, the assessee placed all the above evidences on record. Ld. AO did not point out any defect or inherent weakness or doubted the authenticity of any of the evidences or explanation. Further, ld. AO has not held that the material documents placed on record by the assesse like broker's bills, contract notes, demat statement etc. were false, fabricated or fictitious.
Further, in the entire order, ld. AO, nowhere stated that the assessee did not fulfill any of the conditions as contained in section 10(38) of the IT Act, 1961.
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Even after accepting all the relevant evidences, being authentic and genuine, ld. AO was carried away by the general study report of the Investigation Wing, Kolkata. AO rejected the claim of the assessee in the summary manner. AO developed a preconceived notionthatanytransaction of purchase and sale of shares wherein profits are generated are nothing but penny stocks. 4. It is undisputed that the transaction of sale of shares of EEL was done through Recognized Stock Exchange. It is also undisputed that the shares were quoted at the time of purchase as well as sale. Attention is drawn to the fact that in the year 2005, an amendment was brought about in section 43(5) of Income Tax Act through insertion of clause (d) wherein derivative transactions carried out through recognized stock exchange were not henceforth considered to be speculative transaction. In this regard, Hon’ble Finance Minister, Mr. P Chidambaram on the floor of the Parliament while setting out the reason for such amendment in his budget speech mentioned as under: “As Hon’ble Members are aware, there have been significant developments in the past decade in the capital market including the introduction of trading in financial derivatives. We have also established a transparent system of trading with adequate safeguards for audit trail. Hence, I propose to amend the Income Tax Act to provide that trading in derivatives in specified stock exchanges will not be treated as “speculative transactions” for the purposes of the Income Tax Act.”
Thus, clearly the government itself was of the view that transactions through Recognized Stock Exchange cannot in any way be doubted, as there were robust systems, checks and balances, audit trail which was put in place on these Recognized Stock Exchanges. Doubting the present transaction of the assessee would be contrary to the confidence instilled on such transactions by the Government.
It is pertinent to note that the process at Stock Exchange Network is under:
i. As per Stock Exchange (SE) Regulations, shares or securities of any of the listed companies who has signed listing agreement with SE are dealt on the stock exchange platform through a registered broker only. The purchase and sale transactions on the stock exchange platform are with the stock exchange and settled through the clearing system. Payment is received from brokers or paid to brokers online to or by the exchange clearing system. ii. When any customer orders the broker to sell any scrip, the stock broker sells the shares on trading system through the exchange terminal and generate contract note. On sale, the shares are delivered from the customer's demat a/c to the stock broker's demat a/c who in turn transfers the shares to stock exchange pool a/c, who on settlement day
6 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA delivers to the buyer's demat a/c. On the other side, the buyer pays the price as per contract note to his broker who pays to the SE who then transfers the amount to the seller's broker on settlement day. Thus, the seller and the buyer or their brokers do not have direct relation or dealing with each other. Nor they know the buying or selling parties or the brokers. The customers deal with their respective brokers and brokers deal with SE or the clearing system.
iii. In nutshell, the buyer’s broker makes payment to SE and seller’s brokers deliver shares to the SE. Thereafter, settlement is done by clearing system which transfers amounts online to seller’s brokers bank account. Shares are also transferred to buyer's brokers demat account. These respective brokers, in turn, pays to the sellers and transfers shares to the demat account of the buyer. Hence, sellers and buyers do not directly deal or come in contact nor their brokers come in direct contact and neither of them know the contra party.
iv. The whole system of buying and selling of shares done on the stock exchange platform is faceless and SE platform deals with brokers only and parties deal with their brokers. For example, shares sold by X through his broker which shares are bought by ABCD broker for XYZ or vice a versa. All these parties are not known to each other. Even the broker does not know, the shares sold by him are delivered to which brokers or which buyer. The broker can act only for the parties who are registered with him after necessary KYC and due diligence. Nobody can directly deal in shares on stock exchange. 7. Likewise, in the case of assessee also the assessee or her broker did not know who the buyers were. The assessee had no connection or nexus with the buyers. The assessee genuinely undertook the sale transaction and complied with the relevant law.
It is clearly discernible from the assessment order that ld. AO placed sole reliance on the general observations of Investigation Wing, Kolkata, developed a preconceived notion and concluded the assessment. Ld. AO was so hell-bent to reach to his premeditated conclusion that he did not follow the procedure of assessment as required by the law in true spirit. Section 142 (2) of the Act provides that for the purpose of obtaining full information in respect of income or loss of any person, the AO may make such enquiry as he considers necessary. Meaning thereby any information received from the Investigation Wing is required to be corroborated and affirmed during the course of assessment by the AO. Separate and independent enquiry is required to be made.
In the case of the assessee ld. AO could have undertaken the following:
a. Summoning assessee u/s 131 to know about the basic facts of transaction and history of the investments made by the assessee in earlier years and subsequent years,
7 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA b. Serving notices u/s 133(6) and examination of the brokers of the assessee, with the screen shot of the time and date stamp of transactions, liquidity of the stock, when the order for purchase was executed through broker on exchange and the order for sale was entered by the broker and on online platform,
c. Obtaining the details of the transaction from stock exchange and details of counter parties purchasing these shares. It would have given lead to ld. AO of the accommodation entry providers and exit providing companies
d. Obtaining evidences like date and time of stamped sale transaction at the respective stock exchange. Time and date stamped transaction would have shown that the broker of the assessee has entered into a synchronized trade with the broker of the buyer.
e. Carrying out assessment as per the standard operating procedure set up by the department for the guidance of assessing officer to investigate the penny stock cases.
However, in the present case, the entire assessment proceedings were without enquiry for the reason best known to ld. AO. Ld. AO did not make any effort to collect the relevant information, specifically with reference to the assessee. All the general observations of Investigation Wing, i.e. a separate department which has not been assigned assessment work, was relied for reaching to conclusion.
Ld. AO was totally clueless as he was not aware of whose cases were investigated, how such cases were related with the assessee, whether action for initiating prosecution against the companies and all others allegedly involved in bogus transactions was taken. None of the so called evidences collected or statements recorded by Investigation Wing were confronted to assessee. The assessee was not provided statements if any relied upon and opportunity to cross examine. It was not mentioned in the AO whether any further action was taken against EEL or all other person alleged to be involved. The said situation creates a doubt on the fact that was any enquiry really conducted by the Investigation Wing.
Ld. AO miserably failed to point out even single evidence which could suggest that the transaction undertaken by the assessee had any correlation with those features of penny stock. Ld. AO failed to bring to the fore following points:
8 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA a. How, when and where the assessee hatched the alleged conspiracy in collusion with the broker or the investee company or the counterparty for the purchase and sale of said shares? b. Modus operandi adopted for rigging the price of the shares. c. Name of the trusted confidante of the broker to whom cash, as alleged by the ld. AO, was handed over by the assessee. d. How did assessee earn/generate so called unaccounted money? e. Where the name of assessee or her broker or mention of her transaction were referred in any of such investigation report? Thus, in absence of such enquiries, the conclusion of alleged fraud, only on the basis of general report is unsubstantiated and unwarranted.
Ld. AO placed reliance on the report of the Investigation Wing which seem to have reference of statements of various persons involved in penny stocks. The statements remained unsubstantiated by the ld. AO. Such statements, if any, are mere oral testimony of a person. Principles of natural justice were not followed and assessee was neither provided the copy of statements nor opportunity to cross examine.
The decision of Hon’ble Supreme Court in the case of Andaman Timber Industries (CIVIL APPEAL NO. 4228 OF 2006) is relied upon wherein it was held as under:- “…not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes theorder nullity in as much as it amounted to violation of principles of natural justice because of which the assessee was adversely affected”
Hon’ble Supreme Court further in the case of PCIT vs Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC) dismissed SLP filed against the decision of Hon’ble Gujarat High Court in the case of PCIT vs Parasben Kasturchand Kochar [2021] 130 taxmann.com 176 (Gujarat). Hon’ble Gujarat High Court held that there was no substantial question of law and upheld the finding of the Tribunal (in Para 4). Hon’ble Tribunal held that in a case where assessee produced all the evidences and addition was made on the basis of statements recorded by Investigation Wing, which were neither confronted nor the assessee was allowed opportunity to cross examine, such addition could not be sustained (Para 2): "9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.
9 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. 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” 16. Reliance is also placed on the decision of Hon’ble Supreme Court in the case of CIT vs Odeon Builders (P.) Ltd [2019] 110 taxmann.com 64 (SC) Hon’ble Supreme Court held that if the addition was based on third party information gathered by Investigation wing then addition cannot be made unless such information is provided to the assessee and opportunity of cross examination is provided more so when assessee placed on records all the evidences. The relevant findings are as under:
Headnote: Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disallowed - Commissioner (Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return - He held that purchases made by appellant was acceptable and disallowance was to be deleted - Tribunal dismissed revenue's appeal - High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings - Whether no substantial question of law arose from impugned order of Tribunal - Held, yes [Para 4] [In favour of assessee]” 17. Before Hon’ble Jurisdictional Rajasthan High Court in the case of PCIT vs Sanjay Chhabra D.B. ITA No. 22/2021 it was submitted that the Tribunal erred in holding that the information and statements recorded by Investigation Wing could not be taken into consideration while making assessment as such material was not disclosed nor an opportunity was accorded for cross-examination of the assessee. It was submitted before the Hon’ble Court that Tribunal did not examine the case on touchstone of human probability. However, Hon’ble High Court upheld the order of the Tribunal. It was considered that prejudice was caused to the assessee as he should have been allowed an opportunity of being heard and of rebutting the evidences against him. It was also impliedly held that direct evidences weigh more than circumstantial evidences and human probabilities. The relevant extract of order is as under:
10 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA “..The Tribunal by impugned order has categorically held that the material information received by the Assessing Officer from the investigation wing alongwith certain statements recorded by DBIT Investigation, Calcutta could not be taken into consideration as that material was not disclosed nor an opportunity was accorded for cross-examination of the Assessee. This finding recorded by the Tribunal cannot be said to be perverse or suffering from any patent illegality. Learned counsel for the Revenue could not satisfy us with reference to any judgment on this aspect that even without disclosing any material to the Assessee and without allowing him proper cross- examination, such undisclosed and unverifiedmaterial could be taken into consideration for the purposes of addition…”… “..Learned counsel for the Revenue relying upon the judgment passed by the Supreme Court in the case of Sumati Dayal Versus Commissioner of Income Tax, Bangalore reported in AIR 1995 SC 2109 would submit that the Tribunal has not examined the case on the touchstone of human probability…” “..In view of the above consideration, we are of the view that this appeal does not involve any substantial question of law and is, therefore, dismissed…”
It is submitted that ld. AO’s conclusions and findings against the assessee were chiefly because of the astounding jump in the share prices within the span of 1 year.Ld. AO has also tried to analyze the rise and fall in the market value of shares of EEL by simply relying on the information available in the public domain. It is submitted that ld. AO is not an expert in analyzing the share market outcomes neither he has relied on the report of any expert. Ld. AO has not proved the authenticity of the data analyzed by him.Ld. AO predominantly proceeded on the basis of analysis of the financials of EEL. According to his interpretation financials of companies do not justify such phenomenal rise in the market price of shares. In this regard it is submitted that investments many a times are done looking at the future prospects rather than on the basis of financial position as on the date of making such investment.
Ld. AO characterized EEL as a company with almost no business and with losses (AO Page 20). It is pertinent to note that many loss making companies are trading at a high price in the stock exchange. Also Zomato, again a loss making company, announced its IPO on 14.07.2021 at a price band of Rs. 72 to Rs.76. Such issue was oversubscribed 40.38 times.
Ld. AO alleged that the face value of shares was splitted after manipulating the market prices of the shares to a high level (AO Page 20). It is worth mentioning that Regulated Stock Exchange is a free market where the investors do not have any control over price. It is submitted that share prices are dependent upon various variables Some of these variables are past performance on varied matters whereas some of these variables are dependent on future prospects. If the approach of ld. AO is applied to eCommerce
11 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA companies viz Flipkart, Snapdeal, etc then their valuation, in the wisdom of ld. AO, would be bogus.
Ld. AO merely on the basis of similarity of the chart of closing price of the company (downloaded from Money control website) and chart of a penny stock company ( AO Page 20) concluded that EEL is a penny stock and that its price was rigged by operators for giving accommodation entries in form of bogus LTCG or STCL to various assessees. In view of above it is submitted that just because both the charts are having same patterns , EEL cannot be judged as a penny stock. Without any specific findings of penny stock, only on basis of circumstances it cannot be concluded that EEL is a penny stock.
Ld. AO alleged that the shares were purchased off market and not on exchange (AO Page 21). In this regard it is submitted that shares were purchased in physical form but on stock exchange. The shares off market could be purchased either through allotment by the company which is undisputedly not in the case of assessee or through a person but in that case broker is not involved and does not issue such a bill. Hence, the shares were purchased through stock exchange only. The shares were of a company which was listed and were purchased through a registered broker. Both the company and broker were regulated by SEBI. The bill was having all the particulars as suggested by SEBI. Therefore, no adverse inference can be drawn.
Ld. AO adversely viewed the fact that the shares were dematerialized just before sale (AO Page 23). In this regard, it is submitted that the assessee was not having Demat A/c at that time of purchase as it was not compulsory to have one in those days. As soon as Demat A/c was opened i.e on 30.12.2014, the shares were dematerialized in a week’s time [PB 5,7-8]. It is not the case that the assessee was having Demat A/c still the assessee purchased shares in physical form. Thus, no adverse inference can be drawn.
Ld. AO in the entire assessment order did not discuss anything about conducting any enquiry with regards to the so called exit providers. However, in Para 8.1 c) (AO Page 22) ld. AO mentioned that the counter parties in case of assessee were Surabhi Dealmark Private Limited and Vindyavasini Agency Private Limited. Notices u/s 133(6) were served, however, ld. AO did not make any effort to collect the relevant information, specifically with reference to the assessee. All the general observations of Investigation Wing, i.e. a separate department which has not been assigned assessment work, was relied for reaching to conclusion. It is submitted that merely on the basis of the information received from Internet it cannot be concluded that all the companies registered with ROC, Kolkata are involved in bogus LTCG scam. Ld. AO did not conduct any enquiry to reach to the root of the matter of assessee’s case. Hence, such vague and uncorroborated information cannot be used against the assessee.
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If at all the method of investing, as suggested by the ld. AO, is considered then there would not have been any investment taking place in startups in our country.
It is submitted that ld. AO has just made assumptions whereas there is nothing on record to show that the broker of assessee was suspended by SEBI or was involved in alleged scam.
It is submitted that the order of ld. AO itself proves that almost NIL efforts of his own were made by him to reach to his own conclusion. It is submitted that out of order of 34 pages, ld. AO at pages 1 to 3 reproduced the general information of the asessee’s case, pages 4 to 13 reproduced general characteristic of penny stocks, pages 14 to 20 reproduced charts and financials of the company, page 24 reproduced reply of show cause notice, pages 25,26,29 and 30 reproduced certain case laws, page 27 and 28 reproduced SIT report. In view of above it is submitted that reliance on the generic reports without further corroboration on the basis of cogent material, do not justify the conclusions of ld. AO that transactions were bogus and sham.
Ld. AO has not highlighted single pinpointed evidence against the assessee. It is submitted that the explanation given by the assessee should be considered objectively before an officer takes a decision to accept it or reject it. The Department cannot act unreasonably and reject the explanation. Before the Department rejects any explanation, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. In the absence of something which showed that the "explanation was inherently improbable" the explanation deserves to be accepted. If the explanation was "fairly satisfactory" the same deserves to be accepted. All these legal propositions have been propounded by the Hon'ble Apex Court in the case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112.
28 The explanation furnished by the assessee needs to be considered objectively and the explanation given cannot be rejected arbitrarily or capriciously, without sufficient grounds, on suspicion or on imaginary or irrelevant grounds. Sona Electric Co v. CIT (1985) 152 ITR 507 (Del.); Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC).
Unless any evidence, direct or indirect, is brought to the fore by the ld. AO which showed that the sale proceeds of shares so received actually belonged to the assessee, no
13 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA addition can be made to the income of the assessee merely on suspicion. Similar ratio was laid down by the Hon’ble Jurisdictional High Court in the case of Shubh Mines Private Limited (Income Tax Appeal No. 96/15), vide its order dated 03.05.2016. Relevant Para of the said order is set out hereunder for the sake of convenience: “…In the considered opinion of this court, in absence of any cogent evidence on record establishing that the money shown to have received as share application money, was as a matter of fact, unaccounted money belonging to the assessee company, the finding arrived at by the AO, which is based on suspicion, has rightly been held not sustainable in the eyes of law…”
Ld. AO is expected to decide the case on the basis of evidence and proof and not suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidences produced by the assessee.
It is submitted that ld. AO has not mentioned about any action, being taken by the Income Tax Department against the purchaser of such shares and outcome of such action in the hands of the purchaser. Absence of any such mention leads us to believe that the transactions of purchase were found fully explained in the hands of the purchaser. If that is so there cannot be any case of the ld. AO that the amount invested for purchase of shares belonged to the assessee.
It is submitted that the legal evidences produced by the assessee has to guide the decision in the matter as the courts of law are bound by evidences and not the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that might have surfaced during investigations. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part to this scam. The chain of events and the live link of the assessee's involvement in the scam should be established. The allegation implies that cash was paid by the assessee and in return the assessee received LTCG, which is exempt from income tax, by way of cheque through banking channels. This allegation that cash had changed hands has to be proved with evidence, by the revenue
Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures, totally disregarding the documentary evidence. The Hon’ble Supreme Court in the case of Durga Prasad More [1971] 82 ITR 540 held that apparent must be considered real unless proved contrary.The Hon'ble Supreme Court in the case of Umacharan Shaw & Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannot take the place of evidence.
14 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA
The Hon'ble Supreme Court also in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: “Adverting to the various probabilities which weighed with the ITO might be observed that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by 'S' and the notoriety achieved by 'D' as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who mighthave been indulging in smugglingoperations, without an iota of evidence inthat behalf. The mere possibility of theappellant earning considerable amounts inthe year under consideration was a pureconjecture on the part of the ITO and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,—this also was a pure conjecture or surmise on the part of the ITO. As regards the disclosed volume of business in the year under consideration in the head office and in branches the ITO indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which itshowed a net loss of about Rs. 45,000. The ITO indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the ITO was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, a it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each.”
In the case of Dhakeshwari Cotton Mills Ltd. (1954) 26 ITR 775 (SC), of order, Hon’ble Supreme Court laid down the following propositions in the matter of utilization of adverse evidence and material collected against the assessee: a. Income Tax Officer is not bound by the technical rules of evidence as contained in the Indian Evidence Act. He can act on the material which may not be considered as evidence under the Evidence Act. b. Although his powers are wide, the Assessing Officer must act in accordance with the Principles of Natural Justice. This postulates that he cannot make use of the material or evidence unless tested in cross examination.
15 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA c. Any conclusion which is based on surmise, suspicion and conjectures is not the outcome of a fair hearing.
Transactions undertaken by the assessee were absolutely in accordance with the procedure laid down in the law and fully evidenced. No defects could be pointed out by the ld. AO. Therefore, these transactions must be accepted as genuine. Reliance is placed on the ratio laid down by the Hon’ble Supreme Court in the case of Daulat Ram Rawatmull (1973) 87 ITR 349 (SC), Wherein it was held that the onus of proving that the apparent was not real was on the party who claimed it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising interference to that effect. Thus, merely because there is some general tendency of few traders in rigging up the market, the same should not deprive the assessee from profits arising from genuine sales which had actually resulted in LTCG under section 10(38).
Hon’ble Supreme Court in the case of Sunita Dhadda vide its recent order dated 28.03.2018, in SPECIAL LEAVE PETITION (CIVIL) Diary No(s). 9432/2018, upheld the ratio laid down by Hon’ble Rajasthan High Court and also Hon’ble ITAT, Jaipur Bench, that if the AO wants to rely upon documents found with third parties, the presumption u/s 292C against the assessee is not available. As per the principles of natural justice, the AO has to provide the evidence to the assessee and grant opportunity of cross examination. Secondary evidences cannot be relied on as neither the person who prepared the documents nor the witnesses are produced. The violation of natural justice renders the assessment void. The Department cannot be given a second chance.
Under similar circumstances, in addition to above referred cases, in the following further cases allegation of penny stock was quashed and LTCG was found genuine.
A. Hon’ble Jurisdictional High Court
A Attention is drawn towards the judgment of Hon’ble Rajasthan High Court in the case of Pooja Agarwal, ITA 385/2011 and PCIT vs Pramod Jain, DB ITA No. 209/2018 wherein it was held that no addition can be made if the following conditions are satisfied: ‘’(a) The payments and receipts are through banking channel. (b) There is no trail which could substantiate that the cash has flown back to the assessee. © The transactions is supported by documents appear to be genuine transaction. (d) The statements recorded do not have a clear and a distinct remark about the assessee so as to challenge the genuineness of the transaction.’’
16 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA (b) In the case of Smt. Sumitra Devi [2014] 49 taxmann 37 (Rajasthan), evidences in the nature of broker's note, contract note, relevant extract of cash book, copies of share certificate, demat statement etc were produced by the assessee before AO for the claim w.r.t LTCG, but AO disregarded such evidences and made addition under section 68. Hon’ble Jurisdictional High C ourt of Rajasthan, deleted the said additions and held that “True it is that several suspicious circumstances were indicated by the PCIT but then, the findings as ultimately recorded by him had been based more on presumptions rather than on cogent proof. As found concurrently by the CIT(A) and the Tribunal, the PCIT 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, demat statement etc. were false, fabricated or fictitious. The appellate authorities have rightly observed that the facts as noticed by the PCIT, like the notice under s, 133(6) to the company having been returned unserved, delayed payment to the brokers, and dematerialization 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. 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”
© Hon’ble Rajasthan High Court in the case of CIT vs Pushpa Malpani [2012] 20 taxmann.com 597 (Rajasthan) held as under: “…3. Upon hearing learned counsel for Revenue and perusing impugned order, we find that whether or not sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI at the time of transaction and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. In our view, present appeal does not raise any question of law, much less any substantial question of law…”
B. Hon’ble Other High Court a. Hon’ble Delhi High Court in the case of PCIT vs Krishna Devi [2021] 126 taxmann.com 80 (Delhi) categorically noted that the Court has to decide the issue on the basis of evidence and proof and not 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 assessee. If the revenue has failed to bring evidence on record that money changed hands and there was agreement to convert unaccounted money mere reliance on the report of investigation without further corroboration does not justify the conclusion that the assessee obtained an accommodation entry. Relevant extract is as under:
17 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA “…11…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 findingsof 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. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. 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. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon
18 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in lightof the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order…” b) In the case of Shyam R. Pawar [2015] 229 Taxman 256 (Bombay), assessee declared certain capital gain on sale of shares of two companies. AO observing that for the impugned penny stock, assessee had transacted through the broker at Calcutta and the entities/companies, whose shares were traded, were not having sufficient business activities justifying the increase in their shares prices. Therefore, he held that certain operators of the companies and brokers devised a scheme to convert unaccounted money of the assessee to accounted income and the assessee utilized the scheme. AO, thus, disallowed the assessee's claim of earning capital gain and made addition under section 68. Hon’ble Bombay High Court upheld the order of Hon’ble ITAT Mumbai Bench wherein it deleted the said additions. Hon’ble High Court held that “The contract notes in Form.A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. c) Hon’ble Punjab and Haryana High Court in the below mentioned cases:. (a)PCIT v. Prem Pal Gandhi vide order dated 18.01.2018 ITA.95.2017 (b) PCIT v. Hitesh Gandhi vide order dated 16.02.2017 ITA No. 18 of 2017 (O&M) In these cases, as in the present case, for the entire transactions of sale entered by assessee, entire trail of documents were submitted. Hon’ble Punjab and Haryana High Court gave credence to such documentary evidence and gave a categorical finding that the concerned departmental authorities could not, at any stage,
19 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA “progress beyond the stage of suspicion”. It was also emphatically stated that no defects could be pointed out in the trail of documents by the concerned departmental authorities. C. Hon’ble Jurisdictional Jaipur ITAT
a) The case of the assessee is squarely covered in his favour by the decision of Hon’ble Coordinate Jaipur Bench in case of Kota Dal Mills vs DCITITA No. 997 to 1002/JP/2018 & 1119/JP/2018. Under identical circumstance, where it was observed that addition was confirmed based on the report of DDIT (Inv) Kolkata, the addition was held to be not sustainable as the same was based merely on suspicion. Hon’ble ITAT observed the following:
There was no direct allegation or admission of the person, whose statements were recorded, of providing accommodation entry to the assessee. The chain of transaction and flow of money from one entity to another entity and finally to the assessee was not established. Assessee produced all relevant evidences. No link was found in the documents produced by the assessee and paper companies. Except statements of persons AO has not brought on record any other material to controvert or disprove the evidences produced by the assessee. No documentary evidence was either gathered or referred in these reports. Even if the reports are taken into consideration then they are nothing but narration of the statements of various persons during investigation. CBDT issued Circular and directed the department to concentrate and focus on collecting documentary evidences disclosing undisclosed income instead of obtaining the statement and then support their claim merely on the basis of statement. Statement recorded by Investigation Wing are not based on any documentary evidence so as to have an evidentiary value for sustaining addition. All the proceedings conducted by Investigation Wing were at the back of the assessee and hence statements which is the foundation of the report of Investigation Wing as well as the assessment order cannot be accepted in absence of giving opportunity of cross examination to the assessee.
20 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA b) DCIT vs Prateek Kothari – ITA No. 159/JP/2016 In the said case assessment was completed by the AO relying solely on the information of Investigation Wing. Such information was not provided to the assessee and opportunity of cross examination was also not provided. The addition was held to be unjustified and it was held that the principles of natural justice were violated.
Shri Manohar Lal Chugh, ITA No. 312/JP/2021, Jaipur ITAT [Dated 31.08.2022] Smt. Saroj Parwal, ITA No. 753/JP/2019, Jaipur ITAT [24.02.2022] Late Shri Satpal Singh vs ACIT – ITA No. 289/JP/2020 dated 14.10.2021 Nilesh Agarwal HUF vs ITO – ITA No. 223/JP/2020 dated 09.02.2021 Ashok Agarwal vs ACIT – ITA No. 124/JP/2020 dated 18.11.2020 DCIT vs Sanjay Chhabra – ITA No. 47 to 51/JP/2020 dated 19.08.2020 DCIT vs Saurabh Mittal – ITA No. 16/JP/2018 dated 29.08.2018 ITO vs Kapil Mittal – ITA No. 17/JP/2018 dated 29.08.2018 Om Prakash Modi vs DCIT – ITA No. 402&203/JP/2017 dated 24.08.2018 JVS Foods Pvt vs DCIT – ITA No. 133/JP/2016 dated 16.07.2018 Vivek Agarwal vs ITO – ITA No. 292/JP/2017 dated 06.04.2018 PurushotamSoni vs ITO – ITA No. 288/JP/2017 dated 06.04.2018 Meghraj Singh Shekhawat vs DCIT – ITA No. 443&444/JP/2017 dated 07.03.2018 DCIT vs Vigyan Lodha – ITA No. 169/JP/2022 dated 20.12.2022
D. Hon’ble Other ITAT
a) Farrah Marker, ITA No. 3801/Mum/2011 (ITAT Mumbai Bench) “we are of the considered opinion that the authorities below,i.e. PCIT/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the ‘said shares’ of M/s. Shukun Constructions Ltd., copies of the physical share certificates and her D.MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the ‘said shares’ by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from ShriNirajSanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded behind the assessee’s back, from a person who was not involved in the purchase of the said shares and also since the assessee was not afforded opportunity for rebuttal of the same and to cross-examine the said person. We are also of the view that the ratio and the factual matrix of the decisions in the cited case, i.e. JatinChhadwa (supra), Harkhchand K. Gada (HUF) & others (supra) and Andaman Timber Industries (supra) would be applicable and support the case of the assessee since no adverse finding has been rendered in respect of the direct material evidence placed on
21 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA record in respect of her transactions of purchase and sale of the ‘said shares’ of M/s. Shukun Constructions Ltd. which stand duly disclosed in her audited Balance Sheets filed with the return of income of assessment years 2004.05 and the current year under consideration”
b) Jatin Chhadwa, ITA No. 8573/Mum/2010 (ITAT Mumbai Bench) “We have considered the submissions of the Counsels from both the sides. We find that the PCIT is carried away in his presumptions and surmises in respect of penny stock. Disregarding the direct evidences filed by the assessee in the form of Contract Notes, brokers' confirmation and PA-No. Without making any enquiry on his part, the PCIT simply formed a belief that since some irregular practices have happened in the stock market, the windfall gain made by the assessee is a result of such malpractices. We find that the Ld. CIT(A) has also been carried away with such news items without realizing that his powers are co. terminus to that of the PCIT and if the PCIT has failed to make certain enquiries, the Ld. CIT(A) could have done so on his own. The Revenue cannot convert good evidences into bad evidences on surmises and conjectures just because certain brokers formed a cartel and manipulated prices of certain stocks and if the assessee is one of the beneficiaries, then solely on the basis of this, it cannot be said that the assessee has entered into some sham transaction. We have no hesitation to say that the findings of the lower authorities are totally based on presumptions and surmises, without any enquiry. After considering direct evidences brought on record by the assessee and the findings of the Hon'ble Jharkhand High Court (supra), we have no hesitation to hold that the transaction has resulted into Long Term Capital gains asshown by the assessee. We therefore direct the PCIT to accept the gains as Long Term Capital Gains.”
c) Bhavesh Shambhulal Somani, ITA No. 2263/Ahd/2015, (ITAT – Ahmedabad Bench) “Further even on merits also assessee has proved genuineness of the transaction by providing necessary details and documents in the form of contract note, demat a/c, bank statement and NSE details and proved that the impugned transaction was not entered through accommodation entry provider namely Mahasagar Securities Pvt. ltd. and others.”
d) Pratik Suryakant Shah [2017] 77 taxmann.com 260 (ITAT – Ahmedabad Bench) “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. ShriMukeshChoksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions
22 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA were genuine and therefore, no adverse inference should be drawn.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.” e) Ramesh Kumar Jain (HUF) vs. DCIT [2013] 144 ITD 383 (Jodhpur. Trib.) “…After circumspecting the entire records, we have found that at pp. 28 to 37 entire proof of purchase and sale of these shares are found and enclosed. All these papers were available before the PCIT. We have noticed that the sale of shares was found to be genuine when the PCIT made enquiries from the stock exchange directly. This fact is evident from assessment order (refer p. 17 para 8.17). In our considered opinion, the PCIT has acted on the basis of suspicion alone….” f) Manish Kumar Baid vs ACIT, Cir.35, Kolkata I.T.A No. 1236/Kol/2017 “The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes,demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld PCIT to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld PCIT was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act.”
g) GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai Trib.)(SB) “....Ultimately the entire case of Revenue hinges upon the 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 aconclusion 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 presumptions of facts that might go againsttheassessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee…”
h) M/s Arvind Kumar Jain HUF, ITA No. 4862/MUM/2014 (Mumbai – ITAT) Ratio laid down: If the DMAT account and contract note show details of the share transactions and the AO has not proved the transactions to be bogus, the capital gains
23 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA earned on the said transactions cannot be treated as unaccounted income u/s 68. The fact that the broker was tainted and violated SEBI regulations would not make assessee’s transactions bogus 39. Decision of Hon’ble Calcutta High Court in the case of Swati Bajaj IA NO. GA/2/2022 IN ITAT/6/2022 is not applicable in the case of the assessee. It is submitted that the case of the assessee is not covered by the recent decision of Hon’ble Calcutta High Court in the case of Swati Bajaj IA NO. GA/2/2022 IN ITAT/6/2022 because of following legal and factual reasons: The assessee is based in Rajasthan. All the Courts/Tribunals within the jurisdiction of Hon’ble Rajasthan High Court are bound by the decision of Hon’ble Rajasthan High Court. In the following decisions Hon’ble Rajasthan High Court gave weightage to proof of transactions being evidences over presumptions: PCIT vs Sanjay Chhabra D.B. ITA No. 22/2021 Pooja Agarwal, ITA 385/2011, PCIT vs Pramod Jain, DB ITA No. 209/2018 CIT vs Sumitra Devi [2014] 49 taxmann.com 37 (Rajasthan) CIT vs Pushpa Malpani [2012] 20 taxmann.com 597 (Rajasthan)
b. Hon’ble Calcutta High Court has not held that the report of Investigation Wing can be conclusive for making additions in any assessment proceedings. Hon’ble Calcutta High Court has simply held that such report of Investigation Wing can be a starting point for probing the matter further. Hon’ble Calcutta High Court has not at all held that the evidences submitted by the assessee need to be totally ignored.
c. In respect of right of Cross Examination, Hon’ble Calcutta High Court has simply held that if the persons have not deposed specifically against a particular assessee then the said assessee has no vested right of Cross Examination (Para 61 page 100).Reliance is placed on the following decisions of Hon’ble Supreme Court wherein it has been observed that prejudice is caused to the assessee when the documents relied upon are not confronted and the assessee is not provided opportunity of Cross Examination:
PCIT vs Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC) CIT vs Odeon Builders (P.) Ltd [2019] 110 taxmann.com 64 (SC) Sunita Dhadda, order dated 28.03.2018, SPECIAL LEAVE PETITION (403 ITR 183) Andaman Timber Industries (CIVIL APPEAL NO. 4228 OF 2006)
24 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA
d. It is submitted that the court cannot turn blind eye to the evidences unless proved wrong and decide on the basis of assumptions and presumptions. Reliance is placed on the decision of Hon’ble Delhi High Court in the case of PCIT vs Krishna Devi [2021] 126 taxmann.com 80 (Delhi)wherein Hon’ble Delhi High Court categorically noted that the Court has to decide the issue on the basis of evidence and proof and not 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 assessee. If the revenue has failed to bring evidence on record that money changed hands and there was agreement to convert unaccounted money mere reliance on the report of investigation without further corroboration does not justify the conclusion that the assessee obtained an accommodation entry. In respect of the circumstantial evidences the Hon’ble Calcutta High Court has not disturbed the settled position of law that circumstantial evidences can be looked into only when direct evidences are not available (Para 69 page 108). In the instant case direct irrefutable evidences were made available to the ld. AO and, therefore, ignoring the direct evidences and jumping to circumstantial evidences is not justified even in reference to the decision of Hon’ble Calcutta High Court. 40. It is submitted that small investor these days get lot of bulk messages with regard to the tip of investing in the share market. These are aimed at rigging the penny stocks and duping the small investors. This has also been accepted even by the Chairman of the Telecom Regulatory Authority of India Shri R.S Sharma. News in this regard was also published by Economic Times.’’ 2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A).
2.5 We have heard both the parties and perused the materials available on record and the case laws cited by the respective parties. In this case it is noted that the AO made an addition of Rs.5,42,187/- u/s 69A on disallowance of exemption of the Act and also made an addition of Rs.27,109/- on account of commission paid on LTCG thus the total addition made in the hands of the assessee was to the tune of Rs.5,69,296/- which has been confirmed by the ld. CIT(A) holding that the order of the AO is well
25 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA reasoned order. From the records, it is noted that the assessee regularly trades and invests in commodities shares and securities. The said fact is evident from Capital Account wherein the assessee has booked trading profit NMCE and commodity sale profit [PB 9] and Ledger Account of assessee maintained with SEBI registered broker Basan Equity Broking Ltd.(BEBL) [PB 6]. During the year under consideration the assessee earned LTCG on one scrip namely M/s Eins Edutech Ltd. Such LTCG on the scrip was considered bogus/sham by AO. The assessee, during A.Y. 2014-15 i.e. year preceding the year under consideration, purchased 1250 shares of EEL on 17.01.2014 [PB 1]. The said shares were purchased through a registered broker Neptune Financial Advisory Private Limited in physical form, however, through exchange for a total consideration of Rs. 20,000. The purchase consideration was paid in cash. Thereafter, the assessee opened her Demat A/c with another registered broker Basan Equity Broking Ltd. (BEBL) on 30.12.2014 [PB 7-8]. Soon after opening such Demat A/c, the shares of EEL were transferred in the Demat A/c on 07.01.2015 i.e. within 7 days of opening the Demat A/c [PB 5]. The Assesse then, during the relevant previous year, sold 1250 shares of EEL, on Recognized Stock Exchange on 20.02.2015, through registered broker Basan Equity Broking Ltd., for total consideration of Rs. 5,62,946 [PB 2-3, 6]. The sale transaction
26 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA had suffered expenses like brokerage, service tax, STT, stamp duty, turnover tax, etc which were specifically recorded in the sale bills issued by BEBL on 20.02.2015. The sale consideration was received through banking channel [PB 4]. During the course of assessment proceedings, first round and even in set aside proceedings entire transaction for EEL, end to end, was substantiated by the assessee. The assessee earned Long Term Capital Gain amounting to Rs. 5,42,187 from the sale of shares of EEL. The shares were listed shares, were sold through recognized stock exchange and the STT was paid on the sale transactions. The assessee claimed the said income as exempt income u/s 10(38) in return of income filed for the relevant previous year whose details are as under:
Sale Amt. Date of P Purchase Amt. Date of Name of scrip LTCG Purchase sale (In Rs.)
Eins Edutech private 17.01.2014 20,000 20.02.2015 5,62,946 5,42,187 limited
It is noted from the available records that the AO did not mention in his order that the assessee did not fulfill any of the conditions as contained in Section 10(38) of the Act. It is an undisputed fact that the transactions of sale of shares of EEL was done through Recognized Stock Exchange. It is observed that the AO failed to
27 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA point out even single evidence which could suggest that the transaction undertaken by the assessee had any correlation with those features of penny stock. The shares were purchased in physical form but on stock exchange. Thus the shares were purchased through stock exchange only and the shares were of a company which was listed and were purchased through a registered broker and both the company and brokers were regulated by SEBI. The bill was having all the particulars as suggested by SEBI. Thus no adverse inference can be drawn. The AO is expected to decide the case on the basis of evidence and proof and not suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidences produced by the assessee. It is noticed that the payments and receipts are through banking channel and there is no trail which could substantiate that the cash has flown back to the assessee. The assessee has filed paper book containing following index
Copy of Purchase Bill issued by Neptune Financial Advisory Private Limited (Page 1) 2. Copy of Contract Note cum Sale Bill issued by Basan Equity Broking LTD (Page 2-3) 3. Copy of bank statement evidencing receipt of consideration on sale (Page 4) 4. Copy of Demat A/c of assessee ( Page 5) 5. Copy of Broker’s Ledger evidencing sale of shares of assessee (Page 6)
28 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA 6. Copy of communication for opening of Demat A/c of assessee (Page 7-8) 7. Copy of Capital A/c and Balance Sheet of the assessee (Page 9) 8. Copy of submissions filed before CIT(A) in the appellate Proceedings (Page 10-42) The Bench also noticed that the AO had not made any enquiry from any of the parties in spite of the fact that complete names and addresses of such parties were placed on record by the assessee during the course of assessment proceedings. The grievance of the ld. AR of the assessee was that neither Investigation Wing Report was made available to the assessee nor the authors of the so called Investigation Wing Report were allowed to be cross examined by the assessee. The AO has not examined any of such brokers and no brokers were allowed to be cross examined by the assessee. It may be mentioned that in the below mentioned decisions, the ITAT Kolkata & New Delhi Benches held the gain on sale of shares of M/s. Eins Edutech Ltd to be genuine and allowed the claim of the assessee made u/s 10(38) of the Act. (1) ITO, Ward 28(2) and Ors vs Shivani Gupta an Ors (ITA Nos. 5204 and 8571/Del.2019- decided on 06-04-2021) (2) Shankar Lal Daruka vs ITO, Ward 22(4) (ITA No. 19/Kol/2019 decided on 02-08-2019)
29 ITA NO. 13/JP/2024 TARA SONI VS ITO, WARD DAUSA Hence, taking into consideration the above facts, circumstances of the case and the case laws cited supra, the Bench does not concur with the findings of the ld. CIT(A) and thus the appeal of the assessee is allowed. 3.0 In the result, the appeal filed by the appellant stands allowed with no orders as to cost. Order pronounced in the open court on 17 /09/2024.
Sd/- (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 17 /09/2024 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Mrs. Tara Soni, Dausa 2. izR;FkhZ@ The Respondent- The ITO, Ward-Dausa 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File (ITA No. 13/JP/2024) vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेजज. त्महपेजतंत
