NATHU LAL JAIN HUF,JAIPUR vs. INCOME TAX OFFICER, WARD - 6(2), JAIPUR, JAIPUR

ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. Addl. CIT(A), Thane dated 30-04-2024 for the assessment year 2011-12 raising following grounds of appeal. ‘’1. That on the facts and circumstances of the case and in law the ld.CIT(A) grossly erred in sustaining an addition of Rs.1,08,140/- in respect of alleged bogus long term capital gains from sale of shares of Quest Financial Service Ltd. thereby denying exemption u/s 10(38) of the Income Tax Act, 1961.

SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR 2. That on the facts and circumstances of the case and in law, the notice issued u/s 148 of Income Tax Act, 1961 and assessment order passed in consequent thereof are illegal and without jurisdiction.

2.1 The brief facts of the case are that the appellant is a HUF and the return under Section 139 (1) of the Act was filed thereby declaring income which includes STCH and LTCG on shares. The department on the basis of information that the appellant had transacted in the shares of Quest Financial Limited amounting to Rs.1.28,800/- which was a penny stock and believing that Appellant had brought his unaccounted money in the books of account in the shape of amount received on sale and purchase of shares of this Penny stock. Accordingly assessment was reopened and after providing opportunity of hearing assessment order was passed thereby making additions under section 68 of the Income Tax Act by holding appellant to be beneficiary of Bogus LTCG. 2.2 Being aggrieved, the appellant filed appeal before ld. CIT(A) but remained unsuccessful. 2.3 Against this order of ld. CIT(A), the Appellant has filed the present appeal before me on the grounds mentioned here in above. 2.4 The Ground No. 1 by the appellant relates to challenging the order of ld. CIT (A) in sustaining the additions of Rs.1,08,140/- under section 68 of the Income Tax Act.

2.5 During the course of hearing, the ld. AR of the assessee reiterated the same arguments as was raised by him before the revenue authorities and also relied upon his written submissions which is reproduced as under:- ‘’Appellant's Humble Submissions it is humbly submitted that the both the lower authorities grossly earned in appreciating the facts of the case as well as the provisions of law. The appellant earned long term capital gains u/s 10(38) from 2000 equity shares of Quest Financial Service amounting to Rs. 1,08,138/- which was wrongly treated as bogus by the AO and wrongly confirmed by the ld CIT (Appeals) by ignoring the following material facts- 1. Material evidence ignored: Material evidences Janored: All the material evidences relating to the shares transactions of Quest Financial Services Ltd viz share contract notes of registered broker through recognized stock exchanges where Securities Transaction Tax (STT) was paid, delivery slips of Stock Holding Corporation of India, Demat Statement issued by Depository Participants, payments/receipts through banking channels etc. were ignored by the lower authorities. Copy of the return of income as well as the relevant documents are furnished in the paper book from page no. 1 to 10 2. Appellant also earned handsome capital gains in other shares transactions which stood accepted by the learned AO; It is further submitted that the transaction in dispute is not a solitary share transaction but the appellant used to regularly enter into other share Transactions as well which is evident from the income-tax return filed and demat statement issued by depository participant furnished in the paper book 3. Period of Holding is around 5 years and capital gains just rupees 1.08 lakhs as compared to income declared of rupees 9.31 lakhs it is further submitted that the appellant held 2000 shares of Quest Financial Services Ltd for around 5 long years which is also evident from the demat statement issued by depository participant placed at paper book page no. 8 to 10. Moreover, the capital gains eamed is very meagre and just rupees 1.08 lakhs as compared to the taxable income declared in the return of income amounting to rupees 9:31 lakhs and not a very huge amount which attracts a doubt that unexplained income is being routed through the route of bogus long term capital gains 4. In case of Coal India Ltd, shares, the appellant earned around 31% gain in just 9 days as compared to 84% gain in 1783 days (around 5 years) in the case of alleged bogus shares of Quest Financial Services Ltd. still the AO doubts 84% gain as unreasonable in the year under appeal, the appellant earned gain of 31% in SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR just 9 days in case of Coal India Ltd. (PSU), hence earning 84% gain in 1783 days (around 5 years. purchase date 29.04.2005 Rs.20.459/- and sale date 18.03.2011 for Rs. 1,28,597/-) in case of alleged bogus shares of Quest Financial Services Ltd. does not invite any adverse inference. If the case of Coal India Ltd is considered, the appellant could have earned 6141% (31% /9 days x 1783 days) gain in the alleged bogus script instead of just 54% doubted by the AO. Merely because the appellant has earned a handsome profit on his investment does not at all lead to an inference that the transaction is bogus and the appellant had ploughed his own black money back through bogus share transactions. It is now a settled position that in share market any investor may earn or lose any amount within no time and no rocket science is applicable in this regard. On 15.01.2021, Hon'ble Delhi High Court has decided this issue on similar facts in favour of the assessee in the case of PCIT Vs. Krishna Devi (ITA 125/2020). It was held that the fact that there was an astounding 4849.2% jump in the share price within two years, which is not supported by the financials, does not justify the AO's conclusion that the assessee converted unaccounted money into fictitious exempt LTCG to evade taxes. The finding is unsupported by material on record & is purely an assumption based on conjecture The theory of human behavior and preponderance of probabilities, based on Sumati Dayal v CIT 214 ITR 801 (SC), cannot be cited as a basis to turn a blind eye to the evidence 5. AO acted merely on surmises and conjectures: All the material evidences on record were brushed aside and the genuine share transactions were wrongly treated-as-bogus merely on suspicion, surmises and conjectures. Reliance is being placed on the case of Dhakeshwari Cotton Mills Ltd. 26 ITR 775 wherein Hon'ble Supreme Court held that a suspicion remains a suspicion unless the same is established and can never take. place of reality. Assessment cannot be made on guesswork without any reference to any material on record. Merely because the Investigation being of Income tax department has detected some dubious transactions in case of some stock brokers who themselves have admitted their involvement in some scrips to an extent does not at all mean that all transactions are bogus particularly when neither the name of the appellant or its broker came in the bogus entry matters nor its share transactions were stated to be bogus in any of the investigations conducted by the Income tax department.

It is further submitted that all the observations, conclusions and findings of the lower authorities are based on suspicion, surmises and hearsay. It is a trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Reliance is being placed on the judgment of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram Vs. CIT (1959) 37 ITR 288 (SC).

SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR The 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. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon'ble Supreme Court held that the onus to prove that the apparent is not real is on the party who claims 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. 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 It is further submitted that there is no direct evidence against the assessee brought on. record by the Id. A.O to hold that the assessee introduced its own unaccounted money by way of bogus LTCG. Once the assessee has furnished all evidences in support of the genuineness of the On transactions, the onus to disprove the same is on the revenue. Reliance is being placed on the judgment of Hon'ble Supreme Court in the case of Krishnanand Agnihotri Vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC) wherein it was held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence 6. Judicial Judgements Relied: The case of the appellant is squarely covered by the judgements of jurisdictional Honb'le Rajasthan High Court in the case of PCIT Vs. Shri Pramod Jain & Others in ITA No. 209/2018 decided on 24.07 2018 as well as CIT Vs. Pooja Agarwal in ITA No. 385/2011 decided on 11.09.2017 wherein Hon'ble Rajasthan High Court has held this issue in favour of the assessee. Further, Hon'ble ITAT, Jaipur Bench, has also decided this issue in favour of the appellant in the case of Dcit, Jaipur vs. Vigyan Lodha, ITA No. 169/JP/2022 on 20th December, 2022 SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR Further, Hon'ble ITAT, Jaipur Bench, in the case of Om Prakash Modi & Others Vs. DCIT ITA No. 402-403/JP/2017 decided on 24.08.2018, share capital gains transactions of Quest Financial Services Ltd. (same script as in case of the appellant) was held as genuine. Judgement relied by the learned CIT(A) n the case of CIT Vs. Swat Bajaj (Calcutta High Court) is distinguishable because in that case huge gains was eamed in very short span of time and judgments of hon'ble jurisdictional Rajasthan High Court and other High Courts as mentioned above were not considered. For the reasons submitted above, it is humbly requested that the impugned addition, being illegal and unjustified, may kindly be deleted.’’ It was also submitted that the present case is also covered by the decision of the Co-ordinate bench of ITAT in the case of Om Prakash Modi and others versus DCIT in ITA number 402-403/JP/2017 decided on 24th August 2018, wherein the share capital gains transaction of Quest Financial Services Limited i.e. the same scrip as in case of the appellant was held as genuine. 2.6 On the other hand ld. DR relied upon the orders passed by the revenue authorities. 2.7 I have heard the Counsels for both the parties have also perused the material placed on record, documents filed by the parties, judgements cited before me and also the orders passed by the revenue authorities. From the records, I noticed that the Appellant had purchased 2000 shares of Quest Financial Services on 29.4. 2005 for Rs 20459 and after the purchase the same were appearing in the D-mat SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR account. These shares were then sold on 18 March 2011 for Rs 1,28,597/- which resulted into profit to the appellant in the nature of long term capital gains of Rs. 1,08,138/- which was claimed by the Appellant as exempt under section 10 (38) of the Income Tax Act. In this regard all the material evidences relating to the shares transactions of Quest Financial Services Limited. viz. Share contract notes of registered broker through recognised stock exchange where Security Transaction Tax i.e.STT was paid, delivery slips of Stock Holding Corporation of India, Demat statement issued by depository participants, payments and receipts through banking channel etc were placed on record and also the copy of the return of income as well as the relevant documents are furnished in the shape of paper book which are at paper book page number 1 to 10. I have also noticed that the transaction in dispute is not a solitary share transaction but the appellant used to regularly enter into other share transactions as well, which is evident from the income tax return filed by the Appellant and Demat statement issued by Depository Participant furnished in the paper book. More over I cannot loss sight of the fact that the appellant held 2000 shares of Quest Financial Services Limited for around 5 long years, which is also evident from the Demat statement issued by Depository Participant. I further noticed from the record and the documents placed that in the year under consideration the appellant had also earned gain of 31% in just 9 days in the case of Coal India Limited (PSU). I am of the view that merely SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR because the Investigation being of Income tax department has detected some dubious transactions in case of some stock brokers who themselves have admitted their involvement in some scrips to an extent does not at all mean that all transactions are bogus particularly when neither the name of the appellant or its broker came in the bogus entry matters nor its share transactions were stated to be bogus in any of the investigations conducted by the Income tax department. In spite of all the material evidences on record the AO brushed aside the genuine all the material evidences on record were brushed aside and the genuine share transactions were wrongly treated-as-bogus merely on suspicion, surmises and conjectures. Reliance is being placed on the case of Dhakeshwari Cotton Mills Ltd. 26 ITR 775 wherein Hon'ble Supreme Court held that a suspicion remains a suspicion unless the same is established and can never take. place of reality. Assessment cannot be made on guesswork without any reference to any material on record. The 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. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon'ble Supreme Court held that the onus to prove that the apparent is not real is on the party who claims 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 SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR circumstance unerringly and reasonably raising interference to that effect. 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. I appreciate that there is no direct evidence against the assessee brought on record by the AO to hold that the assessee introduced its own unaccounted money by way of bogus LTCG. However I am off the view that once once the assessee has furnished all evidences in support of the genuineness of the On transactions, the onus to disprove the same is on the revenue. Reliance is being placed on the judgment of Hon'ble Supreme Court in the case of Krishnanand Agnihotri Vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC) wherein it was held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The case of the assessee is squarely covered by the judgements of jurisdictional Honb'le Rajasthan High Court in the case of PCIT Vs. Shri Pramod Jain & Others in ITA No. 209/2018 decided on SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR 24.07 2018 as well as CIT Vs. Pooja Agarwal in ITA No. 385/2011 decided on 11.09.2017 wherein Hon'ble Rajasthan High Court has held this issue in favour of the assessee. Further, Hon'ble ITAT, Jaipur Bench, has also decided this issue in favour of the appellant in the case of Dcit, Jaipur vs. Vigyan Lodha, ITA No. 169/JP/2022 on 20th December, 2022 and moreover ITAT Jaipur Bench, in the case of Om Prakash Modi & Others Vs. DCIT ITA No. 402-403/JP/2017 decided on 24.08.2018, share capital gains transactions of Quest Financial Services Ltd. (same script as in case of the appellant) was held as genuine. The Judgement relied by the ld. CIT(A) in the case of CIT Vs. Swat Bajaj (Calcutta High Court) is distinguishable because in that case huge gains was earned in very short span of time and judgments of hon'ble jurisdictional Rajasthan High Court and other High Courts as mentioned above were not considered by the AO. Therefore considering the totality of the facts and circumstances as discussed by me above and also taking into consideration the decision of the co-ordinate bench of ITAT in the case of Om Prakash Modi and others versus DCIT (Supra). I found that the case of Appellant is squarely covered by the decision of the co-ordinate bench of ITAT and also by Hon'ble Rajasthan High Court. Therefore, keeping in view the principals of consistency and judicial discipline, I also hold that the share capital gains transaction of Quest Financial Services Limited in the case of Appellant is SHRI NATHU LAL JAIN HUF VS ITO, WARD 6(2), JAIPUR held as genuine. Consequently I direct the AO to delete the additions. Hence ground of appeal stands allowed. 3.0 During the course of hearing, the ld. AR of the assessee has not pressed the Ground No.

2. Hence, the same is dismissed being not pressed. 4.0 In the result, the appeal of the assesee is allowed with no orders as to costs. Order pronounced in the open court on 11/09/2024.

Sd/- (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 11 /09/2024 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Nathu Lal Jain HUF , Jaipur 2. izR;FkhZ@ The Respondent- The ITO , Ward 6 (2), Jaipur 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. 859/JP/2024) vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेजज. त्महपेजतंत