MAHENDRA KUMAR BAID,KOLKATA vs. ACIT CIRCLE 35, KOLKATA, KOLKATA

Per M.Balaganesh, AM

2 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 and order of assessment framed u/s 143(3) of the Act on 27.12.2016 in the case of Mahendra Kumar Baid, for the Asst Year 2014-15. As the issues involved are identical in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. The facts in the case of Manish Kumar Baid are taken up for adjudication and the decision rendered thereon would apply with equal force to Mahendra Kumar Baid also, except with variance in figures.

3 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 Advisory Limited (CPAL) through off market from M/s. Brijdhara Mercantile Private Limited (name changed to M/s Tremendous Mercantile Private Limited ) for a consideration of Rs.2,40,000. The ld AO also found that CPAL was amalgamated with KAFL by virtue of an order of Hon’ble Allahabad High Court and in pursuance to such amalgamation, the assessee was allotted 240000 shares of KAFL of the face value of Rs.1 each. The ld AO also noted that another company named Panchsul Marketing Ltd. (PML) also merged with the said KAFL. However, in the present case, we are not concerned with the merger of PML with KAFL. The assessee sold these 240000 shares through M/s. Ashika Stock Broking limited, a registered share broker of BSE. The said shares were sold through the online medium of stock exchange on different dates falling within the previous year 2013-14 corresponding to the Asst Year 2014-15. The aforesaid transactions resulted in Long Term Capital Gains and the assessee claimed exemption u/s 10(38) of the Act.

3.1 The ld AO observed that the assessee made gain of almost 3805% in a span of 24 months. The price movement of the scrip in the span of 24 months raised doubts in the mind of the ld AO that profit earned by the assessee were beyond human probabilities. The ld AO therefore made a deeper study to ascertain whether the transactions were genuine investment transactions or sham / colourable device to convert the unaccounted cash into tax exempt income.

3.2 The ld AO noticed that the company, CPAL, was incorporated on 18.09.2010 with authorized and paid up share capital of Rs.1 lakh. The company increased its authorized share capital to Rs.34.50 lakhs and thereafter issued 330155 shares of the face value of Rs.10 each at the premium of Rs.590 to different entities. The ld AO also observed that during the FY 2011-12, CPAL increased its authorised share capital to Rs.29 crores and then the shares of Rs.10 each were split into 1:10 i.e. each shares of Rs.10 into shares of Re.1 each. The said company CPAL thereafter issued bonus shares 3

4 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 to the existing equity shareholders in the ratio of 1:55. The ld AO, considering the weak operating profits of CPAL, suspected the issue of bonus shares in the unrealistic ratio of 1:55. He held that the probable reasons were with a view to provide large amount of LTCG in the hands of beneficiaries after amalgamating the said company with KAFL.

3.3 The ld AO further observed that CPAL was incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non genuine transactions of its shares which resulted in fetching exhorbitant and unrealistic considerations in the scheme of amalgamation. While arriving at the aforesaid conclusions, the ld AO also doubted the scheme of amalgamation.

3.4 The ld AO referred to the statement of Shri Sunil Dokania recorded u/s 131 of the Act by the Investigation wing on 12.06.2015, wherein, Shri Dokania has explained the modus operandi of providing of LTCG in the scrip of KAFL. He stated that by way of amalgamation of CPAL with KAFL, the beneficiaries of LTCG got higher number of shares of KAFL as against shares of CPAL. Mr. Dokania, in the aforesaid statement, stated before the investigation wing that he had got equal amount of cash from the beneficiaries, deposited the same to various undisclosed proprietorship concerns, and finally transferred the same to bogus/shell companies, by layering through various accounts, who had ultimately purchased the shares sold by the beneficiaries. The ld AO has also relied upon another statement of Shri Sunil Dokania recorded u/s 131 by the Investigation wing on 6.3.2013, in the case of Rashmi Group of Kolkata ; Statement of Shri Bidyoot Sarkar recorded on 8.4.2015 u/s 133A in the case of Religare Securities Limited; Statement of Shri Narendra Balasia recorded on oath u/s 133A in the case of SMC Global Securities Limited ; Statement of Shri Pradip Jain recorded on 31.3.2015 u/s 131 and the two Statements of Shri Amit Dalmia recorded by the Investigation wing on 31.3.2015 and 5.6.2015. The statements were annexed to the

5 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 Assessment Order to come to a conclusion that the assessee was one of the beneficiaries of the transactions in shares of KAFL which resulted in bogus claim of exempt LTCG.

3.5 The ld AO, on the basis of movement of price of KAFL quoted in Bombay Stock Exchange during the period of September, 2013 to January, 2014 (the period of sale of shares of KAFL by the assessee), found that the price of shares was increased by 267%. The ld AO concluded that while Sensex showed almost no progress, price of shares of KAFL moved phenomenally. The ld AO also referred to the financials of KAFL during the Financial years 2011-12 to 2015-16 and concluded that Earnings per share (EPS) during that period was either nil or negative but the value of shares was inflated highly. The ld AO observed that the prices of shares of KAFL were rigged by the entities connected to KAFL.

The ld AO referred to three separate orders passed by SEBI dated 29th March, 3.6 2016, 15th June, 2016 and 31st October, 2016 in support of his adverse conclusions drawn against the assessee that several entities related/connected to KAFL rigged the prices by 230% during the period of January, 2013 to June, 2013 (Patch-1), created artificial demand and thereafter provided exit to the beneficiaries during the period of July 2013 to November, 2014 (Patch-2). The said orders passed by SEBI contained list of related/connected parties of KAFL and also the list of beneficiaries. Some of these were restrained from accessing the securities market and buying, selling or dealing in securities. The ld AO concluded that the indepth analysis done by SEBI in the three orders is direct evidence against the assessee to hold that the prices of KAFL were manipulated and artificially hiked to create non-genuine LTCG in the transactions of KAFL. The ld AO further concluded that confessions given on oath by the promoters/brokers/operators are the circumstantial evidence against the assessee that the LTCG was arranged one.

6 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 3.7 The ld AO made enquiries from the Bombay Stock Exchange as to the counter party members who bought the shares of KAFL sold by the assessee through his share broker viz. Ashika Stock Broking Limited. The ld AO found that the buyers of the shares had weak financials and therefore he doubted the genuineness of the transactions. The summons issued to the said parties came back un-served and/or no response was received thereon. The ld AO referred to his test check analysis of one of the buyer of shares sold by the assessee viz. M/s. Rajwanshi Promoters Private Limited and found that the source of funds for making investment by M/s. Rajwanshi Promoters Private Limited was the funds received from different entities and observed that the ultimate source was cash deposited in two bank accounts at 4th or 5th layers. On the basis of the said test check analysis, the ld AO doubted the genuineness of purchases transactions done by all the buyers in relation to shares sold by the assessee. The ld AO observed that the cash trail analysis prepared on sample basis strengthens the suspicions over the genuineness of the buyers of shares and further suspected that the unaccounted cash of the assessee was layered into the bank account of the exit providers.

3.8 The ld AO relying on the various decisions viz. Hersh Win Chaddha v. DCIT [ITA Nos.3088 to 3098 & 3104/Del/2005, Sumati Dayal v. CIT 214 ITR 801 (SC), Durga Prasad More v. CIT, Mcdowell & Co. V. CTO, CIT v. P. Mohankala] observed that tax liabilities can be assessed by revenue authorities on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/evidence available on record. The ld AO ultimately concluded that in such clandestine operations and transactions, it is impossible to have direct evidence or demonstrative proof of every move.

3.9 The ld AO concluded that the assessee’s transactions resulting in LTCG on sale of shares of KAFL were bogus and that the assessee ploughed back his unaccounted money in the books of accounts which is assessable under section 68 of the Act. 6

7 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15

8 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 (vii) Contract Notes of Ashika Stock Broking Ltd., share broker through whom the assessee sold shares of KAFL in the FY 2013-14 relevant to the AY 2014-15. (viii) Bank Statement showing receipt of sale consideration from M/s Ashika Stock Broking Ltd. by account payee cheques. (ix) Demat statement showing delivery of shares of KAFL on sale of shares.

5.1. The ld AR submitted that the purchase of shares in the FY 2011-12 was accepted by the ld AO. In the case of Sri Mahendra Kumar Baid the assessment order for the assessment year 2012-13 was passed under section 143(3) on 30th January, 2015 and the purchase of shares of CPAL was accepted. The assessment in the case of Manish Kumar Baid was processed under section 143(1) of the Act accepting the purchase of shares. The ld AR also submitted that even in the impugned assessment order the purchase of shares by the assessee was not held to be bogus. The ld AR submitted that the evidences and documents furnished by the assessee were neither found to be false nor fabricated. The ld AR submitted that the ld AO doubted the genuineness of the sale transactions on the basis of various orders of SEBI and/or the Investigation Wing and the statements of various persons recorded by Investigation Wing in the cases of persons unconnected to the assessee. It was submitted that the ld AO disallowed the assessee’s claim of LTCG on sale of shares of KAFL on suspicion and presumptions alone. It was submitted that the lower authorities have not brought any material or evidence on record to falsify the claim of the assessee or to hold that the share transactions were bogus.

5.2. The ld AR has shown that the three orders of SEBI and the report of the Investigation Wing and/or the statements of different persons recorded by Investigation Wing nowhere named the assessee as a beneficiary to the transactions relating to KAFL. It is seen from the Interim Order dated 29th March, 2016 that SEBI has listed the names of various entities/persons who were the promoters and/or the connected or 8

9 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 related parties provided bogus transactions of LTCG to various beneficiaries. The list of the names of the beneficiaries was also given in the said order. The ld AR referring to the said lists has shown to us that the name of the assessee and/or his broker namely Ashika Stock Broking Ltd. nowhere appear in the said lists annexed to SEBI’s interim order dated 29th March, 2016. On a specific query to the ld DR appearing for Revenue, he fairly agreed that the assessee’s name and/or the name of Ashika Stock Broking Ltd. do not appear in the list annexed to various orders of the SEBI including final order dated 15th June, 2016 referred to in the impugned assessment order.

5.3. The ld AR also brought our attention to the enquiry report made by Pr. Director of Income Tax (Investigation), Kolkata in the matter of transactions of KAFL. The ld AO relied on the statements of different persons including Sri Sunil Kumar Dokania recorded by the Investigation Wing of Kolkata who explained the modus operandi of providing accommodation entries of LTCG and Short Term Capital Loss (STCL). These persons also provided the lists of beneficiaries to whom they provided accommodation entries. The ld AR has shown that the list of beneficiaries provided by these persons also did not contain the name of the assessee and/or the name of the share broker viz. Ashika Stock Broking Ltd.

The ld AR, on the other hand, relied on the ad interim exparte order dated 29th 5.4. March, 2016 passed by SEBI in favour of assessee. He drew our attention to Para 24 of the said order wherein SEBI found that some innocent and gullible investors had been lured into the trading of shares of KAFL and had been entrapped in the price fluctuation of the script. This finding of SEBI supports the case of the assessee. In this case, the assessee was lured to purchase shares of CPAL, when he knew that the company allotted bonus shares in the ratio of 1:55. The assessee sold the shares of KAFL when he found that the prices increased substantially in the market. The ld AR submitted that he

10 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 being innocent gullible investor, his name did not appear in the list of SEBI who were named as beneficiary to the alleged scheme formulated by some persons.

5.5 The ld AR, in course of hearing before us, filed a copy of the audited financials of KAFL for the FY 2012-13 and drew our attention to the Notice convening the AGM. He submitted that it was the 28th AGM of KAFL which shows that the said company was incorporated for more than 28 years as on the end of the said financial year i.e. 2011-12. He concluded that in such circumstances, the merger of the two companies with KAFL could not be said to be a premeditated arrangement to give benefit of LTCG to beneficiaries. At least a gullible investor would be lured to make investment in such companies.

5.6. The ld AR also brought to our notice the Financials of KAFL reported in SEBI’s interim order dated 29th March, 2016 to show that the Price Earnings Ratio (in short P/E ratio) of that Company increased to Rs.4,065 in FY 2013-14 from Rs. Nil in the FY 2012-13. The ld AR stated that the conclusion drawn by ld AO that the financials of the company shows Nil P/E ratio and did not give rise to steep increase of market price of the shares of KAFL, is contrary to the facts on record.

5.7. The ld AR also referred to the statement of Sri Sunil Dokania relied on by the ld AO to draw adverse inference against the assessee. He referred to the following statement against Q. No. 15 :- Q.15 Please explain the modus operandi of getting bogus long term capital gain through scrips controlled and managed by you.

Ans. Generally beneficiaries approached to the broker/entry operator in search of generation of Capital in an easier manner without paying any tax on it. Brokers identify the various bogus scripts to provide LTCG as the same is exempt from the tax. Kailash Auto is such scrips which is engaged in providing accommodation entry in form of LTCG / STCL to various beneficiaries. Beneficiaries are allotted the shares at nominal price and the price of the shares 10

11 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 rise artificially by using loopholes of stock exchange mechanism and the shares were sold at desired level to various bogus entities. These bogus entities are paid by the unaccounted money of the beneficiaries in cash. As a result unaccounted income ploughed back in the file of individuals and HUFs in the form of bogus LTCG without paying income tax on it. In process the bogus Short Term Capital Loss is also booked by the entities who wants to reduce their taxability.

5.8. The ld AR submitted that there is no allegation by Shri Sunil Dokania and/or the ld AO that the assessee ever approached Shri Dokania and/or any other person whatsoever, to approach for such bogus LTCG. Therefore the ld AO has wrongly drawn inference against the assessee from the statement of Shri Dokania. The ld. AR also referred to the statements of various other persons annexed with the Assessment order to show that none of the said persons named the assessee to have been benefitted by them in respect of LTCG claimed by the assessee. The ld AR submitted that the ld AO was unjustified in drawing an adverse inference against the assessee on the basis of his enquiry made from BSE to find out the names of buyers who ultimately bought the shares sold by the assessee. On the basis of such enquiry, the ld AO prepared a cash trail to allege that cash deposited in 5th or 6th layer were the unaccounted income of the assessee. It was his submission that the assessee did not know the names of the buyers and has no connection and/or relations with any such persons. The transactions of sale of shares were online trading system through his broker from whom he received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the ld AO. The ld AR referred to the judgement of Hon’ble Bombay High Court in the case of CIT vs. Lavanya Land Pvt. Ltd. [2017] 83 taxmann.com 161 (Bom) to contend that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person 11

12 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. In the said case, the Hon’ble High Court at Para 21 held that in absence of any material to show that huge cash was transferred from one side to another , addition cannot be sustained. Similar view was taken in the following cases:- (i) Baijnath Agarwalla vs. ACIT [2010] 40 SOT 475 (Agra Third Member)

(ii) Ganeshmull Biijay Singh Baid HUF vs. DCIT – ITA No. 544/Kol/13 dated 4.12.2015 (Kolkata Tribunal) (iii) Malti Ghanshyambhai Patodia vs. ITO – ITA No. 3400/Ahd/2015 (Ahmedabad Tribunal) (iv) Pratik Suryakant Shah vs. ITO –[ 2017] 77 taxmann.com 260 (Ahmedabad Tribunal) (v) Padduchari Jeevan Prashant vs. ITO – ITA No. 452/Hyd/2015 (Hyderabad Tribunal) (vi) Anil Nand Kishore Goyal vs.ACIT – ITA Nos. 1256/PN/2012 (Pune Tribunal) (vii) CIT vs. Jamna Devi Agrawal – [2012] 20 taxmann.com 529 (Bom HC)

5.9. The ld AR 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. Reference was made to the judgement of Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC). The ld AR submitted that the entire case of the revenue hinges upon the presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. 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 the assessee had brought back his unaccounted income in the form of LTCG. The ld AR referred to the judgement of Special Bench of Mumbai

13 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 Tribunal in the case of GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai- Trib.)(SB) The Tribunal observed as under: 46. ......... 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 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 presumptions of facts that might go against the assessee. 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 . 5.10. The ld AR submitted that there is no direct evidence against the assessee brought on record by ld AO to hold that the assessee introduced its own unaccounted money by way of bogus LTCG. The direct evidence as alleged by the ld AO to be the SEBI’s orders is no evidence against the assessee for the reasons stated earlier. The ld AR submitted that although various investigations were carried out by different agencies, there is no evidence against the assessee to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR submitted that, in view of the aforesaid judgement of Special Bench of Hon’ble Mumbai Tribunal, various judgements relied on by the ld AO against the assessee are irrelevant in as much as the said judgements are based on conclusions drawn on the basis of circumstantial evidences only without any material evidence on record.

5.11. The ld AR vehemently submitted that the assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the ld AO in the year

14 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares of CPAL is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The ld AR referred to the following judgements of Jurisdictional High Court:-

(i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) – In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the ld AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld AO was misplaced and not substantiated.

(ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) – In this case the Hon’ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive.

15 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 (iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) – In this case the Hon’ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI’s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed.

(iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) – In this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the ld AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the ld AO’s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.

(v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) – In this case the Hon’ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.

(vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] – In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the ld AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon’ble Jurisdictional 15

16 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court.

5.12. The ld AR submitted before us that where the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:-

(i) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM) (ii) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM) (iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT) (iv) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (v) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (vi) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT) (vii) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (viii) Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT) (ix) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT) (x) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC) (xi) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC) (xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xiii) CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC) 16

17 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 (xiv) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) (xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT)

5.13. The ld AR further submitted before us that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon’ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon’ble Apex Court 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 ld AR submitted that similar view has been taken in the following judgements while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)

(ii) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT)

5.14. The ld AR further submitted that the ld AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee and/or his broker was a 17

18 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 party to the price rigging or manipulation of price in BSE. The ld AR referred to the following judgements in support of this contention wherein under similar facts of the case it was held that the ld AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)

(ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (iii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT) (iv) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum)

5.15. The ld AR also submitted that the ld AO was not justified in disallowing the assessee’s claim of exemption under section 10(38) of the Act by concluding that the transactions of the assessee resulting in LTCG on sale of shares of KAFL were bogus relying on the statements of various persons recorded by Investigation Wing wherein these persons accepted to have provided accommodation entries of various natures including LTCG to different persons. The ld AR submitted that in the statement of third parties, the name of the assessee was not implicated. Even otherwise, no adverse inference could be taken against the assessee on the basis of untested statements without allowing opportunity of cross-examination. The ld AR referred to and relied on the following judgements in support of the aforesaid submissions:- (i) Andman Timber Industries vs. CCE – [2015] 62 taxmann.com 3 (SC)

(ii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (iii) ACIT vs. Amita Agarwal & Others – ITA No. 247/(Kol) of 2011 (Kol ITAT) (iv) ITO vs. Bijaya Ganguly - ITA Nos. 624 & 625/Kol/2011 (Kol ITAT) (v) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (vi) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)

19 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 (vii) Malti Ghanshyambhai Patadia vs. ITO - ITA No.3400/Ahd/2015 (Ahmedabad ITAT) (viii) Pratik Suryakant Shah vs. ITO – [2017] 77 taxmann.com 260 (Ahmedabad ITAT) (ix) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (x) Atul Kumar Khandelwal vs. DCIT – ITA No. 874/Del/2016 (Delhi ITAT) (xi) Farah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)

5.16. The ld AR also submitted that the ld AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares of KAFL received by the assessee from M/s Ashika Stock Broking Ltd. was not satisfactorily explained by the assessee. There is no evidence on record to disbelieve that the assessee sold shares of KAFL through M/s Ashika Stock Broking Ltd., a registered share and stock broker with BSE. The assessee produced all evidences to explain the source of the amounts received by the assessee from M/s Ashika Stock Broking Ltd. The ld AO was not justified in assessing the sale proceeds of shares of KAFL as unexplained cash credit under section 68 of the Act.

5.17. The ld AR submitted that on the facts and circumstances of the case and on the basis of incontrovertible evidences produced by the assessee, the ld AO was not justified in concluding that the assessee’s transactions relating to LTCG on sale of shares of KAFL were bogus. The ld CIT(A) was also not justified in dismissing the appeal without properly appreciating the facts of the case and the evidences produced by the assessee in support of his case. Various judgements referred to by the assessee in support of assessee’s claim of exemption of LTCG on sale of shares of KAFL was not distinguished on facts and/or on law by the ld CIT(A) . On the other hand, he agreed with the ld AO, who relying on surrounding circumstances held that the assessee’s transactions of LTCG were bogus ignoring all legal evidences furnished by the assessee 19

20 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 in support of the genuineness of the transactions resulting in LTCG. The ld AR prayed that the order of the ld CIT(A) be set aside and the exemption under section 10(38) of the Act be allowed to the assessee.

We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the lower authorities 20

21 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 apart from placing the copy of SEBI’s interim order supra. We find that the SEBI’s orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Broking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in roder to have a good return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBI’s order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd’s name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI’s order heavily relied upon by the ld AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. 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 AO 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 AO was not justified in 21

22 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 rejecting the assessee’s claim of exemption under section 10(38) of the Act. We also find that the various case laws of Hon’ble Jurisdictional High Court relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee.

7.1. We have already held that the transactions relating to LTCG were genuine and not the accommodation entries as alleged by the ld AO. Consequently the addition u/s 69C of the Act is hereby directed to be deleted. We accordingly hold that the reframed question no. 2 raised hereinabove is decided in the negative and in favour of the assessee.

23 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 AR placing reliance on the judgement of Hon’ble Calcutta High Court in the case of CIT vs. REI Agro Ltd. in ITAT No. 161 of 2013 submitted that the disallowance made by the ld AO be directed to be deleted in the absence of satisfaction recorded by the ld AO with reference to the books of accounts examined by him. The ld DR vehemently relied on the orders of the lower authorities and argued that for the year under appeal , the provisions contained in Rule 8D(2) of the Rules are very much applicable and hence the same had been rightly worked out by the ld AO.

8.1. We have considered the rival submissions. We find that the ld AO did not record any satisfaction in terms of section 14A of the Act. We also find that Demat expenses were not claimed by the assessee in the return filed. We hold that the ld AO ought to have recorded primarily his satisfaction as mandated in terms of section 14A(2) of the Act and Rule 8D(1) of the Rules and without resorting to the same , he ought not to have proceeded directly as per Rule 8D(2) of the Rules. Only if the test provided in Rule 8D(1) of the Rules fail, the ld AO is authorized in law to proceed with the computation mechanism provided in Rule 8D(2) of the Rules. In view of this finding and respectfully following the judgement of Hon’ble Calcutta High Court (supra) , we hold that the ld AO was not justified in invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. The disallowance made by the ld AO is directed to be deleted. Accordingly, the reframed question no. 3 raised hereinabove is decided in the negative and held in favour of the assessee.

24 ITA Nos.1236 & 1237/Kol/2017 Manish Kumar Baid & Mahendra Kumar Baid A.Yr.2014-15 10. The assessee Mr. Manish Kumar Baid in ITA No.1236/Kol/2017 has raised another issue relating to addition of Rs.2,00,000 under section 68 of the Act in respect of unsecured loan obtained from Smt. Manju Devi Dugar and consequential disallowance of interest of Rs.51,929 paid thereon. This was stated to be not pressed during the course of hearing in view of smallness of the amount. Accordingly the Regular Ground No. 8 raised by the assessee is dismissed as not pressed in view of the smallness of the amount.

Order pronounced in the Court on 18.08.2017

Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 18.08.2017

SB, Sr. PS

Copy of the order forwarded to: 1. Manish Kumar Baid & Mahendra Kumar Baid, 20, Old Court House Street, Dalhousie, Kolkata-700001 2. ACIT, Circle-35, Kolkata, Aayakar Bhawan Poorva, 110, Shantipally, Kolkata-700107 3..C.I.T.(A)-10, Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.