SADHU RAM BALANI,INDORE vs. ITO-5(1), INDORE, INDORE

This appeal by assessee is directed against the order dated 16.10.2020 of the Commissioner of Income Tax (Appeal) National Faceless Appeal Centre (NFAC) Delhi, for A.Y.2014-15. The assesse has raised following grounds of appeal:

1. “That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,41,64,369/- made by the Assessing Officer to the total income of the appellant on account of long-term capital gain earned on sale of shares of M/s Sunrise Asian Limited by ITANo.470/Ind/2023 Sadhuram Balani denying the benefit of exemption under section 10(38) of the Act without properly appreciating the facts of the case and submissions made before him/ her more so when the appellant had ample documentary evidences so as to justify the genuineness of long-term capital gain earned on sale of shares 2. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,41,64,369/- made by the Assessing Officer to the total income of the appellant on account of long-term capital gain earned on sale of shares of M/s Sunrise Asian Limited by denying the benefit of exemption under section 10(38) of the Act and by treating the transaction of purchase and sale of shares to be adventure in the nature of trade without properly appreciating the facts of the case and submissions made before him/ her 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition of Rs. 1,41,64,369/- made by the Assessing Officer to the total income of the appellant on account of long-term capital gain earned on sale of shares of M/s Sunrise Asian Limited by denying the benefit of exemption under section 10(38) of the Act and merely on the basis of third party documents/ evidences which were never confronted with the appellant thereby depriving him of an effective opportunity of being heard which is grossly violative of the principles of natural justice 4. The appellant reserves the right to add, alter and modify the grounds of appeal

as taken by him.

2. The assesse is an individual and filed his return of income for the year under consideration on 26.11.2014 declaring total income of Rs.4,09,880/-. The case of the assessee was selected for scrutiny through CASS. During the scrutiny assessment the proceedings the AO noted that the assesse had declared long term capital gain of Rs.1,41,64,396/- on sale of shares of M/s Sunrise Asian Ltd. which is claimed as exempt u/s 10(38) of the Act. The AO after analyzing financial details of the said company suspected the price manipulation of the shares of the said company M/s Sunrise Asian Ltd on the stock exchange by some insider traders and therefore, the price at which the assessee sold the shares was in the opinion of the AO inflated through the manipulated practice by insider traders to provide accommodation entries of bogus long term

Page 2 of 51 ITANo.470/Ind/2023 Sadhuram Balani capital gain. The AO observed that the department has conducted various searches u/s 132 and survey u/s 133A in the cases of various brokers of the stock exchange and companies to unearth malpractices of various insider traders for providing bogus long term capital gain by manipulating shares prices at stock exchange of various penny stocks. The AO then examined the assessee by recording his statement on 14.12.2016 and then held that the long term capital gain claimed by the assessee is nothing but unaccounted income of the assessee is introduced to avoid the tax liability. Aggrieved by the said order of the AO the assessee filed the appeal before the CIT(A). The CIT(A) has dismissed the appeal of the assessee and confirmed the addition made by the AO by following the decision of Hon’ble Calcutta High Court in case of Pr. CIT vs. Swati Bajaj and Ors. 446 ITR 56.

3. Before the Tribunal Ld. AR of the assesse has submitted that the assesse purchased 30,000/- equity shares of M/s Santoshima Tradelinks Ltd. for consideration of Rs.6,00,000/- on 29.09.2011. The payment was duly reflected in the bank account statement of the assesse vide entry dated 17.09.2011 placed at page no.85 & 86 of the paper book. The assesse was allotted 30000 of equity share by M/s M/s Santoshima Tradelinks Ltd. vide allotment advice dated 10.10.2011 along with physical copy of share certificate duly transferred in the name of the assessee placed at page no.87 & 88 of the paper book. These shares were dematerialized in the De-mat account of the assesse on 06.02.2013 and also reflected in the balance sheet of the assessee as on 31.03.2013. He has pointed out Page 3 of 51 ITANo.470/Ind/2023 Sadhuram Balani that thereafter the M/s Santoshima Tradelinks Ltd and M/s Conart Traders Ltd. were merged with M/s Sunrise Asian Ltd. vide order of Hon’ble Bombay High Court dated 22.03.2013 placed at page no.93 to 98 of the paper book. In pursuant to the merger of the said company with M/s Sunrise Asian Ltd. the assesse was allotted equal number of equity shares in lieu of the investment in the shares of M/s Sangoshima Tradelinks Ltd. Thus, the assessee received 30000 shares of M/s Sunrise Asian Ltd. in his De-mat Account on 28th June 2013. Thereafter the assesse sold these 30000 shares of M/s Sunrise Asian Ltd. for total consideration of Rs.1,47,64,396/- from July 2013 to March 2014 at stock exchange through his broker M/s Arihant Capital. Ld. AR has thus submitted that when the purchase of 30000 shares of M/s Santoshima Tradelink Ltd. is not disputed and also duly established by the relevant documents being payment of the purchase consideration made through banking channel duly reflected in the bank account of the statement. The allotment of shares by M/s Santoshima Tradelink Ltd. to the assesse vide allotment dated 10.10.2011, physical copy of shares certificate transferred in the name of the assessee dated 10.10.2011, credit of these shares in the De-mat account of the assessee on 06.02.2013, the order of the Hon’ble Bombay High court dated 22.03.2013 approving the scheme of merger of M/s Santoshima Tradelinks and M/s Conart Traders Ltd. with M/s Sunrise Asian Ltd. are also undisputed facts. Ld. AR has further submitted that as per balance sheet as on 31.03.2012 & 2013 these shares are duly reflected in the books of account of the Page 4 of 51 ITANo.470/Ind/2023 Sadhuram Balani assesse therefore, holding of these shares of M/s Santoshima Tradelink Ltd. and then after merger of M/s Sunrise Asian Ltd. are duly established by undisputed supporting evidences. Thereafter the shares were sold through broker M/s Arihant Capital Market ltd. at the stock exchange on various dates from July 2013 to March 2014 at the prevailing rate in the stock market. The assesse has produced copies of sale note issued by M/s Arihant Capital Market Ltd. placed at page no.101 to 135 of the paper book. Ld. AR has submitted that all these transactions were duly recorded in the books of accounts of the assessee as well as in the books of the broker M/s Arihant Capital Market Ltd., the payment of purchase consideration and sale consideration received by the assessee were through banking channel and there is no allegation of the AO of any payment either made or received by the assessee cash or other than banking channel. Thus, Ld. AR has contended that when the assesse has produced all the supporting evidence which is more than sufficient to prove the genuineness of the transaction of purchase as well as sale of the shares then the long term capital gain earned by the assessee from sale of these shares cannot be treated as bogus accommodation entries. The AO has made addition merely on the basis of the suspicion without bringing any material on record to show that the documentary evidences produced by the assessee are false or bogus. Ld. AR has submitted that the AO has also examined the assessee during the assessment proceedings wherein the assessee has explained all the relevant facts and nothing was found contrary in the statement of the Page 5 of 51 ITANo.470/Ind/2023 Sadhuram Balani assessee recorded by the AO therefore, the claim of exemption u/s 10(38) cannot be denied when all the conditions prescribed under law are satisfied being shares were sold at place of the stock exchange and also subjected to Security Transactions Tax (STT). The AO has doubted genuineness of the transactions on the ground that some of the entities as well as insider traders were involved in manipulating price of these shares at stock exchange with a view to provide accommodation entries to the parties however, no specific material or allegation has been bought on record to show that the assessee was either involved or a party to the alleged insider trading or rigging of price of these shares at stock exchange. Once the assessee has produced all supporting evidence to prove that the transactions of purchase of shares, holding of shares and sale of shares are genuine transactions then in absence of any contrary fact or material brought on record the disallowance of claim by the AO is not justified. In support of his contention he has relied upon following decisions:

Page 6 of 51 ITANo.470/Ind/2023 Sadhuram Balani 7. Hon'ble Supreme Court of India in the case of PCIT v. Renu Aggarwal reported in [2023] 153 taxmann.com 579 (SC)

3.1 Ld. AR has submitted that the Hon’ble jurisdictional High Court in the recent judgments dated 30th April 2024 in case of CCIT vs. Shri Nilesh Jain HUF and other bunch of appeals in ITANo.56 of 2021 has considered an identical issue of long term capital gain arising from purchase and sale of shares of M/s Sunrise Asian Ltd. and decided the same in favour of the assessee and against the revenue by upholding the orders of the Tribunal. Thus, Ld. AR has submitted that the impugned orders of the CIT(A) as well as AO are not sustainable and therefore, the addition made by the AO on this account is liable to be deleted.

4. On the other hand, Ld. DR has submitted that it is apparent case of availing the accommodation entry of long term capital gain on the sale of shares of M/s Sunrise Asian Ltd. at the assesse claimed purchase of 30000 shares at the rate of Rs. 20 per share and sale of these shares @ Rs.488.45 to Rs.492.05 per share which is jump of around 25 times within a short period. Thus, ld. DR has submitted that entire transactions of purchase and sale of shares are as per the scheme of manipulated transactions of these entities by certain insider traders for providing accommodation entries for long term capital gain. The transactions as claimed by the assessee is having all the traits of manipulated transactions for providing bogus long term capital gain as the assessee claimed purchase of these shares off market and thereafter these were dematerialized

Page 7 of 51 ITANo.470/Ind/2023 Sadhuram Balani just before the sale at steep rise of share price about 25 times of the purchase price. This shows that it is not a normal transaction of purchase and sale of shares but the transactions were carried out with specific purpose of availing accommodation entries and to avoid the tax on unaccounted income.

4.1 He has relied upon the orders of the authorities below and submitted that the CIT(A) has relied upon the judgment of Hon’ble Calcutta High court in case of Pr. CIT vs. Swati Bajaj and Ors.(supra). Ld. DR has also relied upon the orders of the SEBI dated 17th June 2022 and 6th October 2021 and submitted that various entities including M/s Sunrise Asia Ltd. as well as various insider traders details of which are given in these orders are found to be involved in the manipulating the price of shares of these companies during the period from October 2012 to 30 September 2015. SEBI has carried out an investigation and then passed these orders whereby the insider traders were debarred from trading in stock exchange and also imposed penalties for violating the provisions of SEBI. Ld. DR has referred to the assessment order and submitted that the AO has analysed the financial details and potential growth of M/s Sunrise Asian Ltd. and found that this company had not business during last three years and then did not have earning but shown loss during this period. Therefore, the rise in the price after the merger is not supported by the financial fundamentals of these companies and therefore, it is only as a result of manipulations by the various persons the price of these

Page 8 of 51 ITANo.470/Ind/2023 Sadhuram Balani shares rised. The assessee has availed the benefit of accommodation entries provided by these persons.

“6. The department has conducted various searches u/s 132 /surveys u/s 133A/enquiries conducted by the department on the various brokers of stock exchange and various assessee / companies. The investigation carried out by the department has proved that a scheme was hatched by various players to obtain/provide accommodation entry of bogus LTCG through manipulation of stock market. Various syndicates have arranged accommodation entry of bogus Long Term Capital Gain, bogus Short Term Capital Gains and bogus Short Term Capital Loss/bogus business loss through trading of shares of penny stocks Accommodation entry is a financial transaction between the two parties where one party enters the financial transaction in its books to accommodate the other party.These transactions are accommodated entries mostly in lieu of cash of equal amount and commission charged over and above at certain fixed percentage for providing such accommodation entry. These accommodation entries are taken by various beneficiaries for introducing their unaccounted cash into their books of accounts without paying the due taxes.

Page 9 of 51 ITANo.470/Ind/2023 Sadhuram Balani In this scheme, the shares of the penny stock companies are acquired by the beneficiaries of LTCG at very low prices generally through the route of preferential allotment (private placement) or off market transaction. These shares have a lock- in period of 1 year as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Another route to acquire the shares is through Amalgamation or merger. In this route, the beneficiaries of LTCG are allotted shares of a private limited company which is subsequently amalgamated with a listed penny stock and the beneficiaries receive shares of the listed penny stock in exchange of the shares of private limited company. Thereafter, the prices of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the "operator" of the scrip. An "Operator" is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to lake entry of bogus LTCG/STCL in their books and arranges the same through the scripts of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. Once the period of 1 year has passed and the share prices have been sufficiently rigged, the beneficiaries sell their shares at the inflated prices on the Stock Exchange. A point worth noticing here is that the purchase of the shares is not made by the public but by the bogus entities managed and controlled by the promoter of the penny stock company or the operator which are referred to as "Exit Providers". The unaccounted money of the beneficiaries is routed to these bogus entities "Exit Providers" and the shares held by the beneficiaries are bought by these bogus entities from the money which is the unaccounted money of the beneficiaries. Sometimes, the shares of the LTCG beneficiaries are purchased by the beneficiaries of LOSS who later sell their shares when the price falls and hence book bogus LOSS in their books. All these transactions are done on the stock exchange and as the sale of shares are done after a holding of one year they

Page 10 of 51 ITANo.470/Ind/2023 Sadhuram Balani fall into the category of Long Term Capital Gain which is an exempt income as per the IT Act, 1961.” 5.1 Thus, all these averments are general in nature just to explain modus operandi of operators who involved in manipulating price at stock exchange and providing accommodation entries in the penny stocks. It is pertinent to note that the assesse has produced all the relevant documentary evidences comprising of bank account statement placed at page no.85 & 86 of the paper book reflecting the payment of Rs.6 lakh as purchase consideration for purchase of these shares as per entry dated 17th September 2011. The AO has not commented event about genuineness of this payment made by the assessee through bank on 17th September 2011 against which 30,000 shares of M/s Santoshima Tradelink Ltd were allotted to the assessee vide allotment advice dated 10.10.2011 and physical share certificate transferred in the name of the assessee dated 10.10.2011 placed at page no.87 & 88 of the paper book as under:

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Page 12 of 51 ITANo.470/Ind/2023 Sadhuram Balani 5.2 These shares were then dematerialized in the de-mat account of the assessee with M/s Arihant Capital Market Ltd. placed at page no.89 on 06.02.2023 as under:

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Page 14 of 51 ITANo.470/Ind/2023 Sadhuram Balani 5.3 Thus, it is clear that the share purchased by the assesse on 10.10.2011 were dematerialized in the de-mat account on 06.02.2013 thereafter the said company M/s Santoshima Tradelink Ltd. and M/s Conart Traders Ltd were merged with M/s Sunrise Asian Ltd. as per scheme of merger approved by the Hon’ble Bombay High Court vide order dated 22.03.2013. The said order of the Hon’ble Bombay High Court is placed at page no.93 to 97 of the paper book. In pursuant to the said merger of Santoshima Tradelink Ltd. with M/s Sunrise Asian Ltd. equal numbers of shares were allotted to the assesse in lieu of shares of Santoshima Trade Link Ltd. an amalgamating company. Further the assesse has shown the shares of M/s Santoshima Tradelink Ltd. in its balance sheet as on 31.03.2012 as well as 31.03.2013 which are not disputed by the department. In any case when the assesse has established with undisputed documentary evidence that the shares were purchased for consideration paid through banking channel and were duly dematerialized in the De-mat account of the assessee then the holding of the shares by the assessee are neither disputed nor doubted by the department and particularly by the AO. The entire order of the AO is based on the surmises that sale of these shares are made by the assessee at very high price in the process of manipulation of the price at stock market with the involvement of insider traders who were found indulged in such practice of providing bogus accommodation entries of Long Term Capital Gain etc. It is pertinent to note that even as per the SEBI order there is no allegation against any individual shares holders who have Page 15 of 51 ITANo.470/Ind/2023 Sadhuram Balani purchased and sold the shares during this period from October 2012 to September 2015 but the entire investigation and finding are directed against some of the brokers and insider traders who have manipulated the share price at stock exchange of those scripts with a view to provide accommodation entries and by carrying out the trading with themselves which is large group of about 89 persons. Therefore, even as per SEBI orders neither the assesse nor his agent were either found involved or penalized by the SEBI. Once the shares were duly held by the assessee in the books of account as well as in the de-mat account and subsequently sold at the prevailing price at stock exchange then the transactions of sale of shares cannot be held as bogus in absence of any material to show that the assesse is directly or indirectly involved in the malpractice of rigging of price at stock exchange. An identical issue has been considered by this Tribunal in various decisions which were challenged by the revenue before the Hon’’ble Jurisdictional High Court and vide judgment dated 30th September 2024 in case of CCIT(OSD) 1 vs. Shri Nilesh Jain (HUF) along with other bunch of appeals the Hon’ble High court has held as under:

“This order shall govern the disposal of aforesaid 58/2021, 64/2021, 65/2021, 88/2021, 95/2021, 96/2021, 98/2021, 99/2021, 100/2021, 102/2021, 103/2021, 109/2021, 110/2021, 111/2021, 112/2021, 113/2021, 114/2021, 115/2021, 116/2021, 120/2021, 27/2022, 28/2022, 29/2022, 31/2022, 32/2022, 33/2022, 34/2022, 35/2022, 36/2022, 121/2022, 122/2022 and 183/2023.

2. Regard being had to the similitude of the controversy involved in all the aforesaid 33 bunch of appeals, they have been heard analogously and disposed of by this common order as identical substantial questions of law are involved and have been framed by the appellant(s).

Page 16 of 51 ITANo.470/Ind/2023 Sadhuram Balani 3. For the sake of convenience, the facts of are being taken.

4. This is an appeal filed by the appellant(s) under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act of 1961') being aggrieved by the order dated 30.04.2021, passed by the Income Tax Appellate Tribunal (ITAT), Bench Indore in (Assessee's Appeal) for the Assessment Year 2014-15. The appellant has propsoed the following Substantial Question of Law in this appeal: "Whether on the facts and in the circumstnaces of the case and in law the ITAT was justified in deleting the addition made by AO, which was confirmed by Commissioner of Income Tax(CIT)(Appeals), ignoring the findings of Investigation Wing, Kolkata that M/s Sunrise Asian Limited was clearly established as a bogus penny stock script company which was used for claiming bogus Long Term Capital Gainn as exempted under Section 10(38) of the Income Tax Act, 1961 ?"

5. In short, the question that arises for consideration in this appeal, is whether this appeal involves any substantial question of law, as is required to be made out under Section 260A of the Act of 1961, that being the prerequisite of admission of the appeal.

6. The brief facts of the case are that respondent had purchased shares on private placement from M/s. Santoshi Maa Lease and Finance and Investment Pvt. Ltd. after due diligence and following sequence of events which has been narrated by learned ITAT in para 16 of the order. This company later was amalgamated with M/s. Sunrise Asian Limited, a listed company on Bombay Stock Exchange under an order passed by Hon'ble Bombay High Court.

7. That, soon after amalgmation, there was sudden jump in the share price on the Stock Exchange due to involvement of speculators and players of stock exchange. Learned ITAT has admitted that respondent was not involved in manipulating the prices of the shares on stock market and it was only one time investment made by the Respondent of small amount. 8. That, the SEBI, all allegation of insider trading and rigging of the prices on Stock Exchange, investigated and in its report dated 06/09/2021 which was in respect of Sunrise Asian Ltd. found that the promoters and 89 other persons/companies were involved in rigging of share prices on Stock Exchange. It is submitted that the respondent is not named in the said list. Thus, it is evident that the respondent had no role and control over manipulation of share price of Bombay Stock Exchange. When SEBI did not find the involvement of the respondent in manipulation of share prices, therefore, the Assessing Officer erred Page 17 of 51 ITANo.470/Ind/2023 Sadhuram Balani in law and fact in making the addition of LTCG as undisclosed income under Section 68 of the Income Tax Act. It is further submitted that, no player can manipulate the price of share on Bombay Stock Exchange over 5% in a day as in case the price of share goes up in any day over 5% then Stock Exchange Circuit applies and which do not allow the increase in price of share more than 5% in a day.

10. Learned counsel for the appellant further contended that the ITAT erred in deleting the addition made by the Assessing Officer by referring to the decision given in the case of Dipesh Ramesh Vardhan & Ors. Vs. DCIT Central Circle- 2(2)(ITA No.7648/Mum/2019 dated 11.08.2020) . M/s Sunrise Asian Limited is not found to be a penny stock company and not holding an alleged transaction with the assessee while it was evidently proved that M/s Sunrise Asian Limited is a shell company and permit its beneficiaries to get an alleged accomodation entry in its books. The ITAT erred in not appreciating the case of CIT Vs. Smt. Sanghamitra Bharali (2014) taxman.com 47(gauhati) as well as other case laws as mentioned in the Order of First Appellate Authority while its judgment is strictly applicable in the instant case. The ITAT erred in not relying the case law of Suman Poddar Vs. ITO (2019) 112 taxmann.com 330(SC) and allowed the appeals by mentioning that lower authorities are not able to sustain the addition without any cogent material on record while sufficient justification accompanied by relevant evicdences were given to prove that M/s Sunrise Asian Limited is nothing but penny stock company.

11. Per Contra, learned counsel for the respondent(s)(Assessee) submitted that under Section 10(38) the respondent has lawfully claimed exemption by complying Page 18 of 51 ITANo.470/Ind/2023 Sadhuram Balani the conditions to avail exemption which includes share should be listed on Stock Exchange, Share should have been purchased thro ugh Stock Exchange and through Banking Channel and Security Transaction Tax(STT) has been paid thereon. The shares of Sunrise Asian Ltd. are listed on Bombay Stock Exchange, shares have been purchased through D- mat Account and payment have been received through Banking Channel and Security Transaction Tax has been paid by Stock Exchange. Thus, all the conditions for availing exemption have been fulfilled. It is further contended that under Income Tax Act there is no provision which requires the Assessing Officer to investigate the genuiness of the shares because these share are listed, issued by the Company and records are maintained with the Register of Companies. Thus, these shares cannot be said to be bogus shares as have been issues and subscribed under the Companies Act. The revenue has failed to appreciate that how these shares can be termed as Bogus Shares, when these shares have been issued by the Company incoporated under the Companies Act by following the provisions and procedures prescribed under the Companies Act, 1956. The issuing company has complied with all the rules and regulations and completed all statutory formalities required for issue of shares. Thus, under such circumstances, these shares cannot be termed as Bogus Shares.

12. Learned counsel for the respondent further contended that mere sudden increase in share prices on the stock exchange, does not ipso facto determine that shares are bogus, if the shares are bogus, then these shares cannot be listed and traded on stock exchange through D-MAT accounts. Therefore, it is incorrect notion of the Revenue that these shares are bogus shares, on the contrary these shares are genuine and lawfully issued share by the company by following the law and procedure in this regard. The Assessing Officer has heavily relied upon report of Investigation Wing of Income Tax Department which was conducted in Kolkata in case of some of the Companies including M/s. Sunrise Asian Limited. This report has never been provided to the respondent at any stage of the proceedings nor filed by the department before ITAT or before this Court. It is settled law that no material can be used against the assessee without providing the assessee to examine it and, if required, to cross examine. Thus, there was violation of principles of natural justice. That on similar set of facts and in respect of the same share script of M/s Sunrise Asian Ltd. the Mumbai Bench of ITAT in case of (1) Narayan Ramchandra Rathi(Page nos.50 to 61), (2) Dipesh Ranmeshchandra Vardhan(Page nos. 62 to 71) and, (3) Anraj Hiralal Shah(page nos.72 to 74) has dealt with the identical issue and decided in favour of the assessees.

13. Learned counsel for the respondent further submitted that as many as three High Courts i.e. Delhi High Court, Bombay High Court and Gujarat High Court Page 19 of 51 ITANo.470/Ind/2023 Sadhuram Balani also have dealt with the similar issues and has dismissed the appeal filed by the Revenue. The appellant(Revenue) had preferred SLP against an order of Gujarat High Court passed in the case of the Principal Commissinoer of Income Tax-1 Vs. Parasben Kasturchand Kochar, passed in R/TAX Appeal No.204 of 2020 decided on 17.09.2020), which has been dismissed in limine upholding the orders passed by the Gujarat High Court. The Apex Court in the case of Principal Commissioner of Income Tax-12 Vs. Smt. Krishna Devi, passed in decided on 15.01.2021 has held that the High Court has erred by holding that the addition made under Section 68 of the Act by treating impugned Long term Capital Gain( LTCG) as bogus was unjustified and same was to be deleted.

14. For the aforesaid reasons, we have no hesitation in holding that no question of law, much less any substantial question of law arises from the order of the ITAT requiring consideration by this Court. There is no merit in the appeal. Thus, in our considered opinion, the present appeal does not involve any substantial question of law so as to meet the provisions of Section 260A of the Income Tax Act, 1961 for admitting the appeal.

15. In view of the aforesaid, we do not find any merit in these bunch of appeals and, accordingly, they are hereby dismissed. No order as to costs.

16. A copy of the order be kept in the record of connected 64/2021, 65/2021, 88/2021, 95/2021, 96/2021, 98/2021, 99/2021, 100/2021, 102/2021, 103/2021, 109/2021, 110/2021, 111/2021, 112/2021, 113/2021, 114/2021, 115/2021, 116/2021, 120/2021, 27/2022, 28/2022, 29/2022, 31/2022, 32/2022, 33/2022, 34/2022, 35/2022, 36/2022, 121/2022, 122/2022 and 183/2023.

5.4 Thus, the issue of long term capital gain arising from sale of shares of M/s. Sunrise Asian Ltd. was involved in those bunches of appeals before the Hon’ble jurisdictional High Court and after analyzing the fact the Hon’ble High Court has upheld the orders of this tribunal. Ld. AR has also relied upon various decisions of the Coordinate Benches of this Tribunal including in case of Ashok Agrawal vs. ACIT dated 18.11.2020 in ITANo.124/JP/2020 wherein the Jaipur Bench of the Tribunal has held in para 12 to 25 as under: Page 20 of 51 ITANo.470/Ind/2023 Sadhuram Balani “12. We have considered the rival submissions as well as the relevant material on record. The AO has doubted the transactions of purchase and sale of shares by the assessee of M/s. Sunrise Asian Ltd based on the investigation carried out by the Investigation Wing, Kolkata wherein certain persons were found indulged in providing accommodation entries, inter-alia bogus Long Term Capital Gains which is claimed as exempt under section 10(38) of the Act by the beneficiaries in order to facilitate the beneficiaries to convert their black money into white without paying Income-tax. The AO has narrated the modus operandi of various entry providers which is a general statement so far as the indulgence of certain persons in providing the accommodation entry of bogus long term capital gains as well as other transactions. However, in the said narration of modus operandi, there is nothing against the particular transaction of purchase and sale of shares by the assessee. The AO has specifically mentioned that during the course of enquiry in certain cases it has come to light that large scale manipulation has been done in the market price of shares of certain companies listed on Stock Exchange by a group of persons working as a syndicate for the purpose of providing entry of tax exempt bogus long term capital gains to large number of beneficiaries in lieu of unaccounted cash. These observations of the AO in the assessment order cannot constitute any tangible material or evidence to show that the transaction of the assessee is bogus being an accommodation entry. The AO in the show cause notice has stated that information has been received from the Investigation Wing, Kolkata vide letter dated 27.04.2015 that Sunrise Asian Ltd is engaged in giving entries of bogus LTCG and further, enquiries were made in the matter and it was found that BSE vide notice No. 2016110726 has declared Sunrise Asian Ltd to be suspended due to direction from SEBI. In reply to the show-cause, the assessee vide letter dated 13.12.2016 has specifically requested for such information/documents/statements and details of enquiry which has been conducted by the AO as apparent from his reply and the contents thereof read as under: “This refers to your Show Cause Notice (SCN) dated 08.12.2016 wherein your goodself has asked the assessee to justify as to why the Long Term Capital Gain (LTCG) and the Investment made by the assessee in the transactions of Equity Shares of M/s Sunrise Asian Ltd. (Sunrise) should not be treated as bogus and added back to the income of the assessee. In connection with the same, the assessee would like to submit as under 1. A perusal of the SCN shows that in para 1 of the SCN, your goodself has noted the following basis to treat the said transactions as bogus: (i) Information received from Investigation Wing, Kolkata vide letter dated 27.04.2015, wherein it was stated that Sunrise Asian Ltd is engaged in giving accommodation entries of LTCG. (ii) Enquiries were made in the matter and it was found that BSE declared Sunrise Asian Ltd., to be suspended due to direction from SEBI.

13. We however, find that no such information/documents/statementswas made available to the assessee thereby violating the basic principle of confronting the assessee with the documents which the Revenue wishes to rely against the Page 22 of 51 ITANo.470/Ind/2023 Sadhuram Balani assessee. Further, it is noted that in the assessment order so passed, the AO has made reference to a statement of Shri Vipul Vidur Bhatt recorded u/s 132 during certain search operations by the Investigation Wing, Mumbai and has relied on the same for holding the transaction as bogus by availing the accommodation entry of long term capital gain and beneficiary of the bogus LTCG scam.As the assessee was again not confronted with such statement during the show-cause notice and he came to know of the same from perusal of the assessment order, he raised the objection before the ld CIT(A) that no such statement of Shri Vipul Vidur Bhatt recorded u/s 132 was made available to him during the course of assessment proceedings and secondly, he deserves a right to cross-examine Shri Vipul Vidur Bhattwhose statement is being used against the assessee. However, we find that even during the appellate proceedings, the assessee was not made available any such statement and even the right of cross examination was denied by the ld CIT(A) who exercises the co-terminus powers as that of the AO. Thus, in view of the decision of Hon’ble jurisdictional High Court in case of CIT vs A.L Lalpuria Construction (P) Ltd (supra) and the decision of the Hon’ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra), the assessment based on statement of third party without giving an opportunity to the assessee is not sustainable in law. The Hon’ble Supreme Court in case of Andaman Timber (Supra) while dealing with the issue has held in para 5 to 8 as under:-

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

6.According to us, not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner as based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he as specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which could not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was no for the Tribunal to have guess work as Page 23 of 51 ITANo.470/Ind/2023 Sadhuram Balani to for what purposes the appellant wanted to cross-examine those dealer and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross —examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and made the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000 , order dated 17.2.2005 was passed remitting the case back the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause Notice." 14. Therefore, the statement of a third party cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity.Even on perusal of such statement of Shri Shri Vipul Vidur Bhatt, we find that it is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. The AO has either discussed the modus operandi of entry providers and their statements but has not made any reference of any material or documentary evidence which reveals that the assessee has indulged in availing the accommodation entry of bogus long term capital gain. There is no dispute that once the assessee has claimed the long term capital gain from purchase and sale of shares which is exempt under section 10(38) of the Act, the primary onus is on the assessee to substantiate his claim by producing the supporting evidence. We find that in the case in hand this is not an isolated transaction of purchase and sale of shares by the assessee of M/s. Sunrise Asian Ltd but the assessee has been regularly purchasing and selling the shares as it is evident from the details of the holding of various shares as reflected in the financial

Page 24 of 51 ITANo.470/Ind/2023 Sadhuram Balani 31st statements as on March, 2013 as under :-

Page 25 of 51 ITANo.470/Ind/2023 Sadhuram Balani

15. Thus as on 31.03.2013, the assessee was holding the shares of about 12 companies which include shares of M/s. SantoshimaTradelinks Ltdworth Rs 31,68,000/- which were acquired in the financial year 2011-12 and similarly reflected in the balance sheet as on 31.03.2012. We find that the assessee has duly reflected all these shares in the Balance Sheet as on 31.03.2012 as well as 31.03.2013 and the return of income for the assessment year 2012-13 and 2013-14 was also filed in time before the date of sale of the shares starting September 2013 onwards in various lots till March 2014. Thus it is clear that 158400 shares acquired by the assessee on 08.10.2011 were reflected in the Balance Sheet as on 31st March, 2013. We further note that the assessee produced the copy of allotment advice of these shares issued by the company along with the bank statement showing the purchase consideration paid by the assessee through cheque whereby the shares were allotted of face value of Rs 10/- at a premium of Rs 10/- each. The bank account of the assessee has reflected the payment of Rs. 31,68,000/- for purchase of shares. The AO has not disputed that subsequently there were events of amalgamation of the company with M/s. Sunrise Asian Ltd. pursuant to scheme of amalgamation duly approved by the Hon’ble High Court of Mumbai and consequently the assessee was allotted 158,400 shares of M/s Sunrise Asian Ltd as against 158,400 shares of M/s. SantoshimaTradelinks Ltd originally allotted by the company. The shares acquired by the assessee are duly reflected in the Demat account of the assessee. Once the shares are dematerialized and credited in the Demat account of the assessee, the holding of the shares by the assessee cannot be disputed. The AO has treated the transaction of sale of 158400 shares as bogus being accommodation entry but has not doubted the holding of these shares in the Demat account of the assessee. Once the assessee has produced all the supporting evidences which include allotment advice, bank statement showing the payment of purchase consideration, Demat account showing holding of shares in the Demat account, sale of the shares through Stock Exchange which are also reflected in the Demat account of the assessee and receipt of the sale consideration in the bank account of the assessee as it is evident from the bank account statement of the assessee, then in the absence of any contrary material or evidence brought on record by the AO, the transaction of purchase and sale of the shares in question cannot be held as bogus merely on the basis of the investigation carried out by the Department in some other cases where some persons were found indulged in providing accommodation entry. The AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record.

16. The ld. D/R has relied upon the decision of Hon’ble Delhi High Court in case of Suman Poddar vs. ITO (supra) wherein the Hon’ble High Court has confirmed the finding of the Tribunal and finally observed in para 8 as under :-

“ 8. From the above extract, it would be seen that the Cressanda Solutions Ltd. was in fact identified by the Bombay Stock Exchange as a penny stock being used for obtaining bogus Long Term Capital Gain. No evidence of actual sale except the contract notes issued by the share broker were produced by the assessee. No question of law,

Page 26 of 51 ITANo.470/Ind/2023 Sadhuram Balani therefore arises in the present case and the consistent finding of fact returned against the Appellant are based on evidence on record.”

Thus it is clear that in the said case the Tribunal’s finding is based on the fact that no evidence of actual sale except the contract notes issued by the share broker was produced by the assessee. In those facts, the Hon’ble High Court has held that no question of law arises in the said case. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction. Even if the AO doubted the transaction, then to establish that the transaction is bogus, the AO is required to produce the contrary material evidence so that the evidence produced by the assessee can be controverted. In the absence of such contrary material or evidence brought on record by the AO and the evidence produced by the assessee is otherwise independently verifiable being the documents in the shape of allotment advice, bank statement, Demat account, books of account and contract notes for which the assessee has no control or say, therefore, the said evidence cannot be manipulated by the assessee. Once the evidence produced by the assessee is not prepared or beyond the scope of any manipulation by the assessee, then the assessee has discharged his onus to prove the transaction of purchase and sale of shares and consequential capital gain. As we have already mentioned that this is not an isolated transaction of purchase and sale of shares in single scrip, but the assessee has been holding the shares of 12 companies out of which the AO has doubted only one scrip. Thus the decision of Hon’ble Delhi High Court will not help the case of the department.

17. The ld. D/R has also relied upon the decision of Hon’ble Guahati High Court in case of CIT vs Smt. Sanghamitra (supra). In that case, the AO, in the order of assessment, noted that though the shares were sold through bank account of the assessee, purchase of shares were not made through the bank account of the assessee. The AO also observed that since the return for the asst. yr. 2000-01 relevant to the year of purchase, was filed after the date of sale and that purchase of shares was not done through the bank account of the assessee, the actual event of purchase of the shares of assessee could not be verified and, therefore, it was apparently an afterthought and a modus operandi adopted to convert the undisclosed income into 'capital gain'. The director of the company was also summoned, but no such person was found available at the address of the company obtained from Guwahati Stock Exchange and no company by name of Birdhichand Pannalal Agency was in existence at the said given address. The share broker was also examined under section 131 and in course of examination, he stated that all records of purchase and sale of shares were lost and thus, the actual purchase and sale of shares could not be verified. The AO, therefore, treated the 'capital gain' as bogus and disallowed the long-term 'capital gain', sought to be exempted under s. 54 of the Act, to the tune of Rs. 15,33,160 and added back the same as income from undisclosed sources'. In the context of said facts, it was held by the Hon’ble High Court that where no documents could be produced in support of purchase and sale of shares and the transaction could not be verified, that in such situations, the genuineness of the transaction has to be examined from the surrounding circumstances and has held as under: “35. In the present case, the assessee has not been able to prove that the shares were purchased, on 12th Nov., 1999, in as much as there is no documentary evidence proving the said fact in as much as the said purchase was made in cash. Further, the assessee has also not been able to show

Page 27 of 51 ITANo.470/Ind/2023 Sadhuram Balani that the said shares were listed in the stock market @ Rs. 2.50, on the day of purchase, in as much as the assessee has produced the quotation of the shares as on the date of sale, issued by the Guwahati Stock Exchange, but no such quotation, on the date of purchase, was produced by the assessee.

36. There is no dispute that the sale amount was received by the assessee through bank; but what is disputed is as to whether the long-term 'capital gain', claimed by the assessee, was really a long-term 'capital gain' or not.

18. On the contrary, in the case in hand the assessee produced all the relevant documentary evidence to establish the genuineness of the transaction which are otherwise independently verifiable being the documents in the shape of allotment advice, bank statements showing payment towards the purchase and sale receipts, Demat account statement reflecting the purchase, conversion and subsequent sale of shares, financial statements and books of account and the return of income relevant for the assessment year pertaining to year of purchase and year of sale, the contract notes reflecting the transaction executed as per price prevailing on the stock exchange. We therefore find that unless these documentary evidence are proved otherwise or any Page 28 of 51 ITANo.470/Ind/2023 Sadhuram Balani contrary evidence brought on record, the assessee has discharged his onus to prove the transaction of purchase and sale of shares and consequential capital gain. Thus the decision of Hon’ble Gauhati High Court will not help the case of the department.

7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot be treated as a bogus transaction. Nobody can have the shares in his own name in demant account without acquiring or allotment through due process

Page 30 of 51 ITANo.470/Ind/2023 Sadhuram Balani hence, except the purchase consideration paid by the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon’ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee.

8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- “3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards.

It is manifest from the assessee’s reply to show cause notice that the assessee had specifically demanded the cross examination of Shri Deepak Patwari however, the Assessing Officer did not offer the opportunity to the assessee to cross examine Shri Deepak Patwari. Further, the AO asked the assessee to produce the Principal Officers of the M/s Gravity Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the Page 31 of 51 ITANo.470/Ind/2023 Sadhuram Balani Assessing Officer wanted to examine the principal Officers of those companies he was having the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon’ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: “5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue.

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

Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:-

Page 33 of 51 ITANo.470/Ind/2023 Sadhuram Balani “12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA- 385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant."

Page 34 of 51 ITANo.470/Ind/2023 Sadhuram Balani In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account.”

20. Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon’ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon’ble jurisdiction High Court in case of CIT vs. Smt. Pooja Agarwal (supra) has held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similar in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company by way of private placement of face value of Rs 10/- at a premium of Rs 10/- on payment of consideration by cheque and therefore, it is not a case of payment of consideration in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduction his unaccounted income in the shape of long term capital gain. The aforesaid decision of the Hon’ble Rajasthan High Court thus supports the case of the assessee and being of the jurisdictional High Court is binding on this Tribunal.

21. Further the AO has discussed the abnormal rise in the share price of the shares of Sunrise Asian Ltd without any under lying fundamentals. The Delhi Benches of the Tribunal in case of Mohan Lal Agarwal (HUF) vs ITO Ward (1)(4) (ITA 2767/ DEL/2018 order dated 26-11-2018) have held that Capital gains cannot be treated as bogus solely on the basis that the price of the shares has risen manifold and the reason for astronomical rise is not related to any fundamentals of market. If the transactions are duly proved by trading from stock exchange and the documentation is proper, the gains cannot be assessed as unexplained credit or as unexplained money. It was further observed that nowhere it has been found that assessee was in any manner found to be beneficiary of any accommodation entry under any inquiry or investigation and there is no material that any action has been taken by the SEBI against the company and the company has been black-listed or suspended from trading on account of price manipulation. Once all these transactions are duly proved by trading on stock exchange, then to hold the sale of shares as unexplained and bogus cannot be upheld. Similarly, in the instant case, we find that the AO has not brought on record any material or documentary evidence to show that the assessee has availed accommodation entry of bogus long term capital gains under any enquiry or Page 35 of 51 ITANo.470/Ind/2023 Sadhuram Balani investigation rather the assessee has produced all relevant documentary evidence in support of his purchase and sale transaction through the stock exchange and there is nothing on record that the trading in the scrip has been suspended by SEBI on account of any price manipulation. We therefore find that the assessee satisfies the necessary ingredients and conditions as so specified in section 10(38) of the Act, in terms of transfer of long term capital asset by way of sale of equity shares on which STT has been paid, he shall therefore be eligible for exemption in respect of whole of the income so realized on transfer of such shares as the provisions of section 10(38) talks about any income arising from transfer of such long term capital asset which shall be exempt from tax.

8. Before us, the learned Counsel for the assessee Shri Madhur Aggarwal stated the fact that assessee purchased the shares of listed company and held them for more than one year. He sold his shares on Bombay stock exchange platform through his broker Geojit and STT was paid on sale transactions. Thus, all the conditions of Sec 10(38) of the Act are fully complied. Hence, assessee being eligible, rightly claimed exemption of Long Term Capital Gains under Section 10(38) of the Act. He stated that the AO nowhere in the assessment order pointed out nor discussed non fulfillment or non-compliance of any conditions of Section 10(38) of the Act. Hence, rejecting the claim under section 10 (38) of the Act without giving reasons is wrong and contrary to the provisions of law. He then stated that the CIT(A) also confirmed the action of the AO just on the basis of conjunctures and surmises. He assailed the orders of the lower authorities. He argued and pointed out that Section 10(38) of the Act was inserted by Finance Act 2 of 2004 providing for exemption to long-term capital gains arising on sale/ transfer or equality shares in listed company, or unit of an equity oriented fund provided such transactions have suffered securities transaction tax under the said Chapter. If shares of listed companies purchased are sold on the exchange platform within one year paying STT then gain or loss is treated as short term capital gain taxable at concessional rate of tax as per the provisions of Income Tax Act and if these shares are sold on stock exchange after holding for exceeding one year paying STT then resultant gain or loss is treated as long term gain/ loss which is exempt from tax u/s 10(38) of the Act.

9. He referred that to the order of the AO and that of the CIT(A) and stated that both the authorities did not accept the above referred evidences filed by the assessee in support of his claim and by relying on the general study report of the investigating wing rejected the claim and held that the entire transactions undertaken by the assessee were merely an accommodation entries taken for the purpose of securing bogus long term capital gains and to claim exempt income and consequently assessed the sale proceed as an unexplained cash credit under section 68 of the Act. The AO has referred to the findings in the general study report of the Investigation Wing of Kolkata and Mumbai, wherein it laid down the purported modus operandi of converting unaccounted money into exempt LTCG. It is stated that a person acquires shares of penny stocks trading at low price either through private placement or on merger of private limited

Page 36 of 51 ITANo.470/Ind/2023 Sadhuram Balani company of which such person is a shareholder with a penny stock company. Thereafter unaccounted money flows to operator’s / exit providers who artificially raise the prices of penny stocks on stock exchange. Thereafter, the penny stocks are sold to earn huge exempt LTCG.

"In the case of M/s Pine Animation Ltd, the Investigation Wing Mumbai has conducted a survey action on M/s Saraf Equity Services Pvt. Ltd. on 03.12.2015, an exit provider in script Pine Animation Ltd. During the course of survey proceedings, statement on oath of Shri. Mandar Dilip Naik, Director of M/s. Saraf Equity Services Pvt. Ltd. was recorded wherein he has stated that M/s. Saraf Equity Services Pvt. Ltd. has indulged in providing exit to the beneficiaries in collusion with operator for making bogus LTCG transactions for a commission of 1%.

Further, on verification of the script M/s Pine Animation Ltd. it is seen that the other exit providers i.e. Dhriti Traders Pvt. Ltd, Dream valley Trading Pvt. Ltd., Dwarka purl Constructions P Led, Olympia Sales Agencies P Ltd, Particle Industries P Led, Signet Vinimay P Ltd, WinallVinimay P Ltd and Spice Merchants P Ltd have purchased shares of M/s Pine Animation Ltd to provide accommodation entry in the terms of LTCG. These entities are operated by entry operators whose statement has been recorded by the Investigation Wing wherein they have stated that they are an entry operator and is into the business of providing accommodation entries by managing and controlling various bogus entities, either directly or through his dummy directors."

AO observed that the persons listed above in the notice have purchased the shares of PAL and are exit providers and entry operator and are in the business of providing accommodation entries and relied upon their statements viz. Anil Khemka, Sanjoy Dey & Mandar Naik (director of Saraf Equity). The relevant observations in the assessment order reads as under: - Para 7.2: “The assessee has mainly traded in mainly in one script during the year which is suspicious”

Para 7.3: "As discussed above, the assessee traded in single scrip and has made huge profits."

Para 9: "Further, a SEBI order has been passed in the case of Pine Animation Ltd order vide dated 08.05.2015 which directs that the trading in the securities of shall be suspended till further directions...........The shares are sold by the beneficiaries have been purchased by paper/ bogus entities (e)it providers).

Para 11.3: ......to prove genuineness, proof of physical transfer of shares, reasons to trade off-market when options to online market trading through demat account were available, trading pattern of market transactions for the last three years, have not been submitted to this office Submissions on above:

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Page 38 of 51 ITANo.470/Ind/2023 Sadhuram Balani without any evidence or involvement mentioned in such investigation reports and statements of such persons. The seamless process of transactions at BSE as explained hereafter does not identify and provide us the identity of persons who have purchased those shares sold by assessee. The assessee has ordered his broker to sell the shares of PAL who in turn sold the shares on BSE platform. The assessee/his broker were not aware about the buyers or their brokers who purchased the shares of PAL sold by the assessee. The allegation of AO in para 7.2 and 7.3 of the Assessment order that that the assessee mainly traded in one script (PAL) which is suspicious is completely incorrect and not supported by facts. During FY 2014-15 (AY 2015-16) the assessee also traded in following scripts:-

STCG: ICICI Bank, b) Guj NRE, c) Gitanjali Gems, d) HFCL. E) Wondrella, f) Hind Motors, g) Tata Chem, h) Cr. Griev., i) Coal India, j) Unitech, k) Infosys, L) Tech Mahindra, m) HCL Techno LTCG: Pine animation, b) Sundaram Inv. C) Care rating, d) Kolte Patil, e) IDEA, f) Balmer Lawr, g) S. Clayton, h) GFL Finance, i) Sun Pharma

Page 39 of 51 ITANo.470/Ind/2023 Sadhuram Balani > When any customer orders the broker to sell any script, 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 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 does not have direct relation nor 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.

> 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 and transfer of amounts online to seller’s brokers bank account and shares to buyer's brokers demat account who in turn pays to the sellers and transfers shares to the demat account of the buyer. Hence sellers and buyers does not deal directly or come in contact nor their broker come in direct contact and neither of them know the contra party.

> The whole system of buying and selling of shares done on the stock exchange platform is faceless and SE platform deal with brokers only and parties deal with their brokers. For example, shares sold by X through its broker bought by ABCD broker for XYZ or vice a versa 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.”

Page 40 of 51 ITANo.470/Ind/2023 Sadhuram Balani credited to broker's bank accounts by the BSE and the assessee received payment from Geojit i.e. directly into his designated hank account. Copy of bank statement is filed in assessee’s paper book (APB).

19. Further, the assessee has no connection or nexus with the buyers as also the activities of the buyers. Even if the buyers are doubtful or of suspicious character that does not affect the transactions of sale of shares by the assessee through proper channel i.e. on the recognized stock exchange through the registered broker and payments were received. He argued that during search itself and in the course of investigation the department had made exhaustive survey and enquiry for these transactions from Geojit and other brokers and nothing incriminating was found against the assessee. The details, documents and third party evidences supporting the sale transactions and payments received have been filed by the assessee. The transactions were done at prices prevailing on the date of transaction and STT was paid on such transactions cleared through exchange clearance system.

SEBIs investigation did not find any adverse evidence against them to show any connection / nexus with PAL or its Promoters/ Directors or Promoter related entities or any role in price manipulation volume manipulation in the scrip of PAL. Hence, violation of provisions of SEBI Act, SCRA, PSUTP regulation, etc. were not observed in respect of the following 114 entities.

........21. Mahendra B Mittal .......32. Pooja Mahendra Mittal and other 112 entities as per SEBI order 10) "Considering the fact, that there are no adverse findings against the aforementioned 114 entities with respect to their role in the manipulation to the scrip of PAL, I am of the considered view that the directions issued against them vide interim order dt 08.05.2015 which were confirmed vide Orders dt. June 02, 2026, July 05, 2016, August 22, 2016 and June 02, 2017 need not be continued."

Page 41 of 51 ITANo.470/Ind/2023 Sadhuram Balani 11) In view of the foregoing, I in exercise of the powers conferred upon me under Section 19 of SEBI Act, 1992 read with section 11, 11(4) and 11B of the SEBI Act, hereby revoke the Confirmatory Orders dt.02.06.2026, 05.07.2016, 22.08.2016 and 02.06.2017 qua aforesaid the 114 entities with immediate effect."

22. These alleged exit providers were also exonerated by the SEBI Order and the remaining alleged exit providers viz. 1) Dwarkapuri Constructions P Ltd., 2) Olympia Sales Agencies P Ltd. and 3) Particle Industries P Ltd. were neither referred in the SEBI ex-parte order dated 08.05.201 5 nor in the final order dated 19.09.2017 which goes to prove that neither the assessee nor the exit providers alleged by the AO were involved in any arrangement or accommodation and hence , allegations of AO are wrong and without any evidence. Copies of SEBI ad-interim ex-parte order dated 08.05.2015, confirmatory order dated 02.06.2016 and final order dated 19.09.2017 are enclosed at pages 217-277 of APB. Subsequently, the SAT disposed-off the appeal of the assessee as infructuous and passed order accordingly vide order no. nil dated 26.09.2017. Copy enclosed at pages 278-283 of APB.

24. On the other hand, the learned CIT DR Shri Manjunatha Swami, argued that the entire transaction is bogus. He stated that he is relying on the elaborate order written by the AO and that of the CIT(A).

25. We have noted that PAL made a preferential allotment of equity shares in the year 2013. The assessee on application for shares was allotted the same at Rs. 10 per share.

Page 42 of 51 ITANo.470/Ind/2023 Sadhuram Balani The company had split the face value of its shares in 2013. Due to this, assessee received 15,00,000 shares against 1,50,000 shares allotted earlier. The assessee acquired the shares on the basis of guidance from his father and friends. The purchase and sale of shares was neither pre-planned nor under any arrangement with the company or any party related to it. The allotment of shares by PAL was made after obtaining prior approval of BSE as per SEBI Issue of Capital and Disclosure Requirements Regulation, 2009. We noted from the facts that as per the financials provided in the assessment order, it can be seen that the company had incurred a loss in FY 11-12 of Rs. 7 lakhs and has earned profit of 16 lakhs in FY 12-13. The fact that PAL was turned from loss making to profit earning itself demonstrates the fact that there was potential in PAL due to which the assessee purchased the shares. Further, the turnover, in the FY 2013-14 increased by 10 times as compared to the preceding previous FY and increase in the net profit after tax was almost around 4 times than that of the net profit recorded in the year of purchase. Moreover, the prices of the company were almost constant for a year. When the assessee thought that the prices had reached its peak, he slowly sold all the shares in a time span of 3 months. To prove the genuineness of the transactions, the assessee provided all the supporting evidences like, share application form, bank statement highlighting the transactions, contract notes, broker's ledger, demat statement Form 10DB, SEBI's final order, SAT Order, etc.

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b) Bank statement showing sale proceeds credited by the broker Geojit. Demat account of the assessee showing sold shares debited / transferred to broker. c) The sale consideration is received by assessee from Geojit, a registered broker of SEBI/BSE, with who has been dealing with Geojit for more than 10 years as per contract note directly in the bank account after shares are delivered from demat account and received by the assessee. Copy of demat account and bank statements where sale proceeds are received are submitted as discussed above. Geojit has also been examined and interrogated by the Investigation Department during search proceedings. Geojit's source is BSE settlement system. This explains identity of the creditor and source of money paid by assessee for genuine transaction of sale of shares. d) Sale is done at prevailing price quoted on the BSE. (BSE published quotations daily and rate list of the relevant dates can be produced if required) e) The shares are sold by assessee's broker on BSE platform and not off market to any buyer hence source is BSE's clearing system and broker. The transactions on the BSE platform and settlement system who are responsible for the transactions of the demat account and prevailing price on public domain prove the genuineness of the transactions. f) SEBI's final order dt. 19.09.2017 relating to PAL is enclosed. SEBI after detailed investigation into the transactions in the shares of these companies held that the parties to the investigation including assessee and alleged exit providers are having no nexus or connection with the company, their directors, promoters etc. and there is no price or volume manipulation in these scripts. This also explains the genuineness of the transactions and discards the theory of manipulation or accommodation to take tax advantage illegally.

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Page 47 of 51 ITANo.470/Ind/2023 Sadhuram Balani In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making Investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter would be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any findings specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the AO at best could have considered the investigation report as a starting point of Investigation. The report only Informed the AO that some persons may have misused the scrip: for the purpose of collusive transactions. The AO was duty bound to make inquiry from all concerned parties relating to the transactions and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the AO has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions.

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23. In the aforesaid decision, it has been held that it is SEBI who monitors and regulates the stock exchanges & stock market and when their investigation did not reveal any price or volume manipulation by the assessee and these transactions are in the normal course through proper & legal channels. Then the allegations of the IT Department fall flat and denial of deduction u/s 10(38) of the Act is arbitrary and addition of sale proceeds of shares of PAL u/s 68 is against the provisions of Act. In the case in hand, the ld. AO has referred to SEBI enquiry against M/s Sunrise Asian Ltd. However, we note that the said enquiry was regarding failure to comply with certain disclosure requirements and therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain and has no bearing in judging the genuineness of the transaction undertaken by the assessee or for that matter, the price and realization on sale of shares so undertaken by the assessee through the stock exchange. Further, it has been held in the aforesaid case that the findings of investigation & modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee's involvement or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc and for making the addition, it is necessary to bring on record evidence to establish ingenuity in transactions or any connection of the assessee or its transaction with any of the alleged parties. In the instant case, as we have discussed earlier, there is no finding which proves assessee’s connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not has been discussed at length. And referring to legal proposition laid down by the Hon’ble Supreme Court that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific evidence is brought on record to controvert the validity and correctness

Page 49 of 51 ITANo.470/Ind/2023 Sadhuram Balani of the documentary evidences produced, the same cannot be rejected. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below.

Page 50 of 51 ITANo.470/Ind/2023 Sadhuram Balani jurisdictional High court as well as Coordinate Bench of this Tribunal we hold that the assessee has established without any doubt the genuineness of transactions of purchase and sale of shares with undisputed supporting evidences and therefore, addition made by the AO on account of long term capital gain claimed as exempt u/s 10(38) of the Act is unwarranted and the same is deleted.

Order pronounced in the open court on 24.09.2024.