KAMLESH KUMAR GADIYA,SURAT vs. INCOME TAX OFFICER, WARD-1(2)(2), SURAT, SURAT

During the assessment proceedings, the assessee submitted its written submissions and other details and stated that object of the assessee was not to deal in penny stock transaction and assessee in fact was not aware that the scrip "Lifeline Drugs & Pharma Ltd" is a penny stock or not. However, the Assessing Officer rejected the contention of the assessee and observed that the scrip named "Lifeline Drugs & Pharma Ltd" was having no financial strength as well as no substantial business activities in the company during the period of purchase of shares to period of sales by the assessee. On the other hand, in contrast to the financial position, the share price of the concern was jacked up to in the range of Rs. 36.10 (at the time of purchase) to Rs. 249.90 (at the time of sale) for reaping of bogus LTCG to the beneficiaries. The Assessing Officer has noted that the assessee has purchased 100 shares of Lifeline Drugs & Pharma limited on 14.03.2012 from Broker M/s Purva Sharegistry (INDIA) Pvt. Ltd., and the shares were purchased offline but the same was acquired through banking channel. The Assessing Officer has further noted that the assessee is not a regular trader or investor in the shares. The Assessing Officer observed that the assessee has entered into above share transaction though above mentioned circular trading to take accommodation entry of bogus exempted long term capital gain. The Assessing Officer therefore held that the assessee has taken accommodation entry of bogus exempted long term capital gain of Rs.5,97,489/- and the claim of the assessee for exempt LTCG to the tune of Rs. 5,97,489/- was rejected by the Assessing Officer and added to the total income of the assessee u/s 68 of the Act for the year under consideration on account of unexplained credit entries.

Shri Aditya Nemani, Learned Counsel for the assessee, argued that assessee made transaction in the scrip of ‘Lifeline Drugs & Pharma Ltd.” and said scrip Kamlesh Kumar Gadiya Vs. ITO Asst. Year : 2014-15 - 4– is covered by the judgment of Co-ordinate Bench of Kolkata in the case of Shri Sanjay Kumar Patwari (HUF) vs. ACIT, Cir-3, Kolkata in 2270/Kol/2018 & 205/Kol/2018 for A.Ys. 2012-13-2013-14, 2015-16 & 2014-15, order dated 08.05.2019. The Ld. Counsel also argued that during assessment stage, assessee submitted copy of bank statement highlighting purchase of share, contract note for sale of shares, copy of bank statement, copy of contract for sale of shares in subsequent years, copy of computation of income of subsequent year and relevant extract of income tax return. Therefore, Ld. Counsel contended that the order passed by the Assessing Officer is bad in law as the Assessing Officer has failed to point out the mistake in the documents and evidences submitted by the assessee. The Ld. Counsel for the assessee also relied on the following judgments:  CIT-13 vs. Shyam R. Pawar (2015) 229 Taxman 256 (Bom.)  CIT vs. Mukesh Marolia ITANo.456 of 2007 date 07.09.2011 (Bom)  PCIT vs. Krishna Devi TA No.125 of 2020 dated 15.01.2021 (Del)  Chandra Prakash Jhunjhunwala vs. DCIT ITANo.2351/Kol/2017 dated 09.08.2019  Radhika Garg vs. dated 01.01.2019  Mahavir Jhawar vs. ITO dated 01.02.2019  Manish Kr. Baid vs. ACIT ITANo.1236/Kol/2017 dated 18.08.2017  Amar Nath Goenka vs. ACIT ITANo.5882/Del/2018 dated 12.12.2018 The Ld. Counsel also stated that assessee has sold some shares in subsequent years, however, Assessing Office has not made addition.

The ld Counsel further argued that Assessing Officer made addition of Rs.17,925/-, as unexplained expenditure u/s 69C of the Act, by treating it as a 3 per cent commission on LTCG without unearthing any person or any evidence of movement of cash. Thus this observation is again a blatant lie as no evidence in support of above contention has been cited even in the assessment order. The ld Counsel has argued that the Assessing Officer presumed that the assessee paid commission of Rs. 17,925/- out of books and proceeded to make addition of this amount u/s 69C of the Act but failed to identify any such person and even failed to put on record any evidence of movement of cash between the assessee and any person. Therefore, ld Counsel contended that both these additions made by the Assessing Officer may be deleted.

On the other hand, Ld. Sr.DR for the Revenue defended the order passed by NFAC/Ld. CIT(A) and he submitted that judgments relied on by the Ld. Counsel, in the case of Shri Sanjauy Kumar Patwari (HUF) (supra) does not cover the assessee’s case, as entire facts of the assessee are different. The Ld. DR also pointed out that the plea of Ld. Counsel to the effect that in Kamlesh Kumar Gadiya Vs. ITO Asst. Year : 2014-15 - 5– subsequent year, the assessee has sold some shares but the Assessing Officer did not make addition in respect of impugned scrip, is not accepted, because in subsequent year, the assessment order was framed u/s 143(1) instead of 143(3) of the Act, therefore, Assessing Officer did not get opportunity to examine the assessee’s facts. Besides, commission payment is inherent in this type of business hence, addition of Rs.17,925/-, as unexplained expenditure u/s 69C of the Act made by the Assessing Officer may also be upheld. The Ld. DR also relied on the findings of Assessing Officer and stated that the order passed by the Assessing Officer may be upheld.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We note that assessee before us submitted the following documents and evidences, Viz: (i) Copy of bank statement, highlighting purchase of shares, (vide paper book page No.1) (ii) Contract note for sale of shares during year under consideration (vide paper book page no.2-3) (iii) Copy of bank statement highlighting sale of shares (vide paper book page no.4-5) (iv) Holding statement for the Month of Dec. 2012 ( vide paper book page 6-7) (v) Copy of contact for sale of shares in subsequent years (vide paper book page 8) (vi) Copy of computation of income of subsequent year and relevant extract of the ITR (vide paper book pages 9-12). We have examined the above documents and evidences. It is well settled position of law that, an assessee receiving a credit has to testify its case through the 'triple marker test' of identity, Creditworthiness and Genuineness of Transactions. It is imperative, therefore, that the case be analysed in light of these three well settled canons of adjudication, as embedded in the statute, as also promulgated by various judicial pronouncements. The onus of proof requires the assessee to furnish the proof of identity, creditworthiness and genuineness of the transaction. We note that in assessee`s case under consideration, the assessee has submitted the copy of Contract note. The said contract notes show the quantity, rate, time, stamp, value, taxes and charges viz. STT, brokerage, SEBI and exchange turnover charges, service tax and stamp duty incurred on all the transactions done on stock exchange platform. These documents have been accepted by the assessing officer. The transactions are done through proper banking channel and the sale is done at prevailing price quoted on the Stock Exchange. Hence, by submitting these documents, the assessee has proved identity, creditworthiness and genuineness of the transactions.

We note that Hon`ble Jurisdictional High Court of Gujarat in the case of Jagat Pravinbhai Sarabhai, [2022] 142 taxmann.com 247, held that where Assessing Officer noted that assessee had indulged in scrip of shell company and had claimed long term capital gain on sale of shares and made addition Kamlesh Kumar Gadiya Vs. ITO Asst. Year : 2014-15 - 6– under section 68 holding that entire transaction was bogus and in the nature of penny stock, however, since genuineness of investment in shares by assessee was substantiated by him by producing copy of transaction statement for period from 1-6- 2001 to 1-10-2010 and shares were retained for more than ten years and were sold after such long time, hence investment was not bogus therefore it cannot be treated that investment was made in penny stock. The findings of the Hon`ble Court is reproduced below: “2. As submitted by learned senior advocate Mr. M.R. Bhatt for M.R.Bhatt and Co., the appellant revenue proposes the following substantial questions of law, which according to the submission requires examination. "Whether on the facts and circumstances of the case and in law, the decision of Appellate Tribunal is ex facie perverse because the Appellate tribunal deleted the addition of Rs. 2,10,474/- made on account of bogus long term capital gain, without appreciating the entire gamut of fact that the assessee transacted in penny stock namely M/s. Devika Proteins Ltd. thus earning bogus Long term Capital Gain and claiming it to be exempt under section 10(38) of the Income-tax Act?"

The finding recorded by the appellate authority and confirmed by the appellate tribunal is based on material before them. They are in the realm of findings of fact. No error could be noticed in the findings and conclusion that the investment was longstanding and genuine and was not penny stock on the basis of which the capital gain was wrongly claimed. 6.1 On the facts of case, no question of law much less substantial question of law arises.

We note that the Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee, under these circumstances nothing can be implicated against the assessee. One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee is accepted and the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares is allowed and hence exempt from income tax. Based on the above factual position, we deleted the addition of Rs.5,97,489/- .

In the result, ground No.1 and 2 raised by the assessee is allowed.

In ground no.3, assessee stated that Assessing Officer made addition u/s 69C on account of commission paid @ 3% of bogus long term capital gain. Since, we have deleted the alleged addition of Rs.5,97,489/-, hence addition made by Assessing Officer does not have leg to stand, therefore it is hereby deleted, and hence ground No.3 raised by the assessee is allowed.”

In the result, the appeal of the assessee is allowed.