Loading judgment…
Facts
The Revenue appealed an order by the NFAC, Delhi, concerning assessment year 2015-16. The assessee had claimed long-term capital gains from transactions on which Security Transaction Tax was paid. Information was received regarding alleged penny stock transactions, leading to the issuance of a notice under Section 148.
Held
The Tribunal affirmed the order of the CIT(A), holding that the impugned transactions of capital gain were genuine. The Tribunal found that the Assessing Officer failed to produce evidence of the assessee's involvement in share price rigging or manipulation, and that the SEBI's orders did not name the assessee. Consequently, the additions made under Section 68 and Section 69C were deleted.
Key Issues
Whether the addition on account of alleged unexplained cash credit and cash commission was justified, given the documentary evidence and the absence of direct evidence of manipulation or un-routed money.
Sections Cited
147, 148, 143(2), 142(1), 131, 10(38), 68, 69C, 49
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DELHI
Before: SHRI MAHAVIR SINGH, HON’BLE
ORDER This appeal by the Revenue is directed against the order of the NFAC, Delhi passed relating to assessment year 2015-16. The Revenue has raised the following grounds:- “Whether the impugned order given by the CIT(A) is perverse both on the law and the facts of the case (ii) whether the impugned order given by the Ld. CIT(A) is perverse on the law by wrongly interpreting the adjudicating order of SEBI that name of the assessee is not mentioned in the order of SEBI. When it is clear that the SEBI has raised question on trading activity of scrip under question and also banned 23 entities which were engaged in trading of shares and rigging of its prices (iii) whether the impugned order given by the CIT(A) is perverse both on the law and the facts by ignoring the legal sanctity of the statement u/s. 131 of the Act of Sh. Dipen Patel by questioning the integrity of the confession made by him where the statement given by a person on oath is a legally valid evidence and carries high evidentiary value.
2. Briefly stated, facts are that in this case, the assessee filed her return on 09.10.2015 declaring total income of Rs. 4,15,910/-. The assesee claimed exempt income to the tune of Rs. 37,97,757/- on account of “Long term Capital gains from transactions on which Security Transaction Tax is paid” Subsequently, credible information as received from the Deputy Director of Income Tax (Investigation), Unit 2(2), Mumbai with regard to transactions made in penny stocks, namely M/s Sunstar Realty Development Limited (PAN : AAMCS4495C) with Scrip Cod : 535141 by the assessee during the previous year 2014-15. Notice u/s. 148 dated 30.3.2021 of the I.T. Act, 1961 was issued and served upon the assessee. In response to the notice u/s. 148 of the Act, the assessee filed return on 21.4.2021 declaring total income of Rs. 4,15,910/- and claimed exempt income to the tune of Rs. 37,79,757/- on account of “Long Term capital gains from transactions on which Security Transaction Tax is paid”. Notice u/s. 143(2) of the Act dated 30.6.2021 and notice u/s. 142(1) dated 17.12.2021 were issued and duly served upon the assessee. Meanwhile, the reason recorded for issue of notice u/s. 148 of the Act was issued to the assessee vide letter dated 22.11.2021. Assessee filed her objection against the reopening of the case for assessment u/s. 147 of the Act, while also on merits explaining in details that 20,000 shares of M/s Sunstar Realty Development Ltd. Were purchased by the assessee on 24.12.2012 at the cost of Ras. 10/- share, totaling to Rs. 2,00,000/- and sold 19,800 share of Rs. 39,60,057/- during the year under consideration. After considering the evidences, the AO vide assessment order dated 30.3.2022 concluded the proceedings by assessing the total income of the assessee at Rs. 44,24,600/- after making the addition of Rs. 39,69,000/- on account of unexplained cash credit u/s. 68 and of Rs. 39,690/- on account of cash commission u/s. 69C. In appeal, Ld. CIT(A) by following the decision of the jurisdictional Tribunal held that the impugned transactions cannot be treated as bogus / non-genuine/accommodation entries in a general manner without specific enquiry in this regard, hence, he deleted the addition in dispute by partly allowing the appeal of the assessee. Aggrieved, the Revenue is in appeal before the Tribunal.
3. At the time of hearing, Ld. DR submitted that the order of Ld. CIT(A) is not acceptable as AO in his remand report has discussed in detail the reason for making addition on the issue of bogus LTCG exemption claimed by the assessee and the cash commission paid in lieu of accommodation entry in the form of bogus LTCG exemption claimed. The main evidence on which AO has relied upon while making addition in the hands of the assessee is the statement recorded u/s. 131 of the Act of Sh. Depen Patel, Promoter of the company who admitted in his statement that M/s Sun Star Realty Development Limited is a penny scrip and the whole arrangement of its listing and trading was done to provide a medium for the beneficiaries of its listing and trading was done to provide a medium for the beneficiaries to route their unaccounted money into the banks and by claiming exemption u/s. 10(38) of the Act. It was further submitted that AO has also relied upon the statement of some of the beneficiaries recorded on random basis such as Sh. Gaurav Suresh Aggarwal. The AO also relied upon the fact that notices were issued to many exit provider but all of them failed to comply such notices and never filed any submission in response to these notices issued. Furthermore, one of the exit providers Sh. Kamal Kumar Kothari, is a regular offender and ahs been banned by the SEBI for further trading. She further submitted that the financial worth of the said company was meagre and, moreover, there was abnormal rise in price of shares i.e. 20 times in the short span of 16 months and that is even without any extraordinary increase in profits of the company. Hence, she submitted that action of the Ld. CIT(A) in deleting the additions in dispute is not justified.
4. Per contra, Ld. AR has relied upon the order of the Ld. CIT(A) and submitted that he has passed a well reasoned order which does not need any interference on my part.
5. I have heard the rival contentions and gone through the facts of the case. I find that Ld. CIT(A) has discussed the issue in dispute elaborately by observing as under:-
“10. Grounds No. 4, 5, 5.1, 5.2 and of the appeal have been raised in respect of addition of Rs. 39,69,000/- on account of alleged unexplained cash credit without considering that the assessee had purchased 20,000 equity shares @Rs, 10 per share and sold the same during F.Y. 2014-15. The Assessing Officer was of the view that the entire transaction was pre-arranged and rigged as the stock prices had gone up steeply. However, there is no evidence on record that the appellant was involved in the price rigging. Besides, the assessee sold the shares of M/s Sunstar Realty Development Ltd at the average rate of Rs. 200 per share where as the shares subsequently rose 214% higher than the price at which the appellant sold the same. The Assessing Officer, has also not disputed the fact that M/s Sunstar Realty Development Ltd has neither been declared a shell company by the Government nor it has been black listed. Besides the shares were purchased on 24.12.2012 and sold in the year 2014, indicating that the holding period was substantial. Besides, the transactions took place through stock exchange and through banking channels. Brokers notes and all evidences were produced. The Assessing Officer relied upon some statements from alleged operators and exit providers (counter parties in transaction of appellant) and without establishing any cash trail to prove any unaccounted money exchanged hands between the appellant and the alleged exit providers/operators. Such statement without providing any cross examination do not carry any evidentiary value. It is settled legal position that any statement cannot be used against a party who was not provided opportunity to cross examine the deponent. Reliance is placed on the judgement of the Hon'ble Supreme Court in the case of Andman Timbers Industries Vs. Commerce of Central Excise, Kolkata Vide Civil Appeal No. 4228 of 2006 dated 02.09.2015.It is settled legal position that suspicious how so strong cannot be a substitute of legal proof. I find that in the remand proceeding, the AO referred to an adjudication order of SEBI but the name of the appellant does not appear in it.Thus, the AO has failed to bring on record any evidence to the effect that the appellant or broker M/s Anand Rathee Shares and Stock Brokers Ltd was ever involved in the share price rigging of any shares being traded at BSE/NSE. Besides in the above order of SEBI the name of the present appellant does not appear. Further regarding rigging the reply of the appellant in rejoinder to remand report is as under:-
"Reply to Para no.6 of the AO's comments: The Ld. AO's averment are wrong and denied and apart from the fact that the Ld. AO has tried to draw reference to extraneous information which was not a part of either the assessment order or confronted to the assessee during the assessment proceedings, it would be pertinent to note, in any case, that the purchase by the assessee of the scrip of Sunstar Realty Development Limited was done on 24.12.2012 and the proceedings of the SEBI sought to be relied upon concerned themselves with the trading activity between November, 2013 and June, 2015 and therefore, there cannot be any adverse inference drawn upon the assessee being an innocent investor. In furtherance of our response to Para No.6 of the AO's comments, it is also essential to highlight that the Ld. AO has placed reliance on the order of SEBI in the case of Sunstar Realty Development Limited wherein an identification of 23 noticees was done, of which the assessee was not a part of, who were claimed to be orchestrators and beneficiaries of the manipulation. Therefore, no adverse inference can be warranted in the case of the assessee solely by impugning the choice of broker of the assessee, i.e. Massive Management Consultancy Private Limited being the same as that of a single notice, i.e. Hari Mohan Beriwala and family, in the SEBI proceeding. It is also pertinent to note herein that the aforementioned broker was not made a notice by the SEBI in the adjudication proceedings and no penal action was undertaken against the said broker". 10.1 From the above submissions of the appellant and from the perusal of the adjudication order of SEBI, it is crystal clear that the appellant's name does not appear in the order of SEBI. Besides, the Assessing Officer has also admitted that the SEBI has not blacklisted the scrip in question. It is further found that the shares were purchase/sold through Stock Broker, Brokers notes were produced, and the transactions were made through the banking channels. Therefore, I do not find any reasons for application of the provisions of section 68 and 69 of the I.T. Act, 1961. Therefore, I am of the considered opinion that the decision of the Hon'ble Bombay High court in the case of PCIT Vs. Indravadan Jain HUF in of 2018 dated 12.07.2023, squarely covers the issue in favour of the appellant wherein, the Hon'ble High Court held as under: - "The A.O. did not accept respondent's claim of long term capital gain and added the same in respondent's income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A. O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT(A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker. deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal". 10.2 It is further, observed that the appellant is a regular investor and its share holding period is quite substantial and it traded the shares of M/s Sun Star Realty Development Ltd for the period 2012 to 2014. Besides, the shares were sold at average price much lower than the peak price. The trading in shares of Sunstar Realty Continued till 30.10.2019. 10.3 I find that there is force in the contention of appellant that M/s Sunstar Realty Development Ltd is not a penny stock company. Penny stocks are generally associated with companies that have a small market capitalization. If the company whose shares are traded by the appellant has a market capitalization that is higher than the shares, are not penny stocks. However, it is submitted by the appellant that Sunstar Realty Development Ltd. was incorporated on 30.06.2008, with having share capital of Rs.25,00,00,000/- and paid-up capital of Rs. 23,62,30,000/-. During the year under consideration i.e., F.Y. 2014-15, The company has reported total income of Rs. 1849.63 lakh and Reserve & Surplus of Rs. 154.18 lakh. The total Assets of the company is Rs.4093.73 lakh, which consist of Tangible Fixed Assets, Intangible Fixed Assets, Investments, Trade Receivables, Inventory, cash and bank balance. 10.4 It is seen that in para 3.3 (iv) of the assessment order the AO has stated that the exponential rise in market price is not justfed. However, it is submitted that the profit of the company and total income have gone substantially up from 2012-13 to 2014-15, justifying the financial credentials of the company. Besides, had the appellant been aware of the future sharp rise of price of the scrip she would have sold the shares at 214% higher rate. The financial soundness of the company can be inferred from the data of total income and profit of the company, tabulated F.Y. 2012- 2013-14 2014-15 2015-16 13 (in lakh) (in lakh) (in lakh) (in lakh) Total 209.13 1734.52 1849.63 748.49 incom e Profit 25.78 96.29 92.82 15.34
Thus, the financial performance of the company justified the rise in prices. Having considered the assessment order, the submissions of the appellant and the remand reports of the AO, I find that the appellant had duly submitted before the AO all the requisite details and evidences, such as, purchase bills, statement of Bank accounts reflecting payment of purchases of shares, Notices issued by BSE related to the listing of equity shares of Sunstar Realty Development Ltd, complete detail of investment in shares, statement of transaction from broker, M/s Anand Rathi share and stock Brokers Limited, form 10DB, the list of shell companies issued by the SEBI, which did not include M/s Sunstar Realty Development Ltd, holding statement of shares, contract notes, statement of transaction of sale of shares, ledger account for sale of shares and BSE notice on split of shares. Therefore, in light of all these evidences, I am of the firm view that the action of the AO in making addition of Rs. 39,69,000/- on account of alleged bogus long term capital gain as unexplained cash credit u/s 68 and Rs. 39,690/-on account of cash commission u/s 69C of the IT Act, 1961 cannot be upheld, as it is unjustified in law, in the facts and circumstances of the case. Besides the case of the appellant is covered in favours of the appellant by the judgement of the Hon'ble ITAT Kolkata A Bench in the case of ITO Vs. Shaleen Khemani in TIA No. 1945/Kol/2014 dated 18.10.2017 at para 9.1 held as follows:- "9.1 We further find that the transaction of sale of shares by the assessee was duly backed by all evidences including Contract Notes, Demat Statement, Bank Account reflecting the transactions, the Stock Brokers have confirmed the transactions, the Stock Exchange has confirmed the transactions, the Shares have been sold on the online platform of the Stock Exchange and each trade of sale of shares were having unique trade no. and trade time. It is not the case that the shares which were sold on the date mentioned in the contract note were not traded price on that particular date. The Id AO doubted the transactions due to the high rise in the stock price but for that, the assessee could not be blamed and there was no evidence to prove that the assessee or any one on his behalf was manipulating the stock prices. The stock exchange and SEBI are the authorities appointed by the Government of India to ensure that there is no stock rigging or manipulation. The id AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee and or the brokers and or the Company. In absence of any evidences, it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is also to be seen that in this case, the shares were held by the Donors from 2003 and sold in 2010 thus there was a holding period of 7 years as per Section 49 of the Act and it cannot be said that the assessee and the Donors were making such plans for the last 7 years to rig the stock price to generate bogus capital gains that too without any evidences whatsoever". 10.5 In light for foregoing discussion, and the facts and circumstances of the case. it is held that the impugned transactions of capital gain are genuine and the provisions of section 68 are not applicable on the facts of the present case. Accordingly, the addition of Rs. 39,69,000/- made u/s 68 and addition of Rs. 39,690/- u/s 69Cmade by the Assessing Officer are hereby deleted. Accordingly, grounds nos. 4, 5, 5.1, 5.2 and 6 are allowed.”
In the background of the aforesaid discussions and upon careful perusing the finding of the Ld. CIT(A), as reproduced above, I note that Ld. CIT(A) has rightly deleted the addition of Rs. 39,69,000/- u/s 68 of the Act made by the AO and addition of Rs. 39,690/- u/s. 69C of the Act, basically due to the reasons that AO has not disputed the fact that M/s Sunstar Realty Development Ltd. has neither been declared a shell company by the Government nor it has been black listed. Moreover, the shares were purchased on 24.12.2012 and sold in the year 2014, which indicate that the holding period was substantial. Further, it is noted that AO has failed to bring on record any evidence to the effect that the appellant or broker M/s Anand Rathee Shares and Stock Brokers Ltd. Was ever involved in the share price rigging of any shares being traded at BSE/NSE and in the order of the SEBI the name of the assessee does not appear and AO has also admitted that the SEBI has not blacklisted the scrip in question. The shares were purchased / sold through stock broker, brokers notes were produced and the transactions were made through the banking channels. It is further noted that during the FY 2014-15, the company has reported total income of Rs. 1849.63 lakh and Reserve and Surplus of Rs. 154.18 lakh. The total assets of the company is Rs. 4093.73 lakh, which consist of Tangible Fixed Assets, Intangible Fixed Assets, Investments, Trade Receivables, Inventory, cash and bank balance. The financial performance of the company justified the rise in prices. In view of the aforesaid factual matrix, I am of the considered view that Ld. CIT(A) has passed a well reasoned order, which does not need any interference on my part, hence, I affirm the action of the Ld. CIT(A) in deleting the addition made u/s. 68 and its consequential addition made u/s. 69C of the Act, accordingly I reject the grounds raised by the Revenue.
In the result, the Revenue’s appeal stands dismissed.