HEMANTKUMAR MANSUKHLAL SONI, HUF,AHMEDABAD vs. THE ITO, WARD-1(3)(1), AHMEDABAD

Assessment Year : 2017-18 Hemantkumar Mansukhlal Soni, HUF ITO, Ward-1(3)(1) 2254 Mahurat Pole Vs Ahmedabad. Manekchowk Ahmedabad-380001. PAN : AABHH 1182 F (Applicant) (Responent) : Assessee by Shri S.N. Divatia, AR and Shri Samir Vora, AR Revenue by : Ms.Saumya Pandey Jain, Sr.DR सुनवाई क� तारीख/Date of Hearing : 18/06/2024 घोषणा क� तारीख /Date of Pronouncement: 04/09/2024 आदेश/O R D E R आदेश आदेश आदेश PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER This is assessee’s appeal against the order of the ld.CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 27.04.203 15.3.2023 passed under section 250 of the Income Tax Act, 1961 (“the Act” for short) for the assessment year 2017-18.

2. The grounds raised in the appeal are as under:

“1.1 The order passed by U/s,250 passed on 27.04.2023 by NFAC,(CIT(A), Delhi, (for short NFAC) upholding that the capital gain on sale of shares of Monotype India Ltd. was not genuine and thereby upholding the addition of Rs.59,93,278/- as unexplained credit u/s 68 made by A.O. is wholly illegal, unlawful and against the principles of natural justice. 2.1 The Id. NFAC has grievously erred in law and or on facts in not considering fully and properly the submissions made and evidence produced in support of the capital gain. The Id.NFAC has grossly ignored crucial facts relating to the impugned capital gain such as the holding period, manner of purchase and sale etc.

3.1 The Id. NFAC has grievously erred in law and or on facts in upholding that the capital gain on sale of shares of Monotype India Ltd. was not genuine and thereby upholding the addition of Rs.59,93,278/- as unexplained credit u/s 68 made by AO. 3.2 That the in the facts and circumstances of the Id. NFAC ought not to have upheld that the capital gain on sale of shares of Monotype India Ltd. was not genuine and thereby upholding the addition of Rs.59,93,278/- as unexplained credit u/s 68 made by A.O.”

3. Ground no.3.1 and 3.2 were stated by the Ld.Counsel for the assessee to be the only effective grounds for adjudication before us. Ground no.1.1 and 2.1 were stated to be general in nature and therefore are not being dealt with by us.

3 6. The ld.DR, on the other hand, has vehemently opposed the contentions of the ld.counsel for the assessee relying on the orders of the authorities below, stating that the Department had sufficient evidence proving that the transaction of sale of shares was bogus, pre- mediated and a mere accommodation entry and the assessee was unable to discharge its onus to prove genuineness of the same.

4 The assessee has argued that it had discharged its onus of proving the genuineness of the transaction by pointing out that – i) All documentary evidences of purchase and sale of this particular share were filed; ii) The purchase and sale transactions were shown to be undertaken through banking channels; iii) Purchase was effected in 2011 while the sale was effect in 2016 and 2017 i.e. after a gap of five to six years; iv) Shares were DEMATED immediately on purchase and sales were booked also through DEMAT account; v) The assessee was trader of shares dealing in a number of shares /scrips that too through a renowned broker, M/s.Sharekhan Ltd. and the impugned transaction of sale of shares of Monotype India Ltd. was carried out through this renowned share broker; vi) Shares of Monotype India Ltd. were sold in various lots during the year with the sale prices fluctuating from Rs.36 to Rs.17.

“2. In response to the financial transaction mentioned in the Return of Income we would like to state as under. a. We had shown the consolidated capital gain entry in the Return of Income for the A.Y. 2017-18 for the whole financial year. b. We are having trading account with Prominent Broker viz. Sharekhan Ltd since long time wherein we do the purchase and sales transactions of all the shares regularly and keep the Handy Records in excel wherein we regularly update the purchase and sale entries. The same had happened during the current financial year also. c. Further I am attaching herewith the copies of Bank statements, Contract notes, and purchase note related to the transactions of Monotype

5 India Ltd ( earlier known as Gateway distributors Ltd) where it is clearly reflected that the purchase transaction have been carried out Properly and payment has been made by cheque and sales transactions have been carried through recognised stock exchanges. (Details as per Annexure 2) 3. We are attaching herewith the capital gain computation for the A.Y. 2017- 18 for your reference. (Details as per Annexure 3) In view of the above, I urge and state that, the amount which you are referring in to your notice ie. Rs.59,93,278/- is not the Income which is escaped from Assessment and it is already covered in the computation sheet.”

• The bill of Bholebaba Suppliers P.Ltd. for purchase of shares of Monotype India Ltd. (earlier known as Gateway Distributors Ltd.) dated 31.1.2011 for purchase of 3,00,000 shares for Re.1/- each. • Account of the assessee with broker Sharekhan Ltd, engaged by the assessee for the impugned year, revealing dealing in shares of various companies scrip placed pate PB Page no.49 to 51. • Our attention was also drawn to PB Page No.52 containing client-wise, scrip-wise detailed report of scrip traded in by the assessee during the year issued by the broker Sharekhan Ltd. for the period 1.4.2014 to 31.3.2017 reflecting different scrips traded by them, on behalf of the assessee during the year. Thus, pointing out that the impugned scrip of Monotype India Ltd. was not the only scrip which has been dealt by the assessee. • At page no.53 was placed a scrip wise detailed report of Sharekhan Ltd. revealing that the scrip of Monotype India Ltd. was sold by the assessee in different lots from August, 2016 to 6 April, 2017 with price ranging from Rs.36.20 per share to Rs.17.25 per share. The shares initially being sold at the higher price and later on decreasing in its value to Rs.17.25 per share.

“This is in reference to the above captioned Notice where we have been required to furnish its reply that why the addition should not be made of Rs.59,93,278/-to the total income for the Assessment Year 2017-18 on our wrong claim of exemption of long-term capital gains on the sale of shares of a listed company M/s Monotype India Ltd ( earlier known as Gateway distributors Ltd, now amalgamated vide Hon’ble Calcutta High Court vide order dated 9th December, 2014). In this regard it is respectfully submitted that during the FY 2016-17 corresponding to the AY 2017-18, presently under consideration, we had earned Net Long-Term Capital Gain of Rs.30,41,765 as per Income tax Return filed where Shares of M/s Monotype India Ltd was sold for Rs.59,93,278/- (before deductions of Expenses and Tax), duly listed on a recognised stock exchange. The copy of Computation of Capital Gain and Computation of Income was already submitted to your honour in our earlier reply dated 15.02.2022.

7 We had made the payments for the purchase of the equity shares of through proper and authenticated banking channels, and had sold the said shares on recognised stock exchange through Registered and Reputed Authorised broker viz. Sharekhan Ltd, after a period of approx. 5 Years after payment of the applicable Securities Transaction Tax (STT), and had thereby earned the completely genuine and authentic Long Term Capital Gains on such shares, which as per provisions of section 10(38) of the Income-tax Act, were to be considered as exempt income. In order to establish the authenticity and genuineness of the said Long-Term Capital Gains on sale of M/s Monotype India Ltd Shares of Rs.56,67,676/-, it is respectfully submitted as under:

• That we had bought the shares and made payment towards purchase of shares via Bank amounting to Rs.3,00,000 on 19-2-2011.

• The copy of the corresponding entry in the bank statement was in our earlier reply filed dated 15.02.2022 • We had sold these shares on various dates in A.Y. 2017-18 From August 2016 to March 2017, on stock exchange, through the SEBI registered stock broker M/s Sharekhan Ltd. • The shares were sold through a recognised and SEBI registered stock broker and corresponding broker bills, contract notes and statement of sale of shares were submitted in our earlier reply dated 15.02.2022.

• All the payments towards sale consideration are received through account payee cheques/RTGS and duly reflected in our bank account and copies of corresponding bank statements were submitted in our earlier reply dated 15.02.2022.

• STT was duly charged by the share broker which is reflected in the bills received from the broker and copies of the same were submitted in our earlier reply dated 15.02.2022.

• As per mechanism and working of stock exchange either seller places bid for sale of shares giving number of shares to be sold and the rate at which the shares are to be sold. Purchasers also places bid for purchase of shares giving number of shares to be purchased and the rate at which he is ready to purchase the shares. When the prices of the seller and the purchaser matches the transaction is confirmed by the system of the stock exchange. Purchaser and seller do not know each other.

• After completion of the transaction as stated above purchase price is debited to the share broker of the purchaser which in turn recovers the same from the purchaser after adding the STT and other charges. Likewise, sale consideration of shares is credited to the account of the broker of the seller of shares which in turn credits the same to the account of the seller after deducting STT and other charges.

• It may be seen from the above that the purchaser and seller are not in a position to know each other. Any person having shares of a company can sell

8 those shares and any person interested in purchase of shares can purchase the shares at the rate at which bids of sale is floating in the system. No human intervention is possible in the whole exercise of purchase/sale of shares as stated above.

• We are genuine and regular investor and have sold the shares through the mechanism of a recognised stock exchange. There is no evidence that the purchaser was related to us or even in known to us. Therefore, from the above stated factual propositions, it is crystal clear and duly evident that:

4. Nothing at all, had been brought and placed on record, by the Ld. AO, to show any nexus, whatsoever, between the us and the alleged accommodation entry operators.

5. In the entire purported statement of one alleged entry operator, no-s where, the said person had admitted that he had any connection or nexus, with us or more specifically, he had provided any accommodation entries to us.

Therefore, there is no lawful basis, whatsoever, to consider the said genuine and authentic Long-Term Capital Gain income of us, as a sham or bogus transaction and the statutory onus, as casted upon us, by numerous binding judicial pronouncements of the Hon'ble ITATs and High Courts, regarding the establishment of authenticity and genuineness of the said share transactions and the resultant long-term capital gain, had been fully and completely reflected in statement of Income.

It is respectfully submitted that a mere presumption on the basis of conjectures, surmises and premises that in the guise of long-term capital gain income, assessee's own unaccounted income/on-money, had been routed in its books of account, and without bringing on record any corroborating material or evidence, to substantiate the source and generation of 'on-money'

9 by the assessee, is in contravention of the well settled and established position of Law. The mere presumption that since the assessee had earned long term capital gain, which is exempt as per law, therefore, the assessee must have earned some on-money/unaccounted income, is not at all in conformity with the established legal jurisprudence in this regard.

“7.14 The action of AO in making additions u/s 68 of the Act and disallowing the claim of LTCG being exempt u/s.10(38) is fully justified in view of the following facts -

10 a) In the trading of shares of M/s.Monotype India Ltd., the Appellant made unusual/astronomical profit which is highly unusual. b) Net worth of this company is negligible as per the financials but share price was rigged to a multiple level. c) It is a premeditated arrangement made by Naresh Jain and associates to use this penny stock to bring unaccounted money of beneficiaries to the books of accounts of beneficiaries in form of exempt income to evade tax. d) Transactions undertaken are not bonafide. Shares of M/s Monotype India Ltd are devoid of any commercial value. Transactions are premeditated and structural ones. e) Appellant failed to discharge the onus cast on him to prove the unusual rise in price of share of M/s. Monotype India Ltd is linked to market factors and commercial principles. f) These artificially structured transactions were entered into with sole purpose of evading tax. g) Artificial gains are created to evade taxes. h) It is a preconceived scheme to procure bogus LTCG in share transactions of this scrip which is not supported by market factors. i) Net worth of this company is negligible but its share price is artificially rigged. j) Operator, Brokers and Exit providers made an arrangement of routing cash to obtain bogus LTCG.”

The ld.counsel for the assessee contended therefore that the finding of the authorities below that the assessee had failed to discharge its onus of proving genuineness of the transaction was highly unjustified and addition made to the income of the assessee of the consideration received on the sale of shares of Monotype India Ltd. amounting to Rs.59 lakhs needed to be deleted.

There is no dispute with regard to the fact that the assessee had submitted all documents pertaining to the purchase and sale of shares of Monotype India Ltd. The ld.DR, in fact, has accepted this fact that the assesse had submitted all purchases and sale bills, contract-notes of the brokers, along with ledger account of the assessee in the books of the broker, the DEMAT account of the assessee, wherein the purchase and sale of these scrips were recorded, as also, the fact of transaction being carried out through banking channels, both of purchase and sales. The fact that the shares of Monotype India Ltd. were purchased in 2011 and sold after a gap of five to six years in 2016 and 2017 is also not disputed. Also, not disputed is the fact that the assessee sold scrips of Monotype India Ltd.not in a single transaction at a single price, but in different lots at varying share prices ranging between Rs.36 to 17/- per shares from 13 August, 2016 to March, 2017; that it was not a single transaction of sale of shares by the assessee during the year.

14 with the ld.counsel for the assessee that the finding of the ld.CIT(A) to the effect that the assessee had failed to discharge its onus of proving the genuineness of the transactions, is not based on hard-core evidences or facts, but merely on presumptions, and not backed by any evidences. The assessee on the contrary, we find, has sufficiently discharged its onus of proving the genuineness of the impugned transactions. The assessee had demonstrated the transactions to have been taken place, which even the ld.DR agreed to. The assessee also demonstrated a gap of five to six years in the purchase and sale of shares with the shares being sold at varying rates. We agree with the ld.dcounsel for the assessee that there could not be any pre- mediated transaction presumed to have taken place in such a long time gap of five to six years, that too at varying prices. It was the duty and onus of the Revenue to prove how the impugned transaction was pre-mediated. Merely stating and reiterating that it was a pre- mediated transaction is not sufficient. The said fact has to be demonstrated with evidences, which the Revenue has miserably failed in the present case, relying only on the investigation report, the contents of which have also not been brought on record. Not to be missed is also the fact, demonstrated by the assessee, that the scrips so dealt with was de-mated and dealt through a prominent broker, Sharekhan Ltd. and was not the only scrip the assessee has traded in, but there were numerous other scrips in which the assessee traded during the year.

The addition, therefore, made of the entire consideration received by the assesse from sale of scrip of Monotype India Ltd. amounting to Rs.59,93,278/-, holding the same to be penny stock transaction, is directed to be deleted.

Order pronounced in the Court on 4th September, 2024 at Ahmedabad.