Income Tax Appellate Tribunal - Kolkata
Sri Asish Kumar Ghosh , Howrah vs Dcit, Circle - 1(1), Kolkata on 2 August, 2019
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri S.S.Godara, Judicial Member and
Dr. A.L. Saini, Accountant Member
ITA No.1164/Kol/2019
Assessment Year :2014-15
Sri Asish Kumar Ghosh V/s. DCIT, Circle-1(1),
124/9, Mahendra P-7,Chowringhee
Bhattacharya Road, Square, Aayakar
Howrah-711104 Bhawan, Kolkata-69
[P AN No. ADPPG 0795 E]
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Soumitra Choudhury, Advocate
यथ क ओर से/By Respondent Shri Rabin Choudhury, DR
सन
ु वाई क तार ख/Date of Hearing 24-07-2019
घोषणा क तार ख/Date of Pronouncement 02-08-2019
आदे श /O R D E R
PER S.S.Godara, Judicial Member:-
This assessee's appeal for assessment year 2014-15 arises against the Commissioner of Income Tax (Appeals)-6 Kolkata's order dated 10.04.2019 passed in case No. CIT(A), Kolkata-6/10080/2018-19, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short 'the Act'.
Heard both the parties. Case file perused.
2. It emerges at the outset that both the lower authorities have adopted identical line of reasoning in treating the assessees LTCG amounting to ₹112,12,338/- derived from transfer of shares to be bogus unexplained cash credits u/s 68 of the Act.
ITA No.1164/Kol/2019 A.Y. 2014-15Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 2
3. We find that the assessee had declared his LTCG of Rs.112,12,338/- derived from transfer of shares held in Sulabh Engineering and Service Ltd. Learned Departmental Representative invites our attention to a voluminous exercise undertaken by the Assessing Officer involving a long drawn process of stock market prices rigging in collusion with various entry operators. He takes us to CIT(A)'s detailed discussion whilst treating the impugned LTCG in the instant case as under:-
"5.3 In a penny stock which has no business activity or any plan or initiative or any prospect for growth, investor normally sell off such stock whenever price has appreciated to some extent and there is total uncertainty to hold such stock for fabulous appreciation when the investment is not backed by any fundamental of the company, its business policy and future prospect. In absence of any such fact the person who knows beforehand that its price is being manipulated in a concerted way and he is part of such system will benefit. Price movement and volume movement of this stock indicates such fact. The said transaction defies all logic of human probability. In this context the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More (82 ITR 540) has held that the surrounding circumstances muss be seen to find out the reality of the recitals made in the documents. This principle was reaffirmed by the Hon'ble Supreme Court in 214 ITR 801 where in it was held that the apparent can be rejected where there are reasons to believe that the apparent is not the real fact.
5.4 I find all the judgements relied upon by the appellant fall flat in the face of the facts of the case and preponderance of probability against the assessee. In fact, the decision of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Pr. CIT (2018) 89 Taxmann.com 196 (Born) is quite relevant for deciding the issue. It was held that where the assessee had purchased shares of penny stocks companies at lesser amount and within a year sold such shares at much higher amount and assessee had not tendered cogent evidence to explain as to how shares in an unknown company had jumped to such higher amount in no time and also failed to provide details of person who purchased said shares, said transactions were attempt to hedge undisclosed income as Long Term Capital Gain. Applying. the aforesaid ratio, I conclude that the appellant had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain since she has not tendered any cogent evidence to explain how the price of shares of an unknown company has jumped in no time. In support of this finding, I also garner support from the following judgements which are as under: -
1. Chandan Gupta vs. CIT (2015) 229 Taxman 173 (P & H) Where the assessee could not explain receipt of alleged share transaction profits credited in his bank accounts, then sale proceeds had to be added as income under section 68.
2. Balbir Chand Maini vs. CIT (2012) 340 ITR 161 (P & H) Section 69 of the Income-tax Act,. 1961 - Unexplained investments -
Assessment year 1998-99 - During assessment proceedings, Assessing Officer found that assessee had purchased certain shares of a company at ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 3 rate between Rs. 2,50 and Rs. 3.40 per share in month of April, 7997 and part of those shares were sold through a broker at Rs 55 per share - He came to opinion that value of said shares could not be as high as Rs.55 per share. He recorded statement of broker who admitted to have purchased shares in question but failed to produce books of account and other relevant documents. He also found that alleged sale of shares had not taken place through any stock exchange - On scrutiny of books of account of broker, it was found that there were cash deposits in its hank account preceding issue of cheques in name of assessee for purchase of shares claimed to be sale proceeds. of same shares received in advance - Broker could not give details of purchaser of shares - Moreover, shares claimed to have been sold through broker had not been transferred even at time of making enquiry by Assessing Officer and same continued to be registered in name of assessee - In those circumstances, Assessing Officer held that transaction of sale of shares was an ingenuine transaction and made addition of alleged sale consideration to assessee's income as income from undisclosed sources - Whether on facts, addition made by Assessing Officer was justified - Held, yes
3. Usha Chandresb Shah vs. ITO (2014-TIOL-1459-ITAT-Mum) Where the assessee could not produce the copies of share certificates and copies of share transfer forms. The transaction of purchase of shares could not be cross verified. The shares of company was declared as "Penny Stock"
by SEBI and the broker Sanju Kabra, through whom the shares were sold by the assessee was indicted for manipulating the prices of penny stock shares. The tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. The CIT(A) was justified in confirming the order of the AO by applying the test of human probabilities.
4. Ratnakar M Pujari vs.,ITO (2016-TIOL-1746-ITAT-MUMj Where a transaction of 'off market purchase of share' for which payments were made in cash and the brokers had issued pre dated contract notes, is liable to be treated as bogus transaction, and hence such cash receipts are liable to be treated as 'unexplained cash receipts. '
5. M.K. Rajeshwari vs. ITO (2018) 99 Taxmann.com 339 (Bang) Where assessee claimed exemption under section 10(38) in respect of capital gain arising from sale of shares, in view of fact that financial worth of said company was meager and, moreover, there was abnormal rise in price of shares, it could be concluded that assessee introduced her own unaccounted money in grab of long term capital gain and, thus claim raised by her was to be rejected.
6. ITAT, SMC -C Bench, Bangalore ITA No. 1723/Beng/2018, A. Y. 2015-16 in Smt. M.K. Rajeshwari vs. ITO dated 12.10.2018 has held at Para 8 & 9.
"8, The AO has also examined the SEBI's findings about the accommodation entry providers obtained on the basis of various investigations and has brought out sufficient material on record to demonstrate that the transactions are not genuine arid he accordingly concluded that the long-term capital gain booked by the assessee in the books were prearranged method to evade taxes and laundered money. The findings and observations of the AO were not controverted by assessee by placing any evidence. He placed reliance upon the various judicial pronouncements in support of his contention that once the assessee has placed the evidences with regard to payments and the identity of the persons and the creditworthiness of the creditors, no addition ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 4 under section 68 is called for. Since the assessee has placed the contract note, payment through cheques identifying the company whose shares were transacted, the genuineness of claim of long- term capital gain should not have been doubted. We do not find merit in these contentions of the assessee in the light of the facts that there is prevalent practice in the country through which unaccounted money is converted into long-term capital gain by circuitous means. While dealing with the issue of long-term capital gain accrued to the assessee in short span, one has to examine the financials of the company whose shares were inflated within a short period and after the sharp rise in the price of shares it again comes down. In the instant case, financials were examined by us and we find that the financial worth of the company is meagre and not at all worth to be invested therein. With such financials, we are unable to understand how there can be manifold increase in the shares. In the light of the duration of transactions and the financials ()J the company whose shares were transacted, we find that the Revenue has brought sufficient material on record to demonstrate that unaccounted money was introduced in the books of account through long-term capital gain by adopting such method. Whatever judicial pronouncements are relied on, these are m those cases where the transactions are genuine. Under these circumstances. we are of the view that Revenue authorities have rightly adjudicated the issue and no interference is called for in the order of the CIT(A).
9. In the result, appeal of the assessee stands dismissed."
7. ITAT, Chennai A-Bench, ITA No. 1413/CHNY/2018, A.Y.2014-1S in M/s. Pankaj Agarwal & Sons (HUF) vs. ITO, Ward-10(3) Chennai, dated 06.12.2018 has held at para 7 & 8.
"7. Before us the Ld.AR submitted that the assessees were not provided with an opportunity to cross-examine the witness who were relied by the Revenue and further failed to furnish the investigation report of the intelligence wing of the Revenue before concluding the assessment. The Ld.AR further argued that the assessees were not provided with proper opportunity of being heard. It was therefore pleaded that the matter may be remitted back to the file of Ld.AO for fresh consideration. The Ld. DR strongly opposed to the submission of the Ld.AR and requested for confirming the orders of the Ld. Revenue Authorities.
8. We have heard the rival submissions and carefully perused the materials on record. At the outset we must say that the Ld.AR could not justify before us any of their claims made before the Ld. Revenue Authorities that the transaction was genuine. Further the Ld. AR could not successfully controvert to any of the findings of the Ld. Revenue Authorities before us which are against the assessees. Instead the Ld. AR has only come out with the plea that the assessees were not provided with opportunity of cross-examining the witness, the investigation report was not furnished and proper opportunity was not provided of being heard. However we find that all these arguments raise by the Ld. AR before us was never alleged before the Ld. Revenue Authorities when the matter was before them. In this situation we do not have any other option but to confirm the orders of the Ld. Revenue Authorities in the case of all the assessees because the Ld. AO as well as the Ld. CIT(A) have arrived at their respective decisions after considering the issues in the appeal in detail and there is nothing before us to disturb their findings. Accordingly we hereby confirm the Order of the Ld. Revenue Authorities on this issue. Thus the first ground raised by the assessees herein above in all the appeals are held against the assessees. "
ITA No.1164/Kol/2019 A.Y. 2014-15Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 5
8. The Order dated 04.01.2019 passed by the ITAT Pune 'B' Bench; Pune, ITA No. 1648 & 1649/PUN/15, A.Y. 2005-06 & 2006-07 in Rajkumar B Agarwal vs. DCIT, Central Circle 1(2), Pune dated 04.01.2019 has held at para 15 & 17
15. It is further pertinent to note that it was not only the assessee who booked short term capital gain on the sale of shares of PIL to the above extent, but his family members were also not left behind. They also indulged in the similar paper transactions by allegedly purchasing and selling shares of PIL from the same brokers and showing huge amounts of short term. capital gains, for which addition of Rs.18,71,906/ - has been made in the hands of his son Sh. Bharat Rajkumar Aqaruial and Rs.20,21,OOl/ - in the hands of his wife Ameeta Rajkumar Agarwal for the same assessment year, the appeals of which are being disposed off through this batch of cases.
16. In view of the factual and legal position discussed above, it is crystal clear that PIL is a penny stock company and the assessee obtained only accommodation entries in the garb of short term gain from transfer of shares of PIL, for which an appropriate addition has rightly been made and upheld by the authorities below. We, therefore, countenance the impugned order on this score.
17. Before parting with this issue, we want to record that the ld. AR has relied on certain decisions in which the additions made on account of accommodation entries got deleted. In the oppugnation, Id. DR has also relied on certain decisions, including those referred to in the impugned order, in which the addition on account of accommodation entries got confirmed. We are not separately referring to those decisions as the factual position prevailing in such case varies with the facts of the instant case as recorded above. Even a single slightest variation in the factual matrix of two apparently similar cases changes the entire complexion of the decision. A the factual panorama obtaining in the extant case is different from those relied on by the rival parties, we are, therefore, desisting from distinguishing such cases separately. These grounds are therefore dismissed.
9. The order dated 08.01.2019 passed by the ITAT Delhi 'SMC' Bench, New Delhi, ITA No. 3810/DEL/2018, A.Y. -2015-16 IN Anju Rastogi vs. ITO , Ward 1(1), Meerut dated 08.01.2019 has held at para 7 to 9.
"7. I have heard both the parties and perused the records especially the impugned order. 1 note that the assessee has shown Long Term Capital Gain amounting to Rs. 22,28,172/ - earned during the FY 2014-15 and exempt u/s. 10(38) of the I. T. Act, 1961. The assessee was asked to explain the source of aforesaid Long Term Capital Gain during the course of scrutiny proceedings. The explanation offered that it is sale proceeds of shares are found to be unsatisfactory. The explanation of the assessee is general in nature that as the transaction is through Stock Exchange and the payment is by cheque, the transactions should be treated as genuine. Further, regarding the statement of Sh. Jai Kishan Poddar the assessee has only stated that in the statement there is no specific link with the claim of exemption in respect of Long Term Capital Gain of Rs.22,78,172/- u/s.10(38) by him. He has not stated a thing with respect to the statement of Sh. Jai Kishari Poddar in which he has accepted that facilitation of accommodation entries of long term capital gain / long term capital loss through his share banking firm has been done to few beneficiaries with the help of different accommodation entry operators} promoters of the scripts of various penny stocks other brokers etc. Sh. Jai ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 6 Kishari Poddar also gave details of different bogus scripts/ penny stocks which have been used for providing the accommodation. entries of LTCG and LTCL to different beneficiaries using his brokerage company Consortium Capital Pvt. Ltd. and the name of CCL International Limited having scrip name CCL Inter appears in the list whose shares were sold by the assessee and exemption on LTCG amounting to Rs. 22,28,172/- claimed u/ s. 10(38) of the Act. After perusing the records, I find that in the instant case the investment in shares made by the assessee reveals that he has not been dealing in shares on a regular basis and the entries of LTCG have also been taken by other members of the assessee company and the purchase of these shares were claimed to be through off market deals and not through Stock Exchange. The financials of penny stock company M/s CCL International Ltd. and movement of its price are abrupt, unrealistic and based upon any realistic parameters. From, the perusal of financial statements of the aforesaid company M/s CCL International Ltd. From, the Ministry of Corporate Affairs, website (MCA) examining the information available in the public domain from where it was observed that there is no extraordinary increase in the profits of the company to justify the increase in value of the shares. I further note that investigation Wing had recorded the statement of Sh. Jaz Kishan Poddar who is one of the Director of M/s Consortium Capital Put: Ltd. which is one of the entities utilised for providing entry of bogus long term capital gain of M/ s CCL International Ltd. who had admitted that he was involved in scam of providing bogus long term capital gains through shares of M/s CCL International Ltd. had also admitted that they were also involved in trading of these Jarnakharchi Companies through which manipulative transactions in securities to either artificially raise or lower the market rate of the shares are being done. I also note that the independent findings of the AD, which are corroborated by the information given by the Investigation Wing) the assessee has failed to substantiate the genuineness of alleged share transactions in respect of long term capital gain u/ s. 10(38) of the Act. In view of above discussions, the landmark decision of the Hon 'ble Supreme Court in the case of McDowell and Company Limited, 154 ITR 148 are squarely applicable in this case wherein it has been held that tax planning may be legitimate provided it is within the framework of the law and any colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. However, the case laws cited by the Ld. counsel for the assessee are on distinguished facts, hence, not applicable in the instant case. The assessee has not argued any other ground mentioned in the grounds of appeal, but only argued on merit for which assessee has failed to substantiate his claim before the lower revenue authorities as well as before this Bench. In view of above discussions, I am of the considered opinion that Ld. CIT(A) has rightly confirmed the addition in dispute, which does not need any interference on my part) therefore, I uphold the action of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the Assessee. In the result, the appeal of the assessee is dismissed.
8. Since in other appeal i.e. in the case of Anju Rastogi, ITA No. 38101 Dell 20 18 (A Y 2015-16), similar facts are permeating and same finding has been given, therefore) my finding given above will apply mutatis mutandis in this appeal also, because the nature of transactions, evidences and documents are exactly the same. Thus, both the appeals are treated as dismissed.
10. In the result, both the Appeals of the different Assessees are dismissed.
ITA No.1164/Kol/2019 A.Y. 2014-15Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 7
10. The latest order dated 08-03-209 passed by the Delhi High Court, New Delhi, ITA No.220/2019 & CM No. 10774/2019, in Udit Karla Vs. ITO, Ward 50(1), dated 08-03-2019.
The assessee is aggrieved by the concurrent findings of the tax authorities - including the lower appellate authorities rejecting its claim for a long term capital gain reported by it, to the tune of Rs.13,33,956/- and Rs.14,34,501/- in respect of 4,000 shares of M/s Kappac Pharma Ltd. The assessee held those shares for approximately 19 months; the acquisition price was Rs.12/ - per share whereas the market price of the shares at the time of their sale, was Rs.720/-. It is contended that the assessee was not granted fair opportunity.
Mr. Rajesh Mahna, learned counsel appearing for the assessee relied upon the orders of the co-ordinate Bench of the tribunal, in respect of the same company i.e. M/s Kappac Pharma Ltd., and pointed out that the tax authority's approach in this case was entirely erroneous and inconsistent. The main thrust of the assessee's argument is that he was denied the right to cross- examination of the two individuals whose statements led to the inquiry and ultimate disallowance of the long term capital gain claim in the returns which are the subject matter of the present appeal.
This court has -considered the submissions of the parties. Aside from the fact that the findings in this case are entirely concurrent - A.O., CIT(A) and the IT AT have all consistently rendered adverse findings - what is intriguing is that the company (M/s Kappac Pharma Ltd.) had meagre resources and in fact reported consistent losses. In these circumstances, the astronomical growth of the value' of company's shares naturally excited the suspicions of the Revenue. The company was even directed to be delisted from the stock exchange. Having regard to these circumstances and principally on the ground that the findings are entirely of fact, this court is of the opinion that no substantial question of law arises in the present appeal.
This appeal is accordingly dismissed. "
5.5 Respectfully following the above judicial pronouncements the order of the AO is confirmed. Accordingly, the addition of bogus Long Term Capital Gain of Rs.88,39,868/- u/s. 68 of the Income Tax Act,1961 is confirmed. Accordingly, purchase value Rs.23,72,470/- & Rs.56,062/- [0.5% of total sale consideration Rs.112, 12,338/-] aggregating at Rs.24,28,532/ - is confirmed. These grounds 2 to 4 are therefore, are rejected and stands dismissed.
6. The charging of interest u/s. 234B has been raised in Ground No. 6. I find this issue is a consequential matter. The A.O. is directed to recalculate the amount of interest on finally assessed tax as per the provisions of the Act after giving effect to the appellate order In the appeal is 'dismissed'
4. We have given our thoughtful consideration to rival contentions. There is no dispute above assessees having derived the impugned LTCG on transfer of shares held in Sulabh Engineering and Services Ltd. Learned Departmental Representative fails to dispute that very issue stands ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 8 adjudicated in assessee's favour in co-ordinate bench's decision in ITA No.354Kol/2018 in Sanjeev Goel (HUF) vs. ITO decided dated 24.08.2018 as follows:-
"4. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:-
5. In identical cases, the submission of the assessee, findings of the Assessing Officer, findings of the ld. CIT(A) and the conclusion of the Tribunal have been brought out as under:-
6. The addition was made by the Assessing Officer by observing as under:-
i. The initial allotment of shares to beneficiaries is generally done through preferential allotment.
ii. The market price of shares of these companies rise to very high level within a span of one year.
iii. The trading volume of shares during the period, in which manipulations are done to raise the market price, is extremely thin.
iv. Most of the purported investors are returned their initial investment amount in cash. Only small amount is retained by the operator as security. Thus, an enquiry would reveal that most of the capital receipts through preferential allotment or other means would have found their way out of system as cash. v. Most of these companies have no business at all. Few of the companies which have some business do not have the credentials to justify the sharp rise in Market Price of their shares.
vi. The sharp rise in market price of the shares of these entities is not supported by fundamentals of the company or any other genuine factors. vii. An analysis in respect of persons involved in transactions apparently carried out in order to jack up the share prices has been done in respect of 84 companies. It has been noted that many common persons/entities were involved in trading in more than 1 LTCG companies during the period when the shares were made to rise which implies that they had contributed to such price rise.
viii. Names of most of the LTCG companies are changed during the period of the scam.
ix. Most of the companies split the face value of shares [this is probably done to avoid the eyes of market analysts].
x. The volume of trade jumps manifold immediately when the market prices of shares reach at optimum level so as to result in LTCG assured to the beneficiaries. This maximum is reached around the time when the initial allottees have held the shares for one year or little more and thus, their gain on sale of such shares would be eligible for exemption from Income Tax. xi. An analysis of share buyers of some of LTCG companies was done to see if there were common persons/entities involved in buying the bogus inflated shares. It was noted that there were many common buyers [which were paper companies].
xii. The prices of the shares fall very sharply after the shares of LTCG beneficiaries have been off loaded through the pre-arranged transactions on the Stock Exchange floor/portal to the Short Term Loss seekers or dummy paper entities.
xiii. The shares of these companies are not available for buy/sell to any person outside the syndicate. This is generally ensured by way of ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 9 synchronized trading by the operators amongst themselves and/or by utilizing the mechanism of upper/lower circuit of the Exchange.
7. Aggrieved the assessee carried the matter in appeal.
8. The First Appellate Authority upheld the order of the Assessing Officer by giving his findings as follows:-
a) The AO had placed on record the entire gamut of finding and there is no further requirement for elaboration.
b) There is direct evidence to clearly indicate that the entire transaction undertaken by the assessee was merely an accommodation taken for the purpose of bogus long term capital gains to claim exempt income. The authorities such as SEBI have after investigating such abnormal price increase of certain stocks, suspended certain scrips.
c) The submissions of the assessee pointed out towards elaborate documentation such as :
i) Application of shares.
ii) Allotment of shares.
iii) Share Certificates
iv) Payment by cheques
v) Filings before Registrar of Companies.
vi) Proof of amalagamation of companies.
vii) Copies of bank statement,
viii) Bank contract notes.
ix) Delivery instruction to the broker etc.
d) The elaborate paper book is filed to strengthen the matter relevant to bogus claim of LTCG, and this is clearly been schemed and pre-planned with mala fide intention. Therefore, all these documents are not evidence.
e) The transactions are unnatural and highly suspicious. There are grave doubts in the story propounded by the assessee before the authorities below. Banking documents are mere self-serving recitals.
9. Thereafter he referred to a number of judgments relating to human behavior and preponderance of human probabilities and upheld the addition made by the Assessing Officer by relying on what he calls rules of "Suspicious transactions".
10. The assessee in this case has filed the following evidence before the Assessing Officer in support of his contentions:-
a) Copies of bills, evidencing purchase of shares
b) Copies of contract notes of sale of shares
c) Bank statement copies
d) Copy of Ledger A/c of broker
e) Demat Statement etc.
The Assessing Officer has just relied on general observations. No evidence was controverted by the Assessing Officer.
11. The Kolkata Bench of the ITAT in a number of decisions have, on similar facts and circumstances of the case, decided the issue in favour of the assessee. We list some of these decisions:-
• Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/11/2017 • ITO vs. Shri Shaleen khemani, ITA No. 1945/Kol/2014, dt. 18/10/2017 • Mahendra Kumar Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt. 18/08/2017 • Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 10 The Hon'ble Jurisdictional High Court on similar facts, had in the following cases, upheld the claim of the assessee:-
• CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 • CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC)dt. 08/05/2017 • CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009
11. Recently, the Kolkata 'C' Bench of the Tribunal in the case of Navneet Agarwal,-
vs- ITO, Ward-35(3), Kolkata; I.T.A. No. 2281/Kol/2017; Assessment Year: 2014- 15, while dealing with identical issue of sale of shares of M/s. Cressenda Solutions Pvt. Ltd., decided the issue in favour of the assessee by relying upon a plethora of judgments of various Courts. It held as follows:-
"12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to "Modus Operandi" of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assessees. No opportunity of cross- examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing.
13. The issue for consideration before us is whether, in such cases, 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 in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assesee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assessee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department.
14. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 11 is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law.
15. In our view 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 of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence.
16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However we do not find that, the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and/or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. 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 should 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 finding 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, in our view, the Assessing Officer at ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 12 best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer 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.
17. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held:
"Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,--
-this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs.45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs.2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 13 by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs.1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs.1,000 each".
The observations of the Hon'ble Apex Court are equally applicable to the case of the assessee. In our view 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 despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee.
18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments:
a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors.
"23. A Constitution Bench of this Court in State of M.P. v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131).
24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944, considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross- examine, would amount to a denial of the right to be heard i.e. audi alteram partem.
28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 14 deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an effective and useful cross-examination.
29. In Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review.
30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice."
b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that:
"4. 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.
5. 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 ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 15 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.
6. 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 make 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 17-3-2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
7. 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."
19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows:
a) The CALCUTTA HIGH COURT in the case of BLB CABLES & CONDUCTORS [ITA No. 78 of 2017] dated 19.06.2018. The High Court held vide Para 4.1:
"............we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." [quoted verbatim] ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 16 This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed."
b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3:
"We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account."
c) The Hon'ble Punjab and Haryana High Court in the case of PREM PAL GANDHI [ITA-95-2017 (O&M)] dated 18.01.2018 at vide Page 3 Para 4 held as under:
"..... The Assessing Officer in both the cases added the appreciation to the assessee's' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee's income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner."
The Court also held the following vide Page 3 Para 5 the following:
"Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises."
d) The BENCH "D" OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1:
ITA No.1164/Kol/2019 A.Y. 2014-15Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 17 "In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT(A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act."
Further in Page 15 Para 8.5 of the judgment, it held:
"We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition."
e) The BENCH "D" OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as under:
"........ We find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 18 of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence.
It further held as follows:
"We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore direct the AO to delete the addition."
f) The BENCH "A" OF KOLKATA ITAT in the case of SHALEEN KHEMANI [ITA No. 1945/Kol/2014] order dated 18.10.2017 held as under
vide Page 24 Para 9.3:
"We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act."
g) The BENCH "H" OF MUMBAI ITAT in the case of ARVIND KUMAR JAIN HUF [ITA No.4682/Mum/2014] order dated 18.09.2017 held as under vide Page 6 Para 8:
"......We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 19 these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A)."
h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under:
"On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed."
i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows:
"The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank."
j) The Hon'ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon'ble Gujarat High Court as under:
"It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 20 Impex which were also accepted by the Revenue, no question of law arises."
20. Applying the proposition of law laid down in the above judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax. "
12. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition made u/s 68 of the Act, on account of sale of shares in the case of both the assessees. The consequential addition u/s 69C is also deleted. Accordingly both the appeals of the assessee are allowed."
5. This tribunal's yet another recent direction in Mahavir Jhanwar vs. also summaries latest legal developments. More particularly hon'ble Bombay high court's decision in Revenue's favour as follows:-
"2. The sole issue that arises for my adjudication is whether the Assessing Officer was right in rejecting the claim of the assessee that he had earned Long Term Capital Gains on purchase and sale of the shares of M/s Unno Industries. The AO based on a general report and modus operandi adopted generally and on general observations has concluded that the assessee has claimed bogus long term capital gain. He made an addition of the entire sale proceeds of the shares as income and rejected the claim of exemption made u/s 10(38) of the Act. The evidence produced by the assessee in support of the genuineness of the transaction was rejected.
3. The assessee carried the matter in appeal and the ld. CIT(A), Kolkata, had upheld the addition. The ld. CIT(A) has in his order relied upon "circumstantial evidence" and "human probabilities" to uphold the findings of the AO. He also relied on the so called "rules of suspicious transaction". No direct material was found to controvert the evidence filed by the assessee, in support of the genuineness of the transactions. In other words, the overwhelming evidence filed by the assessee remains unchallenged and uncontroverted. The entire conclusions drawn by the revenue authorities, are based on a common report of the Director of Investigation, Kolkata, which was general in nature and not specific to any assessee. The assessee was not confronted with any statement or material alleged to be the basis of the report of the Investigation Wing of the department and which were the basis on which conclusion were drawn against the assessee. Copy of the report was also not given.
4. The ld. D/R, submitted that the transaction was not genuine. He argued that the entire capital gain was stage managed by a few operators and investors. He relied on the order of ld. Assessing Officer and argued that the same be upheld. He relied on the order of the Chennai 'A' Bench of the Tribunal in the case of M/s. Pankaj Agarwal & Sons (HUF) vs. ITO in ITA No. 1413 to 1420/CHNY/2018; order dt. 06/12/2018, for the proposition that such capital gains have to be brought to tax. He also relied on the judgment of the Hon'ble Bombay High Court in the case of Sanjay Bimalchand Jain vs. Principal Commissioner of Income-tax-1, Nagpur; [2018] 89 taxmann.com ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 21 196 (Bombay) and the decision of the Smt. M.K. Rajeshwari vs. ITO; ITA No.1723/Bng/2018; Assessment Year 2015-16, order dt. 12/10/2018.
5. After hearing both sides, I find that in a number of cases this bench of the Tribunal and Jurisdictional Calcutta High Court has consistently held that, decision in all such cases should be based on evidence and not on generalisation, human probabilities, suspicion, conjectures and surmises. In all cases additions were deleted. Some of the cases were, detailed finding have been given on this issue, are listed below:-
Sl.No ITA Nos. Name of the Assessee Date of order /Judgment
1. ITA No.714 to 718/Kol/2011 DICT vs. Sunita Khemka 28.10.2015 ITAT, Kolkata
2. 214 ITR 244 CIT vs. Carbo Industrial -
Calcutta High Court Holdings Ltd. 3. 250 ITR 539 CIT vs. Emerald Commercial 23.03.2001 Ltd. 4. ITA No.1236-1237/KOl/2017 Manish Kumar Baid vs. ACIT 18.08.2017 5. ITA No.569/Kol/2017 Gautam Pincha 15.11.2017 6. ITA Kiran Kothari HUF 15.11.2017 No.443/KOl/2017 7. ITA Navneet Agarwal vs. ITO 20.07.2018 No.2281/Kol/2017 8. ITA No.456 of 2007 CIT vs. Shri Mukesh Ratilal 07.09.2011 Bombay High Court Marolia 9. ITA No.95 of 2017 PCIT vs. Prem Pal Gandhi 18.01.2018 (O&M) 10. ITA Sanjay Mehta 28.09.2018 No.1089/Kol/2018
6. Regarding the case laws relied upon by the ld. Departmental Representative, I find that, in the case of M/s. Pankaj Agarwal & Sons (HUF)(supra), the issue was decided against the assessee for the reason that, the assessee could not justify his claim as genuine by producing evidence and was only arguing for the matter to be set aside to the lower authorities on the ground of natural justice. As similar arguments were not raised before the lower authorities by the assessee, the ITAT rejected these arguments. In the case on hand, all evidences were produced by the assessee. In the case of Sanjay Bimalchand Jain, legal heir of Santi Devi Bimalchand Jain, the Hon'ble High Court upheld the stand of the Revenue that the transaction in question is an adventure in nature of trade and the profit of the transactions is assessable under the head of 'Business Income'. In the case on hand, the ld. Assessing Officer has not assessed this amount as 'Business Income'. In any event, I am bound to follow the judgment of the Jurisdictional High Court in this matter. I find that the assessee has filed all necessary evidences in support of the transactions. Some of these evidences are (a) evidence of purchase of shares, (b) evidence of payment for purchase of shares made by way of account payee cheque, copy of bank statements, (c) copy of balance sheet disclosing investments, (d) copy of demat statement reflecting purchase, (e) copy of merger order passed by the High Court ,
(f) copy of allotment of shares on merger, (g) evidence of sale of shares through the stock exchange, (h) copy of demat statement showing the sale of shares, (i) copy of bank statement reflecting sale receipts, (j) copy of brokers ledger, (k) copy of Contract Notes etc.
7. The proposition of law laid down in these case laws by the Jurisdictional High Court as well as by the ITAT Kolkata on these issues are in favour of the assessee.
These are squarely applicable to the facts of the case. The ld. Departmental Representative, though not leaving his ground, could not controvert the claim of the ld. Counsel for the assessee that the issue in question is covered by the above cited ITA No.1164/Kol/2019 A.Y. 2014-15 Sri Asish Kr. Ghosh Vs. DCIT Cir-1(1), Kol. Page 22 decisions of the Hon'ble Jurisdictional Calcutta High Court and the ITAT. I am bound to follow the same.
8. In view of the above discussion I delete the addition made u/s 68 of the Act, on account of Long Term Capital Gains."
Coupled with this, hon'ble jurisdictional high court's other decisions in CIT vs. Rungta Properties Pvt. Ltd. ITA No.105 of 2016, CIT vs. Shreyahi Ganguly ITA No. 196 of 2012, M/s Classic Growers Ltd vs. CIT ITA No. 129 of 2012 also hold such transactions in scrips supported by the corresponding relevant evidence to be genuine. We adopt the above extracted learned co-ordinate benches' detailed reasoning taking into consideration of various decisions of hon'ble jurisdictional high court (supra) to conclude the lower authorities have erred in law and on facts in treating assessee's LTCG in issue as unexplained cash credits. The impugned addition is deleted therefore. commission disallowance / addition also follows suit.
6. This assessee's appeal is allowed in forgoing terms.
Order pronounced in the open court 02/08/2019
Sd/- Sd/-
(लेखा सद%य) ( या'यक सद%य)
( A.L.Saini) (S.S.Godara)
(Accountant Member) (Judicial Member)
Kolkata,
*Dkp
(दनांकः- 02/08/2019 कोलकाता ।
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Sri Asish Kr. Ghosh 124/9, Mahendra Bhattacharya Road, Howrah-711104
2. यथ /Respondent-DCIT, Cir-1(1), P-7 Chowringhee Square, Aayakar Bhawan, Kol-69
3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata
4. आयकर आयु4त- अपील / CIT (A) Kolkata
5. 7वभागीय 'त'न3ध, आयकर अपील य अ3धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड< फाइल / Guard file.
By order/आदे श से, /True Copy/ सहायक पंजीकार आयकर अपील य अ3धकरण, कोलकाता ।