Income Tax Appellate Tribunal - Kolkata
Kaushalya Agarwal, Kolkata vs Ito, Ward - 35(3), Kolkata , Kolkata on 3 June, 2019
1
ITA No 194/Kol/2018
Kaushalya Agarwal AY-2014-15
आयकर अपील य अधीकरण, यायपीठ - "B" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH: KOLKATA
(सम ) Before ी ऐ. ट . वक , यायीक सद य एवं/and ी एम .बालागणेश, लेखा सद य)
[Before Shri A. T. Varkey, JM & Shri M. Balaganesh, AM]
I.T.A. No. 194/Kol/2018
Assessment Year: 2014-15
Kaushalya Agarwal Vs. Income-tax Officer, Wd-35(3), Kolkata.
(PAN: ADDPA1209M)
Applicant Respondent
Date of Hearing 28.03.2019
Date of Pronouncement 03.06.2019
For the Applicant Shri Subash Agrwal, Advocate
For the Respondent Shri Robin Choudhury, Addl. CIT, Sr. DR
ORDER
Per Shri A.T.Varkey, JM
This appeal has been filed by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 26.12.2017 for AY. 2014-15.
2. Main grievance of the assessee is against the action of the Ld. CIT(A) in confirming the addition of Rs.70,07,666/- being sale proceeds of equity shares of M/s. Global Infratech & Finance Ltd. (in short M/s. GIFL) u/s. 69 of the Income-tax Act, 1961 (hereinafter referred to as the "Act")
3. Brief facts of the case are that the AO noted that the assessee has claimed total exempt income of Rs.68,96,192/- on the exempt Long Term Capital Gain (LTCG) from transactions on which STT was paid. The AO noted that the assessee has earned LTCG from the sale of 107500 shares of M/s. Asianlak Capital & Finance Ltd. (in short M/s. ACFL) which was merged with M/s. GIFL afterwards. (our attention was drawn to page 15 of paper book wherein we note that M/s. ACFL did not merge with M/s. GIFL but the name of M/s. ACFL was changed to M/s. GIFL, which we note from the Certificate of 2 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 Incorporation dated 28.02.2012 issued by Govt. of India, Ministry of Corporate Affairs). Thereafter, the AO observed that assessee was not involved in activities of transactions in other shares and the assessee has not earned any LTCG from the sale of other shares. Thereafter, the AO discussed in the assessment order the general report of the Investigation Wing of the Income-tax Department which he reproduced from page 3 of the assessment order. According to general observations, the AO notes that the assessee has misutilised the system and wants to bring her unaccounted money into her regular books so that assessee can get immunity from paying any taxes. The AO notes at page 20 of the assessment order that some brokers have given statements u/s. 131 of the Act wherein they have said that in lieu of commission given to them, they facilitated the pre-arranged accommodation entries to enable the assessee to make exempt LTCG gain/loss. Thereafter, the AO cited the SEBI's observation on the unscrupulous practice of certain share brokers in pre-determined, stage managed, sale of shares and treated the sale consideration claimed by the assessee as exempt as bogus and made an addition of the entire amount of sale consideration of Rs.70,07,666/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us.
4. We have heard rival submissions and gone through the facts and circumstances of the case. The Ld. AR assailing the decision of the Ld. CIT(A) drew our attention to the fact that the AO has erred in taking note of the facts properly. According to him, M/s. ACFL never merged with M/s. GIFL. The change was only in respect of name from M/s. ACFL to M/s. GIFL which is evident from the Certificate of Incorporation dated 28.02.2012 issued by Govt. of India, Ministry of Corporate Affairs. He also drew our attention to the fact that the AO erred in taking note that the assessee was not involved in the regular activities of transaction of shares. The Ld. AR drew our attention to page 9 of the paper book to show that the assessee in this assessment year itself was involved in investments of M/s. Ajanta Pharma Ltd., M/s. Asian Link as well as M/s. AKZO Nobel. So, according to Ld. AR, the AO erred in even taking note of the facts which were on record. According to him, with a 3 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 prejudiced mind the AO being influenced by the Investigation Wing's report (general report) as well as the SEBI's observation in some other cases has denied the claim of the assessee without any material against the assessee/broker/scrips on which the sale consideration the assessee received. According to Ld. AR, there is no whisper in the entire assessment order against the assessee/broker/scrips. According to Ld. AR, assessee has filed the contract note, demat statement, bank statement etc. to prove both the sales as well as the purchase of the shares. According to Ld. AR, only sec. 131 notice to the Chennai based M/s. KKJ Sons & Co. could not be served on them because they moved out from the address. AO without making any other enquiry to establish as to whether the ultimate purchaser of the shares through the Bombay Stock Exchange had come to a conclusion that the assessee had indulged in converting its unaccounted money as exempt income through the claim of LTCG on sale of such shares. Therefore, according to him, in the light of the documents produced by the assessee against which the AO has not made any adverse comments; and AO failed to adduce any material specifically against the assessee/broker/scrips or any adverse material has emanated from the investigation report of department/SEBI/SIT, the denial of the claim of exempt of LTCG is unjust, arbitrary and, therefore, pleads that the exempt LTCG claim to the tune of Rs.68,96,192/- be allowed.
5. Per Contra the Ld. DR vehemently supporting the order of the lower authorities drew our attention to the fact that the assessee had purchased the shares for Rs. 4,00,000/- and within a short span of time sold the same at Rs. 70,00,000/- which is unimaginable and goes against the preponderance of human probability. According to him, the department painstakingly has unearthed the systematic and nefarious practice of some brokers who had acted hand in glove with some paper companies have indulged in issuing shares for beneficiaries like assessee at a very low price and later after expiry of a holding period of twelve months, sells it at sky rocketing rates which is unimaginable and goes against the preponderance of human probability. According to him, the modus operandi is that the assessee, who is a beneficiary will purchase through the brokers the shares from unknown 4 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 companies at rock bottom price and later the price will be rigged/manipulated after twelve months of holding and sold at a very high rate leading to assessee deriving exempt LTCG. According to Ld. DR, this is nothing but bogus because, the buyer is provided with assessee's own cash which will come in the hands of buyer paper companies through a maze of layering transaction. This, according to ld. DR. is nothing but a stage managed/pre- determined show and then the beneficiary collects whole consideration in the form of cheque and later the assessee claims the amount which assessee gets as LTCG which is exempt from tax. This according to ld DR is nothing but a bogus claim, so the AO as well as the Ld. CIT(A) has taken note of these facts to deny the assessee her claim. For doing so, the Ld. DR relied on the following decisions:
i) Balbir Chand Maini Vs. CIT (2011) 12 taxmann.com 276,
ii) Chandan Gupta Vs. CIT (2015) 54 taxmann.com 10,
iii) Smt. M. K. Rajeswari, ITAT, Bangalore dated 12.10.2018,
iv) Vandana K. Mehta, ITAT, Mumbai dated 18.07.2013,
v) Mahendra Kumar Bhandari Vs. ITO, Chennai, dated 06.04.2018,
vi) Mr. Jayesh S Patel Vs. SEBI, Securities Appellate Tribunal, Mumbai, Appeal No.
456 of 2015 dated 25.04.2018,
vii) Prem Jain Vs. ITO, ITAT, Delhi dated 26.03.2018,
viii) Ratnakar M. Pujari, ITAT, D Bench, Mumbai dated 03.08.2016,
ix) Ritu Sanjay Mantry Vs. ITO, ITAT, Mumbai dated 09.02.2018,
x) SEBI Vs. Rakhi Trading Pvt. Ltd., civil Appeal No. 1969, 3174-3177 and 3180 of 2011 dated 08.02.2018,
xi) Sanjay Bimalchand Jain Vs. Pr. CIT (2018) 89 taxmann.com 196,
xii) Arvind Kumar Vs. ITO, ITAT, Chennai dated 08.11.2018,
xiii) Arun Kumar Bhaiya Vs. ITO, ITAT Delhi dated 30.08.2018,
xiv) Vikram Dughar Vs. ITO, ITAT, Chennai dated 13.11.2018,
xv) ITO Vs. Shamim M. Bharwani (2016) 69 taxmann.com 65 xvi) Dayaram Khandelwal Vs. Pr. CIT WP Nos. 1918 & 1922/2018 (HC, MP).
And does not want us to interfere with the order of Ld. CIT(A).
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6. Having heard both the parties and carefully perusing the documents on record, we note that the assessee had purchased 40,000 shares of M/s. ACFL on 13.09.2011 from M/s KKJ Staocks & Co (the Contract Note is available at page 13 of assessee's paper book wherein quantity of 40,000 shares of M/s. ACFL had been purchased by assessee for an amount of Rs. 4,00,000/- dated 13.09.2011 is found). We note that the payment was made by account payee bank transaction on 13.09.2011 which is evident from page 14 of the paper book which is the bank statement of the assessee maintained at Vijaya Bank. We note that M/s. ACFL changed its name to M/s. GIFL on 28.02.2012 which is evident from Certificate of Incorporation issued by Ministry of Corporate Affairs, which is available at page 15 of the paper book. The shares have been purchased from M/s. KKJ Stocks & Co. which is evident from perusal of the copy of the purchase bill. The copy of the share transfer deed and the transfer advice, share transfer forms along with share certificate is found placed at pages 10-11 of paper book and the transfer letter from the company duly transferring the shares in the name of the assessee has been filed. Further, we note that the shares have been sub-divided into 4,00,000 equity shares certificates of which has also been filed and is available at page 12 in the paper book. The assessee has purchased the shares from the off market and was in the physical form and later on it was dematerialised. The shares were credited into the assessee's demat account on 20.06.2013. Later on the shares were listed in the BSE and the assessee had sold the shares through M/s. J.M. Financial Services, Mumbai. Copy of Contract Note of sale is placed at pages 16 to 17 of the paper book. Copy of demat statement is available at pages 20 to 24 of the paper book from which statement we note that it reflects debit entry for the shares from the account. Ledger copy of the broker M/s. J. M. Financial Services also has been filed at page 18 of the paper book. The sale considerations have happened through the banking channel (Vijaya Bank) and are placed at page 19 of the paper book. We note that the AO has reproduced certain portions of the general report of Investigation Wing of the Income Tax Department. Nowhere from the general report of Investigation Wing is it seen that the assessee has indulged in any nefarious activities or her broker has carried out any stage managed/pre determined sale of 6 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 the shares as contended by the AO. SEBI's report also does not in any way point out any wrong action against the assessee's broker or the scrips. We note that there is no specific evidence which have been collected by the AO in coming to a conclusion that the sale consideration from the sale of shares of M/s. GIFL is bogus. We note that the Tribunal had an occasion to examine the claim of an assessee on the same scrip namely, M/s. GIFL and has allowed the claim of the assessee, which we find at page 44 of the order passed in ITA No. 2260/Kol/2018 Aditya Saraf (HUF) Vs. ITO & Ors. dated 15.03.2019. We also note that the Tribunal in ITA No. 711/Kol/2018 Kanwarlal Agarwal (HUF) Vs. ITO for AY 2014-15 by order dated 01.02.2019 has taken into consideration the Ld. AR's submission and reliance placed by him on the decision of ITAT, Chennai Bench in the case of M/s. Pankaj Agarwal & Sons (HUF) Vs. ITO & Ors. in ITA No. 1413/CHNY/2018 & Ors. dated 06.12.2008 as well as the Hon'ble Bombay High Court decision in Sanjay Bimalchand Jain Vs. Pr. CIT 89 taxman.com 196, wherein the Tribunal vide para 6 and 7 has observed as under:
"6. Regarding the case laws relied upon by the Id. 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 Bimolchand 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 7 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 question is covered by the above cited decisions of the Hon'ble Jurisdictional Calcutta High court and the ITAT. I am bound to follow the same."
7. Therefore, in the light of the aforesaid facts and circumstances, we do not find any material to hold that the assessee's claim of LTCG is bogus. For doing so, we rely on the decision in the case of ITA Nos. 1197, 1054 & 1198/Kol/2018 in Mr. Sanjiv Shroff Vs. ACIT & Ors for AY 2014-15 dated 02.01.2019 (though the scrip in that case was M/s. KAFL wherein on similar reasons the AO held the claim of LTCG as bogus) wherein it has been held as under:
"20.We note that the sale of shares of M/s. KAFL which was dematerlized in Demat account has taken place through recognised stock exchange and assessee received money through banking channel. So, assessee has explained the nature and source of the money with supporting documents and thus has discharged the onus casted upon him by producing the relevant documents mentioned in para 15 (supra), accordingly, the question of treating the said gain as unexplained cash credit under section 68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We note that the source of the receipt of the amount has been explained and the transaction in respect of which the said amount has been received by assessee has not been cancelled by the stock exchange/SEBI. So, it is difficult to countenance the action of AO/Ld. CIT(A) in the aforesaid facts and circumstances explained above.
21. Even assuming that the brokers may have done some manipulation then also the assessee cannot be held liable for the illegal action of the brokers when the entire transactions have been carried out through banking channels duly recorded in the Demat accounts with a Government depository and traded on the stock exchange unless specific evidence emerges that the assessee was in hand in gloves with the broker for committing the unscrupulous activity to launder his own money in the guise of LTCG is brought on record by the AO.
22. There is also nothing on record which could suggest that the assessee gave his own cash and got cheque from the alleged brokers/buyers. The assessment is based upon some third parties statements recorded behind the back of the assessee and the assessee has not been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the AO to draw adverse inference against the assessee in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the AO.
23. Let us look at certain judicial decisions on similar facts:-
24. The case of the assessee's is similar to the decision of Hon'ble Bombay High Court, Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal & Ors. dated 23rd September, 2010 reported in (2010) 328 ITR 656 wherein it was held that:
"The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham 8 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers' bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.--Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) & Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished."
12. The Hon'ble High Court of Rajasthan in CIT vs. Smt. Pushpa Malpani - reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing 'Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, 'the prese/itdppeal does not raise any question of law, much less any substantial question of law."
25. The Hon'ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 0179 has held as under:-
"The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds 9 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. --Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.-- C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguished"
26. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 & 502/Ahd/2016 had the occasion to consider a similar issue which was wherein the assessment was framed on the strength of the statement of a broker. The relevant part reads as under:-
"14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon'ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:-
"6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders."
15. The Hon'ble Apex Court held as under:-
"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 10 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory 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.
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 17.03.2005 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.
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.
We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal."
16. On the strength of the aforementioned decision of the Hon'ble Supreme Court, the assessment order has to be quashed.
17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.
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18. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.
19. Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- "Short Term" or "Long Term" as the case may be. The other grievance of the assessee becomes infructuous."
27. The assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016 and the decision by Hon'ble Calcutta High court in PCIT Vs. BLB Cables & Conductors Pvt. Ltd. in ITAT No. 78 of 2017 dated 19.06.2018 wherein all the transactions took place off market and the loss on commodity exchange was allowed in favour of assessee. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The following judgments of Hon'ble Jurisdictional High Court:-
(i) The Hon'ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:-
"4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled.
There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities.
4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However 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 12 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15 hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence."
ii) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated.
iii)CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal)
- In this case the Hon'ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive.
iv) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) - In this case the Hon'ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI's action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed.
v) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO's conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.
vi) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.
vii) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] - In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court.
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28. We note that since the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:-
(i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM)
(ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM)
(iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT)
(iv) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(v) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)
(vi) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT)
(vii) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)
(viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT)
(ix) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 (Pune ITAT)
(x) CIT vs. Sudeep Goenka - [2013] 29 taxmann.com 402 (Allahabad HC)
(xi) CIT vs. Udit Narain Agarwal - [2013] 29 taxmann.com 76 (Allahabad HC)
(xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC)
(xiii) CIT vs. Himani M. Vakil - [2014] 41 taxmann.com 425 (Gujarat HC)
(xiv) CIT vs. Maheshchandra G. Vakil - [2013] 40 taxmann.com 326 (Gujarat HC)
(xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT - ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT - ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 14 ITA No 194/Kol/2018 Kaushalya Agarwal AY-2014-15
29. The ld AR also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon'ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon'ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks.
(i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT)
(ii) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT)
30. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :-
(i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT)
(ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT)
(iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum)
31. We note that the ld. D.R. had heavily relied upon the decision of the Hon'ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit.
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32. It is clear from the above that the facts of the case of the assessee are identical with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s KAFL. We, therefore, respectfully following the same, and set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition."
So, respectfully following the decisions of Hon'ble Supreme Court, orders of Hon'ble jurisdictional High Court and the decisions of the coordinate bench of the Tribunal and especially taking into consideration the facts narrated in para 6 above, we hold that the lower authorities erred in holding the assessee's claim on LTCG from the sale of shares of M/s. GIFL as bogus. Therefore, we are inclined to allow the assessee's LTCG claim and, therefore, the appeal of assessee is allowed.
8. In the result, appeal of assessee is allowed.
Order is pronounced in the open court on 3rd June, 2019.
Sd/- Sd/-
(M. Balaganesh) (Aby. T. Varkey)
Accountant Member Judicial Member
Dated : 3rd June, 2019
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant - Smt. Kaushalya Agarwal, C/o Subash Agarwal & Associates, Siddha Gibson, 1, Gibson Lane, Suit 213, 2nd floor, Kolkata-700 069.
2 Respondent - ITO, Ward-35(3), Kolkata.
3. CIT(A)-10, Kolkata (sent through e-mail)
4. CIT- , Kolkata.
5. DR, ITAT, Kolkata. (sent through e-mail) /True Copy, By order, Assistant Registrar