Income Tax Appellate Tribunal - Kolkata
Pramod Kumar Saraf , Kolkata vs Ito, Ward - 22(3), Kolkata on 7 August, 2019
1
ITA No. 2180/Kol/2018
Shri Pramod Kumar Saraf, AY 2014-15
आयकर अपील य अधीकरण, यायपीठ - "SMC" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH: KOLKATA
(सम ) ी ऐ. ट . वक , यायीक सद य)
[Before Shri A. T. Varkey, JM]
I.T.A. No. 2180/Kol/2018
Assessment Year: 2014-15
Shri Pramod Kumar Saraf Vs. ITO, Ward - 22(3), Kolkata
(PAN: APKPS 6814 F)
Appellant Respondent
Date of Hearing 01.07.2019
Date of Pronouncement 07.08.2019
For the Appellant Shri Sunil Surana, FCA
For the Respondent Shri Sankar Halder, JCIT, Sr. DR
ORDER
This is an appeal preferred by the assessee against the order of Ld. CIT(A) - 6, Kolkata dated 17.08.2018 for Assessment Year 2014-15.
2. The main ground raised by the assessee is against the action of the Ld. CIT(A) in confirming the addition made by the AO by treating the Long Term Capital Gain of Rs. 7,10,447/- in the shares of M/s. Nikki Global Finance Ltd. (herein after M/s. NGFL) as bogus and added u/s 68 of the Income Tax Act, 1961 (herein after the 'Act').
3. Brief facts of the case as noted by the AO is that the assessee declared total income of Rs. 2,83,740/- which was processed u/s 143(1) on 13.04.2015 and after a revised return was filed on 28.03.2016 disclosing total income of Rs. 3,94,580/-. The case was selected for scrutiny under CASS. The AO noted that during the year under consideration, the assessee was engaged as a law practitioner and declared Rs. 2,81,550/- as professional fees received and net income from business and profession at Rs. 22,394/- after some expenditure on various heads. The AO noted that the assessee has claimed exempt income u/s 10(38) of the 2 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15 Act on the LTCG, but received to the tune of Rs. 7,10,447/-. The AO asked for details of this claim of the assessee and the AO acknowledges that the assessee provided it and after going through the same, he notes that the "assessee has purchased 1,000 no of shares under script No. M/s. Nikkie Global which was purchased on 19.07.2012 with a purchase amount of Rs. 1,31,658/- and the said share i.e. total number of 1000 shares were sold on 13.09.2019 for a total consideration of Rs. 8,42,133/-. Therefore, capital gain of Rs. 7,10,447/- has been arisen as long term basis. Since this gain has been taken as exemption by the assessee on the basis of provision of sec. 10(38), the assessee was asked to explain as to why the exemption claimed by the assessee on long term basis will not be treated as an artificial long term capital gain vide this office letter dated 10.11.2016. The assessee was specifically asked to produce the related papers and documents for verification on this issue. Notices were issued u/s 133(6) of the I.T. Act, 1961 to verify the genuineness of the same."
4. Therefore the A.O notes that the assessee had filed his submission dated 25.11.2016 which was taken into consideration to frame the assessment. Then the A.O notes that the assessee in support of share transactions in the name of M/s. Nikkie Global, the assessee has furnished the respective contract notes and the demat Account highlighting the payments. The A.O noted that the transactions were made through a SEBI registered stock brokers, the contract notes are generated then and there and that deliveries were also received through well mechanized demat account with the intervention of stock exchange. Then the A.O with the help of a chart demonstrated that the assessee has earned alleged Long Term Capital Gain during the year under consideration as under:
NIKKI GLOBAL FINANCE LTD. (Scrip ID: NIKKIGL, Scrip Code: 531272) Name of Date of No. of Rate Amount Date of No. of Rate Amount Long Term Share Purchase Share (Rs.) Sale Share (Rs.) Profit (Rs.) NIKKIE 19/07/12 1000 1311 131658 13/09/13 1000 845 842133 710447 GLOBAL FINANCE LTD.3 ITA No. 2180/Kol/2018
Shri Pramod Kumar Saraf, AY 2014-15 Then the A.O states that the Department has information that the assessee had made transactions in the aforesaid penny stock.
5. Thereafter, the AO took note of the report of the Investigating Wing of the department which throws light about the modus-operandi/pre-planned actions taken by 84 penny stock companies in active connivance of 32 share broking entities which were involved in a scam to provide bogus LTCG/STCL to beneficiary like assessee. The AO explains the modus operandi by which the penny stock shares are bought/allotted/transferred to the beneficiary at a very nominal price mostly off-line so that they can save STT and thereafter sell the same through the stock exchange after one year to claim LTCG which is exempted u/s 10(38) of the Act. The AO noticed that in certain case SEBI have suspended the transaction. The AO concludes that the assessee's LTCG claim is bogus and the amount claimed could not have been made by the assessee which is against the human probabilities and therefore, he denied the claim and add it u/s 68 of the Act. Thus a sum of Rs. 7,10,447/- was added which actions of A.O was challenged by the assessee before the Ld. CIT(A) who dismissed the same. Aggrieved, the assessee is before me.
6. The ld. AR assailing the decision of the Ld. CIT(A) drew our attention to the fact that similar additions were made by the AO in respect of the LTCG claims of the same shares, M/s. NGFL which action was not approved by the Tribunal and took our attention to the decision of the Tribunal in Madhu Killa vs ACIT - ITA No. 834/Kol/2018 which is placed at page 44 to 58 of the Paper Book and Aditya Vikram Sureka HUF - ITA No. 1650/Kol/2018 placed at page 59 to 75 of the Paper Book. He also drew our attention to page 3 of the assessment order wherein the AO has acknowledged that the assessee had filed the respective documents to prove the transactions i.e. contract notes, Demat account, payments made through bank accounts, the transactions having being made through SEBI registered stock broker, contract notes of sale and the fact that deliveries were received through Demat account etc. According to the ld. AR, the AO and the Ld. CIT(A) got carried away by the general report of the Investigation Wing which has got nothing to do with the 4 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15 assessee's case and since no wrong doing of assessee or its broker has been mentioned in the report, the claim of assessee in the light of the documents filed before the authorities below should have been allowed. Therefore, he pleaded that assessee's claim of LTCG of shares of M/s. NGFL be granted.
7. Per contra the ld DR drew our attention to the assessment order wherein the AO has discussed in detail by referring to the investigation report prepared by the department from which it came to light the nefarious activity of 84 penny stock companies which were in hand in glove with 32 brokers who were converting the beneficiaries unaccounted money through a modus-operandi, which resulted in creating bogus LTCG/STCL. According to the ld. DR the claim of the assessee is unbelievable and fails the human probability test and so was rightly not allowed by the authorities below and therefore we should not interfere with the order of the Ld. CIT(A) and cited a number of case laws which we will discuss infra.
8. I have heard both the parties and perused the records. We note that the assessee has claimed Rs. 7,10,447/- as exempt u/s 10(38) of the Act which was the LTCG which assessee received on sale of shares of M/s. NGFL. The facts have been narrated by the AO at page 2 and page 3 of the assessment order. He had accepted the fact that the assessee had filed the respective contract notes and the Demat account to support the shares transactions in the name of M/s. NGFL. I note that the AO has accepted that the assessee has filed documents to substantiate that the transactions were made through SEBI registered stock brokers, transactions happened through banking channels, the deliveries of shares after purchase and thereafter sales are evident from demat statement which has been filed before the AO. The AO however has discarded these documents without pointing out any defects. I repeat that in this case, the assessee has filed the documents to substantiate purchase and sale of shares of M/s. NGFL which is found placed at page 17 to 29. The contract note of purchase of the scrip through M/s. Ortem Securities Ltd. registered stock brokers of the SEBI is found placed at page 23 of the Paper Book dated 19.07.2012, the bank statement reflecting payment through cheque is placed at page 24 of the Paper Book and the Demat statement 5 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15 reflecting deliveries of shares at the time of purchase is found at page 33 of the Paper Book. The contract note of showing sale of shares of M/s. NGFL is found placed at page 15 of the Paper Book and the bank statement reflecting the receipt on sale of shares of M/s. NGFL is found placed at page 16 of the Paper Book and the Demat statement reflecting sale on 17th September, 2013 has been furnished at the time of hearing which copy has been given to the ld. DR also. Thus it is noted that the assessee has purchased on-line scrips of M/s. NGFL and sold it also on-line after paying STT. Thus the assessee has discharged its onus to prove the transactions to be bonafide transactions from which it claimed the LTCG and therefore this amount is an exempt income u/s 10(38) to the tune of Rs. 7,10,447/-. We note that the AO has not found any fault with the aforesaid documents though he accepted that he has gone through the same. In such a scenario we are bound to follow the decision of this Tribunal in another case of an assessee wherein similar claim of LTCG on sale of M/s. NGFL was considered and granted. It is noted that in the case of Smt. Madhu Killa (supra) held as under while granting LTCG claim on sale of scrips of M/s NGFL:-
"15. We have heard both the parties and perused the records. It was brought to our notice by the Ld. AR in the assessment order at para 3.13 the AO has stated in sub-para 'c' that "the assessee purchased shares at Rs.865.97 per share ......". It was pointed out by the Ld. AR that the assessee has purchased share of M/s. NFLG for Rs.128.25 per share which is reflected in page 6 of the paper book which is the contract note. According to Ld. AR this is nothing but cut paste of some other case and has nothing to do with the assessee's case and it exposes non- application of mind of the AO. We find that the AO has stated that the assessee has purchased the share at Rs.865 per share whereas the assessee had purchased the shares at Rs.128.25, therefore, we note that the AO erred in making the erroneous finding of the purchase value of the shares. We note that in this case the assessee was investing in different shares of the companies (30 different shares of companies) as evident from perusal of page 5 of paper book and the purchase and sale of shares in M/s. NFGL is one among the 30 odd shares the assessee dealt with as an investment through a registered stock broker of Bombay Stock Exchange "M. Prasad & Co. Ltd." The assessee had purchased 25000 shares of M/s. NFGL on 13.06.2012 at a cost price of Rs.128.25 per share and remitted Security Transaction Tax (STT) of Rs.4007.81 and at a total cost price of Rs.32,16,000/- (see contract note placed at page 6 of paper book). Thus we find that the AO erred in finding that the assessee had made the purchase not through Stock Exchange but it was an off market transaction. We find that the assessee had purchased through registered broker M/s. M. Prasad & Co. who was registered stock broker of the Bombay Stock Exchange and on 13.06.2012 assessee purchased 25000 shares at Rs.28.25 per share on which STT was paid and the total transaction of Rs.32,21,213.10 was paid through account payee cheque to the registered broker and the shares were deposited in the demat account (D. P. Stock HLDG Corp of India Ltd.) 6 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15
16. The sale of M/s. NFGL shares took place through the same registered stock broker of Bombay Stock Exchange from 05.08.2013 to 30.12.2013 for sale price ranging from Rs.820/- to Rs.921/- per scrip (see contract note placed from pages 7 - 17 of paper book). We note from perusal of pages 18-19 of paper book, which reveals that the payment for purchase of shares were made through Axis Bank of assessee and payment has been made on 14.06.2012 vide cheque no. 138919 for an amount of Rs.32,21,213.10 to the recognized stock broker of Bombay Stock Exchange M. Prasad & Co. We also note from perusal of pages 20-23 of paper book which is the extract of pass book of assessee in Punjab National Bank wherein we note that assessee had received sale consideration through bank transaction and we verified the contract note of sale placed at pages 7 to 17 and tallied the entries of sale consideration received by the assessee in her bank account and find it to be correct. We on perusal of page 24, which is the transaction cum holding statement of Stock Holding Corporation of India Ltd. find that the share of M/s. NFGL was held in De-mat account. We note from a perusal of page 26, which is the transaction statement of Demat account shows that M/s. NFGL's shares of Rs.25,000/- by inter depositing transfer on 15.06.2012. A perusal of page 30 of paper book, which is the transactional statement of Demat account corroborate the sale of scrips of M/s. NFGL (from 07.08.2013 - 30.10.2013). A perusal of pages 34-36 of paper book, which is the ledger of assessee in the books of share broker (01.04.2014 to 31.03.2014) corroborates the sale transaction of scrips of M/s. NFGL.
17. The assessee had sold the shares on 05.08.2013 5000 shares at the value of Rs.820/- per share and paid STT and received a consideration of Rs.40,82,079/- which the assessee received by account payee cheque which is reflected in page 21 of the paper book received on 24.08.2013. Like wise, the other sale transactions are reflected from pages 8 to 17 of the paper book for different rates from Rs. 845/- per share, Rs.865/- per share, Rs.920/- per share, Rs.921/- per share etc. and the assessee has received the said consideration through account payee cheque. It was pointed out by the Ld. AR that when a show cause notice was given by the AO on 09.12.2016 wherein the assessee was asked to explain why the sale consideration of Rs.2,16,49,202/- shall not be added back u/s. 68 of the Act as well as Rs.10,82,460/- being 5% of the said sum be added u/s. 69C of the Act, the assessee promptly replied to it. The AO acknowledges that the assessee had replied vide letter dated 22.12.2016 which the AO has stated to have been placed on record. However, it was brought to our notice that the AO has not made any adverse finding in respect to the submissions made by the assessee in justifying the LTCG claim. It was brought to our notice that no attempt has been made by the AO to issue summons u/s. 131 or 133(6) of the Act to any of the parties involved in all these transactions to record any adverse inference against the assessee, and without doing so, the AO has simply concluded on the basis of the presumption and assumption and circumstantial evidence and on preponderance of probabilities has debunked the entire evidence submitted before the AO to saddle the entire sale consideration and to allege commission given @ 5% which comes to Rs.10,82,460/- against the assessee Thus we note that the assessee had furnished all primary evidences in the form of bills, contract notes, de Mat statements and bank accounts to prove the genuineness of the transaction relating to purchase and sale of shares resulting in LTCG. By adducing these evidences, the assessee had discharged the onus on her to prove the genuineness of the transaction which yielded her LTCG. Once the assessee had discharged her onus, then the onus shifted to the shoulders of AO then the AO has to examine the veracity of the documents produced by the assessee and if it is found to be correct and valid then in all fairness the AO should accept the claim of LTCG. In case if the AO on verification finds that the documents produced by the assessee is false or fabricated, then the AO should bring his adverse findings to the notice of the assessee and confront her with the adverse material/findings. Then again the onus will shift to the assessee to prove the genuineness of the transaction. Here, in the 7 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15 present case is concerned, the AO after going through the documents, failed to return a finding that documents produced by assessee to substantiate the yield of LTCG was false or fabricated. The facts of the case as discussed, and the evidence adduced by the assessee, support that the transaction made by the assessee through registered stock broker through Bombay Stock Exchange, after remitting STT and all payments were transacted through bank and the shares were held in De mat account, has to be accepted in the absence of any other material to suggest an adverse view. The AO/Ld. CIT(A) erred in rejecting legally admissible evidence and wrongly took adverse view against the claim of assessee based on surmises, suspicion and conjecture. This action of AO/Ld. CIT(A) is akin to convert "Proof into no proof." We note that AO while describing the modus operandi adopted by unscrupulous elements in the financial markets has made a vague statement that some accommodation entry provider has admitted that M/s. NFGL also indulged in wrong practices, however, we sought the Ld. DR's help to throw some light on this specific allegation made by the AO. However, other than the bald statement, nothing adverse could be found against the shares of M/s. NFGL. Even if for argument sake if there was such an adverse admission made by an accommodation provider against M/s. NFGL, then the AO in all fairness had to confront the assessee with the adverse material and given an opportunity to the assessee to meet it and the assessee should have been given an opportunity to explain it; and in case the assessee desires, she should have been allowed to cross examine the accommodation provider or else the adverse material cannot be acted upon to draw adverse inference against the assessee as held by the Hon'ble Apex Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3. It should be kept in mind that assessee cannot be kept in dark as to the material against her and it has to be given to the assessee if AO proposes to use it against the assessee and these are the basic natural justice principles the AO has to keep in mind while framing an assessment. Though AO/Ld. CIT(A) have been swayed by the report of SEBI/Investigation Wing of the department, both the authorities could not point out what was the role of the assessee in any wrong doing which is prohibited by law. We note that neither the purported adverse reports relied on by the AO has been brought on record nor is there any reference to any finding of such report which directly accuses the assessee in any wrongful actions. The AO has merely carved out certain features/modus-operandi of companies indulging in practices not sanctioned by law and as mentioned in such report. We note that neither any investigation were carried out against the assessee, nor against the brokers to whom the assessee dealt with or the companies in which the assessee dealt with the purchase and sale of shares in question were done by the AO. The transaction in question and the fact that the shares in question were quoted and transaction happened on the floor of the stock exchange in public view which action has not been interdicted by the securities watchdog SEBI. In such a scenario, to paint the entire share transaction of M/s. NFGL which yielded high capital gain as bogus is not correct without materials to support such an adverse finding. We note in the light of the aforesaid relevant evidences, the action of the AO and CIT(A) was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances and human conduct and preponderance of probability against the assessee. For that we rely on the decision of the Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. Vs ACIT (supra) for this proposition. The various facets of the contention of the ld. AR(supra), to rope in the assessee and for drawing adverse inferences, which remain unproved based on the evidence available on record are not reiterated for the sake of brevity.
18. At the cost of repetitions, we find that the transactions of the sale of shares by the assessee was duly supported by relevant evidences including contract notes, demat statement, bank account reflecting the transactions, stock brokers have confirmed the transactions, the stock exchange have confirmed the transactions, the shares have been sold on the online 8 ITA No. 2180/Kol/2018 Shri Pramod Kumar Saraf, AY 2014-15 platform of the stock exchange and each trade of sale of shares were having unique trade number and trade time. It is not the case of the AO that the shares which were sold on the date mentioned in the contract note were not the traded price on that particular date. The AO doubted the transactions due to the high rise in the stock price and for that the assessee cannot be blamed unless there was any material/ evidence to prove that the assessee or any one on his behalf has rigged or manipulated the stock price. It should be noted that the stock exchange of SEBI are the statutory authority appointed by the Government of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the companies in question. In absence of any relevant evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is pertinent to note that the assessee has purchased the stocks through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and the Hon''ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that "on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee's contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held that -
"As a matter of fact the AO doubted the integrity of the broker and the broker firm and also AO observed that the assessee had not furnished any explanation in respect of any discussion of trading of shares. The AO relied the loss of Rs.25,30,396/- only on the basis of information submitted by stock as fictitious. The AO has also not doubted the genuineness of the documents placed by the assessee on record. The AO's observation and conclusion are merely based on information. Therefore on such basis, no disallowance can be made and accordingly we find no infirmity in the order of the ld. CT(A), who has rightly allowed the claim of the assessee. This ground no.1 of the revenue is dismissed."
We agree with the reasoning of the tribunal on this point also. We do not find any reason to interfere with the impugned order. The suggested question, in our opinion do not raise any substantial question of law.
19. In the light of the documents furnished i.e. (i to v & i to iii) in Para 3(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered into any illegal actions/ modus-operand prohibited by law as alleged 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.
9 ITA No. 2180/Kol/2018Shri Pramod Kumar Saraf, AY 2014-15 For coming to such a conclusion we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 26th August, 2008 wherein the High Court held as follows :
"It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment.
It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee.
In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed."
20. 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 note that though the department was aware that the assessee had purchased the 25000 shares of M/s. NFGL in AY 2013-14, for Rs.32,21,269/- has not reduced the same from the total sale consideration of Rs.2.16 cr. It is elementary that income can be computed only after defraying the cost. So the action of AO to add the entire sale consideration of Rs.2.16 cr. itself is arbitrary exercise of power and cannot be sustained. Therefore, the action of the Ld. CIT(A) in confirming the addition of entire sale consideration of M/s. NFGL is perverse and is directed to be deleted. Consequently, the addition of 5% as commission to the tune of Rs.10,82,460/- cannot be also sustained and ordered to be deleted. The assessee's appeal succeeds."
9. Respectfully following the Tribunal's order in Madhu Killa and taking into consideration the documents filed by the assessee to prove the transaction which has taken place through on-line (both purchase and sale) after giving STT need to be allowed and therefore i allow the claim and direct deletion of addition of Rs. 7,10,447/-.
10. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 7th August, 2019
Sd/-
(A. T. Varkey)
Judicial Member
Dated: 7th August, 2019
Biswajit (Sr. PS)
10
ITA No. 2180/Kol/2018
Shri Pramod Kumar Saraf, AY 2014-15
Copy of the order forwarded to:
1 Appellant -Shri Pramod Kumar Saraf, 24, R.N. Mukherjee Road, 3rd Floor, Kolkata - 700 001.
2 Respondent - ITO, Ward-22(3), Kolkata.
3 CIT(A) , Kolkata.
4 CIT , Kolkata
5 DR, Kolkata Benches, Kolkata
/True Copy, By order,
Assistant Registrar/H.O.O.
ITAT, Kolkata Benches