Income Tax Appellate Tribunal - Mumbai
Rakesh Sahewal, Mumbai vs Dcit (Cc)-4(3), Mumbai on 22 December, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI NARENDRA KUMAR CHOUDHRY, HON'BLE JUDICIAL MEMBER
&
SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER
ITA NO. 2208/MUM/2023 (A.Y: 2014-15)
Rakesh Sahewal v. DCIT, Central Circle- 4(3)
Building No. 10/C/212 Room No. 1921, 19th Floor
Sangeet Complex, Jesal Park Air India Building,
Thane- 401105 Nariman Point, Mumbai- 400021
PAN: AAVPS2744N
(Appellant) (Respondent)
Assessee Represented by : Shri. Ajay Daga
Department Represented by : Shri. Rahul Kumar
Date of conclusion of Hearing : 23.11.2023
Date of Pronouncement : 22.12.2023
ORDER
PER S. RIFAUR RAHMAN (AM)
1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)-52, Mumbai [hereinafter in short "Ld. CIT(A)"] dated 20.04.2023 for the A.Y. 2014-15.
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
2. Brief facts of the case are, a search and seizure action u/s 132 of Income-tax Act, 1961 (in short "Act") was carried out in the case of Raj Kumar Kedia Group on 13.06.2014 by the DDIT(Inv.), Unit-3(3), Delhi. The main allegation against the group was that it is engaged in providing various types of accommodation entries to large number of beneficiaries all over the country. One of various types of accommodation entries provided by R.K. Kedia group is that of bogus LTCG by pre-arranged trading in shares of various non-descript listed companies, which are under the control and management of the syndicate of entry operators. The assessee has also been covered under search.
3. During the search, certain incriminating material was also found & seized from the premises so covered. In the post-search enquiries, it was revealed that accommodation entries were provided to various beneficiaries by the group for commission which is charged in cash and not disclosed for the purpose of proceedings under the IT Act, 1961, thereby, evading payment of income tax on such income as well as abetting other persons [beneficiaries] in evasion of income tax on a very large scale.
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ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
4. During the course of post-search proceedings, it was found that the seized material contains certain incriminating transactions and other information pertained to the assessee. It was further established that the assessee was managed and controlled by the Mumbai based entry operators.
5. In the light of above, the case of assessee was centralized to the charge of DCIT, Central Circle-4(3), Mumbai of the CCIT (Central)-2, Mumbai. The case was centralized to enable the Assessing Officer to have a comprehensive and consolidated view while finalizing the block assessment proceedings in the case of Raj Kumar Kedia Group.
6. The case of the assessee was assigned to this Circle as per order u/s.127(2) passed by the Pr. Commissioner of Income Tax-31, Mumbai, vide order No.Pr.CIT- 31/Centralisation/2016-17/556 dated 17.08.2016. Subsequent to the centralization, a notice u/s 153A of the I.T.Act, 1961 was issued on 29.07.2015 and served upon the assessee.
7. In response to the notice issued u/s.153A, the assessee vide letter dated 29.10.2015, filed a copy of the return of income which was filed originally on 31.03.2015 declaring total income at ₹.5,16,670/-. Page No. 3
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal Subsequently, notice u/s.143(2) and 142(1) of the Act were issued and served on the assessee and Authorised Representative of the assessee attended and filed the relevant information as called for.
8. In response to the notices issued, the assessee filed its submissions vide letter dated 21.10.2016 and the submissions made by the assessee has been observed in light of the findings & observations detailed in the Appraisal Report on Raj Kumar Kedia Group of cases. Moreover, the contents of the assessee's submissions are co-related & verified with the information available on the seized material. After such examination, the total income of the assessee for the year under consideration is accepted at ₹.5,16,670/-as declared by the assessee in his return of income.
9. Assessing Officer with regard to Bogus Long Term Capital Gain / Short Term Capital Loss observed that, on a perusal of the statement of Long Term Capital Gain shown to have earned during the F.Y.2013-14, it is observed that assessee has shown a sum of ₹.6,50,501/- as LTCG earned on sale of equity shares of Luminaire Tech and claimed the entire gain as exempt from tax. However, as per the discrepancies detected by the Investigation Wing, it is revealed that the aforesaid scrip Page No. 4 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal was a penny stock and was utilized for harvesting bogus LTCG. The action initiated by Investigation Directorate covering number of entry operators, share brokers had ultimately resulted in unearthing of LTCG entry scam of a very large magnitude involving a syndicate of operators based in Delhi, Kolkata & Mumbai acting in tandem to manipulate the market price of shares of certain companies in an organized manner and then to provide entries of bogus Long Term Capital Gain to interested person through a complex web of prearranged transactions.
10. Moreover, some of the beneficiaries, who reaped similar LTCG in penny stock scrip have admitted that they had obtained entry of bogus LTCG through prearranged purchase & sale transactions in the shares of aforesaid company. They also admitted that they have obtained this entry of LTCG by paying equal amount of unaccounted cash in addition to commission of 5-6% of the entry amount, that too, in cash.
11. In view of the above, Assessing Officer issued show cause notice to the assessee and asked to submit the details as to why the entire capital gain of ₹.6.50 Lakhs shown on sale of shares of Luminaire should not be treated as bogus / non-genuine and the same should not be brought to tax as income chargeable to tax for the year under Page No. 5 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal consideration. Assessing Officer further sought details to explain as to why the unaccounted cash paid by you to the entry provider/controller of the share price should not also be brought to tax as unaccounted income for the year under consideration.
12. Moreover, some of the beneficiaries, who reaped similar LTCG in the aforesaid scrip(s) have admitted that they had obtained entry of bogus LTCG through prearranged purchase & sale transactions in the shares of aforesaid company. They also admitted that they have obtained this entry of LTCG by paying equal amount of unaccounted cash in addition to commission of 5-6% of the entry amount, that too, in cash. The manipulative trading done in the aforesaid scrip, as detected by the Investigation Wing and was reported in the 'Investigation Report' in the case of 'Project Bogus LTCG/STCL Through BSE Listed Penny Stocks' carried out by the Kolkata Directorate.
Total value of FULL NAME of Scrip Code Name of the Scrip manipulative Trade PENNY STOCK (Rs.) LUMINAIRE 526045 LUMINAI TECH 1317,61,69,651 TECHNOLOGIES LTD
13. In view of the above observations, Assessing Officer issued show cause notice to the assessee and was required to explain as to why the entire capital gain shown on sale of shares of aforesaid scrip(s) should Page No. 6 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal not be treated as bogus / non-genuine and the same should not be brought to tax as income chargeable to tax for the year under consideration. Similarly, the assessee was also required to explain as to why the unaccounted cash paid by the assessee to the entry provider/controller of the share price should not also be brought to tax as unaccounted income for the year under consideration. In response, assessee has not filed any submission.
14. The Assessing Officer analysed the above said share transactions and came to the conclusion with the following observation: -
"8.4 Findings of the Investigation Wing:
8.4.1 The Dy. Director of Income Tax (Inv.), Unit-3(3), Delhi.
Investigation Wing, New Delhi had conducted a search and seizure action on 13.06.2014 in the case of Raj Kumar Kedia Group. Gist of the findings unearthed by the Investigation Wing in Raj Kumar Kedia Group is summarized herein-under:-
RK Kedia group and associated persons have been involved in not only evading Income Tax themselves but are also helping other persons in evasion of Income Tax on a very large scale.
RKKedia group was engaged in providing accommodation entries of bogus Long Term Capital Gains (LTCG), introduction of bogus Share Capital & Share Premium, bogus Short Term Capital Loss (STCL), bogus loans/advances/ICDs etc. to various beneficiaries against receipt of unaccounted cash from them for commission which is charged in cash and not disclosed for the purpose of proceedings under the IT Act, 1961, thereby, evading payment of income tax on such income as well as abetting other persons (beneficiaries) in evasion of income tax on a very large scale.Page No. 7
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal Shri Manish Arora is main employee of Shri Raj Kumar Kedia who keeps records of unaccounted transactions.
Pre-search verifications and analysis of information & data available in public domain such as official website of Ministry of Corporate Affairs, ITD data base, website of Bombay Stock Exchange, material recovered during search action in other cases etc. revealed that Shri Raj Kumar Kedia operates through a close network of associates in Delhi, Mumbai & Kolkata who help him in running the racket for providing various types of accommodation entries. All the transactions used for providing accommodation entries are make believe or pre-arranged transactions without any play of market forces as opposed to genuine transactions.
It is revealed that the entire entry providing operation comprises of various levels of operators who either introduce the unaccounted cash of beneficiaries in their accounts in the guise of Long Term Capital Gains, Share Capital & Share Premium, loans/advances/ICDs etc. or help in generation of unaccounted cash by creating bogus Short Term Capital Loss.
8.4.2 The Investigation Wing, Kolkata Directorate has searched/ surveyed some 32 Share Broking Entities and more than 20 Entry operators. Out of the investigations of such high magnitude, we have unearthed and identified some 84 odd companies which are listed on Bombay Stock Exchange and are being used for providing bogus accommodation entry of Long Term Capital Gain/ Short Term Capital Loss. List of such identified penny Stocks [84 Nos.), whose share prices have been apparently manipulated by the syndicate of operators is uploaded on the servers of Income Tax Department. In some of the scrips, the Securities Exchange Board of India (SEBI) has conducted inquiries pursuant to detection of a huge rise in the traded volumes and price of the shares of these scrips and issued orders restraining certain persons/entities from accessing the securities market, since these entities were found to be involved in fraudulent, unfair and manipulative transactions. In case of some of the scrips, even the trade on the platform of securities market was suspended.
8.4.3 Moreover, some of the beneficiaries, who reaped similar LTCG, have admitted that they had obtained entry of bogus LTCG in the aforesaid scrips. It was also admitted that they have obtained these entries of LTCG by paying equal amount of unaccounted cash in addition to commission of 5-6% of the entry amount, that too, in cash.Page No. 8
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal 8.5 Legal position & Conclusion:
8.5.1 From the above, it can be observed that when there is no commercial purpose involved in a transaction and the transaction is for primary purpose of tax avoidance or to reduce the tax burden, the artificial circumstances created on record to categorize such income as exempt should not be allowed. In the instant case, the series of transactions that is buying of the shares and subsequent to that are clearly a pre- designed set of transactions. There is no motive of achieving a legitimate commercial end except to claim the said long term capital gain as exempt u/s 10(38) of the Act.
8.5.2 In the case of McDowells Co. Ltd Vs. CTO in 154 ITR 148, the court held that:
"Tax planning may be legitimate provided it is within the framework of the law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious methods. It is obligation of every citizen to pay the taxes honestly without resorting to subterfuges"
In the case of Workmen of Associated Rubber Industry Ltd. Vs. Associated Rubber Industry Ltd., 157 ITR 77 (SC), where the court held thus:
"It is the duty of the court, in every case where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke screen and discover the true state of affairs. The court is not to be satisfied with form and leave well alone the substance of a transaction. Avoidance of welfare legislation is as common as avoidance of taxation and the approach in considering problems arising out of such avoidance has necessarily to be the same."
In the case of CIT Vs. L. N. Dalmia, 207 ITR 89 (Cal.)(HC) it was held that, a device adopted by the assessee to reduce the tax liability was considered to be a sham.
8.5.3 The essence of the scheme was to include a transaction designed to produce a gain to be claimed u/s 10(38). At the same time another transaction was designed to produce almost matching gains which was not chargeable to tax. These two separate Page No. 9 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal transactions were self concealing. Thus, the following conclusions emerges:
i. The scheme is a pure tax avoidance scheme without any commercial justification in so far as the making of a profit is concerned.
ii. The transactions are self-concealing and are designed to make neither a gain nor a loss. The tax payers would have entered into the scheme only with a view to have gain and that too to claim the same as exempt u/s 10(38) of the Act.
ii. These transactions have no commercial purpose apart from the avoidance of tax liability.
8.6 In view of the above, entire LTCG/STCL shown by the assessee on sale of aforesaid scrip is held to be non-genuine and the gain/capital brought into books through such non-genuine transaction is held to be nothing but unaccounted income kept away from the incidence of tax. Accordingly, the entire LTCG is brought to tax. Further, since the assessee must have paid commission to the controller/operator/broker involved in this transaction from his unaccounted cash, such commission worked out @ 6% is also brought to tax as unexplained expenditure. The total addition on this account is computed as under:-
S.No. Name of the Scrip Amt. (Rs.)
1. Non-genuine LTCG/STCL 6,50,501
2. Commission in Cash on such 39,030
bogus transactions [@6%]
total 6,89,531
8.7 Since entire LTCG/STCL shown by the assessee on sale of aforesaid scrip and commission paid thereon in cash are held to be non-genuine, the same is hereby brought to tax as unaccounted income chargeable to tax for the year under consideration. Penalty proceedings u/s.271AAB of the I.T.Act are initiated separately for furnishing inaccurate particulars of income, thereby concealment of income chargeable to tax.
(Addition: Rs. 6,89,531/-)"
Page No. 10
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
15. Aggrieved assessee preferred appeal before the Ld. CIT(A) and raised grounds of appeal and filed detailed written submissions, for the sake of clarity it is reproduced below: -
"1. This is an appeal filed by the appellant on being aggrieved against the order u/s 143(3) read with Sec. 1534 of the IT Act, 1961 (The Act).
[.....]
B. On Merits
1. Addition in respect of alleged bogus Long-term Capital gain MEN
1. Your honor's kind attention is invited to the letter dt. 21.10.2016 furnishing interalia following details to AO in response to notice u/s 142(1) of the Act:
1. Details of long-term capital gain on sale of investments in shares together with allotment advice & contract note for sale of shares,.
2. Copy of relevant bank statements, 2
3. Photocopy of Form No. 10DB for the STT incurred on securities transactions carried out on BSE/NSE, &
4. iv. Copy of demat transaction statements.
The above letter together with the enclosures thereto is placed in the paper book at PB page 21-46. It is submitted that sale of said shares were done through SEBI regd. share broker on stock exchange platform & the purchases made in the year ended 31.03.2011 has been accepted in the assessment made u/s 143(3) r.w.s 153A of the Act for the A.Y. 2011-12.
1. The AO in the course of assessment proceedings required the appellant to show cause interalia as to why the exempt long-term capital gain of Rs. 650501/- on the scrip Luminaire Technologies Limited claimed in the return for the year under appeal be not treated as bogus & therefore, be not brought to tax as the said scrip is penny stock & was utilised for harvesting bogus LTCG as per the discrepancies detected by the investigation wing. The appellant in response thereto vide his letter dt. 16.12.2016 submitted that full details with regard to capital gain claimed as Page No. 11 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal exempt has been furnished by him vide his letter dt. 21.10.2016 & requested the AO to advert him with the enquiries of the investigation wing covering entry operators, share brokers & beneficiaries so as to enable him to comment on the same. He also submitted that as far as he is aware, no statement has been given by his broker that he has arranged the bogus LTCG for him. He further submitted that so called report of investigation wing is a generalised report & is not conclusive. He also submitted that there is no evidence that he has given cash against the capital gain so earned. He finally submitted to confront him with the material wherein his name has been specifically given by the so called entry operators, share brokers etc stating that they have provided him bogus LTCG. The AO without accepting the above submissions kas not allowed the exemption claimed u/s 10(38) & brought the said LTCG to tax.
2. It is submitted that in making the addition the AO totally relied upon the enquiries made by the investigation wing covering entry operators, share brokers & beneficiaries without adverting the same to the appellant thereby flouting the principles of natural justice.
3. In view of the plethora of evidence placed on record, it is submitted that the onus which lay on the appellant stood fully discharged and onus thus got shifted to AO who has not brought an iota of evidence to dislodge the evidence so placed by the appellant. The AO totally relied upon the Investigation Report of the Deptt. without co-relating the facts as applicable to the appellant and he further erred in not making any enquiry worth the name so as to bring the appellant within the framework of the investigation report. It is further submitted that the addition has been made purely based on conjectures and surmises not supported by any material. Your honor is aware that in law suspicion howsoever strong it is, the same cannot take the place of evidence. It is submitted that there is no warrant for the conclusion that the capital gain disclosed by the appellant in so called penny stock was bogus when all the papers were in order and no evidence was brought on record by the AO that there was collusion /connivance between the parties concerned. Based on the above facts, no addition could have been made in respect of long-term capital gain claimed as exempt and in support of the same, reliance is placed on the following decisions:Page No. 12
ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
1. Shyam R Pawar [Hon. Bombay High Court in ITA No. 1568 of 2012).
2. Andaman Timber Industries [Hon. Supreme Court in Civil Appeal No. 4228 of 2006).
3. Prem Pal Gandhi (Hon. Punjab & Haryana High Court in ITA 95-2017).
4. Kiran Kothari HUF [Hon. ITAT, Kolkata Bench in ITA No.443/Kol/2017).
5. Dolarrai Hemani [Hon, ITAT, Kolkata Bench in ITA No. 19/Kol/2014).
6. Manish Kumar Baid [Hon, ITAT, Kolkata Bench in ITA No.1236/Ko/2017].
7. Pramod Jain & Ors [Hon, ITAT, Jaipur Bench in ITA No.368/JP/2017), and
8. Arvind Kumar Jain HUF (HonJTAT, Mumbai Bench in ITA No. 4862/Mum/2014). It is pertinent to note that facts of the appellant are much more better than the facts in the above cases.
II. Addition in respect of alleged payment of commission In making the said addition, the AO has not brought any evidence on record to establish that the alleged payment was made and that also without identifying the specific person to whom it was made. Therefore, the addition so made is not justified.
In the totality of facts, it is submitted that both the additions made deserves to be deleted.
It is, therefore, submitted that the order under appeal be quashed and/or in the alternative suitable relief be allowed For this act of kindness, your appellant shall be grateful to your honor as ever."
16. After considering submissions of the assessee and the findings in the assessment order, Ld. CIT(A) dismissed the appeal filed by the assessee.
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ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
17. Aggrieved assessee is in appeal before us raising following grounds in its appeal: -
"1. The ld. CIT(A) in confirming the validity of notice u/s 153A of the Act did not appreciate that no search action was initiated on the appellant in as much as authorization dt. 12.06.2014 to search appellant's residence vide panchnama dt. 13.06.2014 was pursuant to search initiated u/s 132 on his employer Shri Krishna Khadaria and that the authorization dt 28.07.2014 to search bank locker vide panchnama dt 05.08.2014 stood in the name of the appellant's wife Smt. Neelam Sahewal.
2. The Ld. CIT(A) erred in confirming the addition of Rs. 650501/- in respect of gain on sale of shares of Luminaire Technologies Ltd. As non-genuine long-term capital gain.
2.i In doing so, the ld. CIT(A) did not appreciate that the overwhelming evidence placed in the course of assessment proceedings remained to be dislodged and he erred in confirming the addition merely based on wild guess, rumor and gossip.
3. The ld. CIT(A) erred in confirming the addition of Rs. 39030/- being alleged commission paid for availing alleged bogus long-term capital gain as unexplained expenditure.
3.i In doing so, the ld. CIT(A) did not appreciate that not an iota of evidence was brought on record by the AO in support of the addition so made.
4. The ld. CIT(A) erred in not adjudicating the additional ground of appeal raised on 04.06.2018 challenging the addition made by the AO of Rs. 689531/- vide para 8 of the assessment order which is contrary to his own finding in para 7 thereof."
18. At the time of hearing, Ld.AR of the assessee has submitted various documentary evidences in support of the above said transaction and he brought to our notice contract notes of sales of shares, details of Page No. 14 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal cheque issued by stock broker of the assessee towards sales, bank statements in support of the realisation of the sale proceeds and he submitted that the Long Term Capital Gain earned by the assessee is genuine and not an arranged one as alleged by the tax authorities.
19. Further, he submitted that Assessing Officer and Ld. CIT(A) have not pointed out any discrepancies in the documentary evidences submitted by the assessee. Ld.AR of the assessee submitted that without pointing out any discrepancies in the documentary evidences submitted by the assessee the Assessing Officer has heavily relied on the investigations carried out by the Directorate of Investigation, Delhi. The predetermined action with specific intention is one of the circumstances evidences leading to the conclusion that the Long Term Capital Gain earned is not genuine. Further, assessee has not declared any Short Term Capital Gain or business income or exempt income share transactions in the previous assessment years.
20. On the other hand, Ld. DR relied on the order of the lower authorities.
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21. Considered the rival submissions and material placed on record, we observe that the assessee is not the regular investor and had specifically made the investment in the scrip under consideration. It is fact on record that the financials of the company are not commensurate with the purchase and sale price in the market. The assessee has purchased the shares from open market, D-mated the scrips and subsequently sold the same in the stock exchange. It clearly raises several doubt on the purchase and sales transactions recorded in this case. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely an investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. We observe that the Hon'ble Bombay Page No. 16 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 held as under: -
"1. The following question of law is proposed:
"Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"
2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3. Therefore we find nothing perverse in the order of the Tribunal.
4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.
5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
6. The appeal is devoid of merits and it is dismissed with no order as to costs."
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ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal
22. Further, the Hon'ble Delhi High Court in the case of Pr. CIT v. Smt Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: -
"8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453.
9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.
10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter.
11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Page No. 18 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged Page No. 19 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT Page No. 20 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal (supra) too turns ITA 125/2020 and connected matters Page 10 of 10 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.
15. Accordingly, the present appeals are dismissed."
23. Therefore, we respectfully follow the ratio of the above decisions and inclined to allow the grounds raised by the assessee. Accordingly the ground raised by the assessee is allowed.
24. In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 22nd December, 2023.
Sd/- Sd/- (NARENDRA KUMAR CHOUDHRY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22.12.2023 Giridhar, Sr.PS Page No. 21 ITA NO. 2208/MUM/2023 (A.Y: 2014-15) Rakesh Sahewal Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum Page No. 22