Income Tax Appellate Tribunal - Gauhati
Kavita Chokhani, Guwahati vs Deputy Commissioner Of Income Tax, ... on 14 June, 2024
| आयकर अपीलीय अिधकरण यायपीठ, गुवाहाटी|
IN THE INCOME TAX APPELLATE TRIBUNAL
"GUWAHATI" BENCH, GUWAHATI
(Heard from Kolkata Benches through web-based video conferencing platform)
BEFORE DR. MANISH BORAD, HON'BLE ACCOUNTANT MEMBER
&
SHRI SONJOY SARMA, HON'BLE JUDICIAL MEMBER
I.T.A. No. 376/GTY/2019
Assessment Year: 2015-16
Kavita Chokhani Deputy Commissioner of Income
C/o Rahul Raj Jain & Co. Vs Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: ADZPC4882A]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 377/GTY/2019
Assessment Year: 2014-15
Kamla Devi Chokhani Deputy Commissioner of Income
C/o Rahul Raj Jain & Co. Vs Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: ADZPC4886E]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 378/GTY/2019
Assessment Year: 2015-16
Kamla Devi Chokhani Deputy Commissioner of Income
C/o Rahul Raj Jain & Co. Vs Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: ADZPC4886E]
अपीलाथ / (Appellant) यथ / (Respondent)
2
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani
I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani
I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani
I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani
I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani
I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons
I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons
I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
I.T.A. No. 379/GTY/2019
Assessment Year: 2015-16
Vishnu Kant Chokhani Deputy Commissioner of Income
C/o Rahul Raj Jain & Co. Vs Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: AEAPC1160P]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 380/GTY/2019
Assessment Year: 2015-16
Brahmadutt Chokhani Deputy Commissioner of Income
C/o Rahul Raj Jain & Co. Vs Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: AEAPC1157J]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 62/GTY/2020
Assessment Year: 2015-16
Vishnu Chokhani and Sons Assistant Commissioner of
C/o Rahul Raj Jain & Co. Vs Income Tax, Circle-3, Guwahati
H.No. 15, 1st Floor
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: AABHM4535P]
अपीलाथ / (Appellant) यथ / (Respondent)
3
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani
I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani
I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani
I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani
I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani
I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons
I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons
I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
I.T.A. No. 421/GTY/2019
Assessment Year: 2014-15
Brahmadutt Chokhani and Sons Assistant Commissioner of
C/o Rahul Raj Jain & Co. Vs Income Tax, Circle-3,
H.No. 15, 1st Floor Guwahati
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: AABHM4536Q]
अपीलाथ / (Appellant) यथ / (Respondent)
I.T.A. No. 422/GTY/2019
Assessment Year: 2015-16
Brahmadutt Chokhani and Sons Assistant Commissioner of
C/o Rahul Raj Jain & Co. Vs Income Tax, Circle-3,
H.No. 15, 1st Floor Guwahati
Bye Lane-2, Shaktigargh Path
Bhangagarh, G.S. Road
Assam - 781005
[PAN: AABHM4536Q]
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri Miraj D. Shah, Advocate
Revenue by : Shri Soumendu Sekhar Das, D/R
सुनवाई क तारीख/ Date of Hearing : 19/03/2024
घोषणा क तारीख / Date of Pronouncement: 14/06/2024
आदेश/O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The present appeals are filed by the assessees against the separate but identical orders of the learned Commissioner of Income Tax (Appeals) - Guwahati -2, Guwahati, passed u/s 250 of the Income Tax Act, 1961, (hereinafter the 'Act') on the following dates:-
4I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons Assessment ITA No. Assessee Date of ld. CIT(A) Year order 2015-16 376/GTY/2019 Kavita Chokhani 31/05/2019 2015-16 62/GTY/2020 Vishnu Chokhani and Sons 30/12/2019 2015-16 422/GTY/2019 Brahmadutt Chokhani and Sons 12/07/2019 2014-15 421/GTY/2019 -do- 12/07/2019 2015-16 380/GTY/2019 Brahmadutt Chokhani 31/05/2019 2015-16 379/GTY/2019 Vishnu Kant Chokhani 31/05/2019 2015-16 378/GTY/2019 Kamla Devi Chokhani 31/05/2019 2014-15 377/GTY/2019 -do- 31/05/2019
2. As the issues arising in all these appeals are common, they were heard together and are being disposed off by way of this common order.
3. The common grievance in all these appeals is that the ld. CIT(A) has erred in confirming the action of the ld. Assessing Officer denying the benefit of exemption u/s 10(38) of the Act from long term capital gain earned from sale of equity shares of listed company. The summary of additions challenged before us is reproduced below:-
Search and Seizure operation conducted on 17/09/2015 Assessment ITA No. Assessee Long term capital gain Name of scrip Year claimed as exempt u/s 10(38) of the Act 2015-16 376/GTY/2019 Kavita Chokhani 1,63,36,440/- Kailash Auto Finance Ltd.
2015-16 62/GTY/2020 Vishnu Chokhani and Sons 1,34,18,162/- -do- 2015-16 422/GTY/2019 Brahmadutt Chokhani and Sons 62,32,603/- -do-
2014-15 421/GTY/2019 -do- 1,03,95,250/- -do-
2015-16 380/GTY/2019 Brahmadutt Chokhani 1,63,84,187/- -do-
2015-16 379/GTY/2019 Vishnu Kant Chokhani 1,36,88,550/- -do-
2015-16 378/GTY/2019 Kamla Devi Chokhani 40,20,537/- -do-
2014-15 377/GTY/2019 -do- 1,21,94,484/- -do-
4. The facts involved in the instant appeals are identical hence, for the sake of convenience, ITA No. 376/GTY/2019; Assessment Year 2015-16 in the case of Kavita Chokhani is taken as the lead case and the decisions rendered by us therein will apply mutatis mutandis to the rest of the captioned appeals.5
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
5. The grounds of appeal raised in ITA No. 376/GTY/2019; Assessment Year 2015-16, reads as follows:-
"1. For that on the facts and in the circumstances of the case and in law, the AO as well as the CIT (Appeals) erred in taxing the long term capital gain of Rs. 1,63,36,440/- derived on sale of listed as unexplained income in the hands of the appellant.
2. For that on the facts and in the circumstances of the case, the order passed by the Assessing Officer and upheld by the Ld. CIT on account of Capital Gains of Rs. 1,63,36,440/- is liable to be set aside and/or deleted.
3. For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before."
6. Brief facts of the case are that the assessee is an individual and was subjected to search and seizure operation conducted on 17/09/2015, u/s 132 of the Act. Certain documents were found and seized. Assessee has declared income of Rs.2,43,440/- in the regular return for Assessment Year 2015-16 furnished on 04/09/2014 u/s 139(1) of the Act i.e., prior to search and seizure action. Notice u/s 153A of the Act was issued and assessment proceedings u/s 143(3) of the Act was carried out. In compliance to notice u/s 153A of the Act, the assessee filed return on 11/12/2017 declaring very same amount i.e. Rs. 2,43,440/-. In both these returns, the assessee had claimed exemption u/s 10(38) of the Act at Rs.1,67,36,440/- for long term capital gain from sale of equity shares of listed company, namely, M/s. Kailash Auto Finance Limited (M/s. KAFL). The ld. Assessing Officer during the course of assessment proceedings observed that the assessee and other family members have entered into similar transactions of purchase of 6 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons sale of equity shares of M/s. KAFL and have derived long term capital gain. Though in the statement given during the course of search, the assessee agreed to voluntarily offer the long term capital gain to tax as income from other sources but thereafter retracted from the same as it was not offered to tax in the ITR. The ld. Assessing Officer has not referred to any seized material which could indicate that the assessee had arranged the alleged long term capital gain through an accommodation entry provider. However, the ld. Assessing Officer taking support of the report of the investigation wing and the statements of other entry operators observed that the listed company, namely, M/s. KAFL has been identified by SEBI as a penny stock companies and the share prices of this company has been rigged by the entry operators for the purpose of providing accommodation entry in the shape of long term capital gain. Though it was contended by the assessee that the equity shares has been purchased from the brokers payment made through banking channel and shares held in the D-mat account and after due payment of security transaction tax (STT) has been sold through the registered broker on SEBI platform and all the conditions required for claiming exemption u/s 10(38) of the Act have been fulfilled. However, ld. Assessing Officer was not satisfied and he based on the report of the investigation wing stating about the modus- operandi of providing bogus accommodation entry various persons including the operator of the scrip, director of the penny stock company, bogus/paper/shell entities, observed that the financials of the company M/s. KAFL are not commensurate with high and lows of 7 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons the share prices and it is purely an arranged accommodation entry and there is no genuine long term capital gain and, therefore, net consideration received by the assessee is liable to be taxed as income from other sources. Accordingly, the long term capital gain of Rs. 1,67,36,440/- claimed by the assessee u/s 10(38) of the Act was held as bogus and income assessed at Rs.1,65,79,880/-. Aggrieved, the assessee filed appeal before the ld. CIT(A) reiterating the submissions filed by the ld. Assessing Officer and also referred to various judicial pronouncements. However, the ld. CIT(A) was not satisfied and he confirmed the action of the ld. Assessing Officer observing as follows:-
"14. FINAL WORD I note that there are numerous Appeals pertaining to bogus LTCG garnered through penny stocks across the nation at various Appellate Forums. Indeed it has to be more so, when the bogus LTCG From penny stock is the biggest tax fraud in the history of independent India which has been orchestrated by an array of middlemen, tax evaders/ professionals, entry operators, etc. The entire system of allowing "exemptions/deductions" to genuine persons has taken a severe beating on account of the fraud played out by the beneficiaries of the LTCG by transactions in penny stock companies. Because of their actions, the genuine taxpayers who avail of genuine exemptions/deductions are looked upon through an eye of suspicion by the Department. The massive fraud played out by the beneficiaries of the LTCG in collusion with the stock-brokers and entry operators has made even the genuine taxpayers suspect in the eyes of law. There is a deep-seated feeling in the minds and hearts of the genuine tax-payer that they pay taxes on their hard-earned money these scamsters have gotten scot-free.
A large number of beneficiaries of the LTCG whose conscience forced them to come clean before the law surrendered the incomes/profits earned by them before the tax authorities. But the others i.e. those were determined to defraud and dodge the revenue doggedly maintained the line that the long term capital gains earned by them were genuine.
WHY SOME BENEFICIARIES OF SAME PENNY STOCKS PAID TAXES WHILE OTHERS DID NOT I feel that criminal investigations against such persons are in order so that a genuine and factual comparison may be unearthed as to why some of the 8 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons beneficiaries of the LTCG by the same penny stocks chose to voluntarily surrender their income and chose to pay taxes on the same and why others chose to toe a determined line that their profits from these very dubious and very suspect transactions were completely genuine.
The doctrine of "constructive fraud" is also impliedly applicable in this case. The doctrine is a legal fiction describing a situation where a person or entity gained an unfair advantage over another by deceitful or unfair methods. Intent does not need to be shown as in the case of actual fraud. For e.g. some unfair methods may include not telling customers about defects in a product. The elements of the doctrine are as follows:
There is a duty owing by the party to be charged to the complaining party due to their relationship.
There is a violation of that duty by the making of deceptive material misrepresentations of past or existing facts or remaining silent when a duty to speak exists.
There is a reliance thereon by the complaining party.
There is an injury to the complaining party as a proximate result thereof and There is a gaining of an advantage by the party to be charged at the expense of the complaining party.
In this case, the beneficiaries of the LTCG gained an unfair advantage over the other party i.e. the Revenue by deceitful and unfair methods. There was an explicit duty owing to the beneficiaries of the LTCG (i.e. the party charged in this case) and by that duty the beneficiaries of the LTCG were duty-bound not to have indulged in the deceitful practice and even if they had done that, to have come clean on the deceitful transactions by paying the taxes due to the Government to be charged to the complaining party due to their relationship.
The Appellant has referred to various decisions of various Tribunals and High Courts in which decisions have been given in favor of persons (similar appellants) who have earned LTCGs by transactions in Penny Stock. However, in view of the judgement of the Hon'ble Supreme Court in the aforementioned cases of Ram Jethmalani and Ors. vs. Union of India and Securities and Exchange Board of India vs. Rakhi Trading Private Ltd. [2018 (2) TM1 580 - Supreme Court of India] and also in view of judgements of the Hon'ble Delhi'High Court in case of Pr. CIT-6, New Delhi vs. NDR Promoters Pvt. Ltd. in ITA No. 49/2018, in the case of Sanjay Bimalchand Jain vs. Pr. CIT and by the Hon'ble Bombay High Court and Udit Kalra vs. ITO by the Hon'ble Delhi High Court, on which the appeals of Appellants with similar cases have been dismissed by various Hon'ble courts, I respectfully beg to disagree with the various judgements/rulings given in favour of such appellants on the grounds of non-allowance of opportunity for cross examination, contrived veracity on account of transactions in electronic platform etc. 9 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons With tax evaders, middlemen, stock brokers etc. spread across the entire length and breadth of India^ it is impossible for the Assessing Officer to reach out to each and every place and person and collect evidence, serve summons etc. to frame a case based on principles of "beyond reasonable doubt", against the Appellant. The only way out to bring such tax evaders to justice is to build a case on the principles of Preponderance of Probabilities which in this case, is writ large in the transactions undertaken by tax evaders in penny stocks. In view of the above, I have no hesitation in confirming the order of the Ld. Assessing Officer since in this case sham transactions have been undertaken by the Appellant in the penny stocks of Company/Companies with no tangible/intangible assets and since, on a personal note, I categorize this transaction in penny stocks as the biggest tax fraud scam in the history of independent India. The latin maxim "minaturinnocentibus gui parcitnocentibus", meaning "he who spares the guilty threatens the innocent"
is applicable to the issue at hand.
U. S. Attorney George Johnson while arguing the famous AL Capone's Trail before US Federal Judge James H. Wilkerson in 1931, concluded as under:
"As experienced men, look at the whole fabric of the case. You will find in it the design of guilt. Counsel for the defense say this is a case that future generations will remember. I agree with this. They will remember it because it will establish whether a man can so conduct his affairs that he is above the government and above the law. That is what your verdict will write in this case."
On account of the detailed above reasons, observations, judicial pronouncements, the impugned addition of Rs. 1,63,36,440/- is hereby confirmed.
9. In the result, the appeal is dismissed. In the result the appeal is decided as above.
10. This order has been passed under Section 250 read with Section 251 of the Income Tax Act, 1961.
7. Aggrieved the assessee is now in appeal before this Tribunal.
8. The ld. Counsel for the assessee stated that all the conditions necessary for claiming exemption u/s 10(38) of the Act have been fulfilled. The equity shares of the listed company have been purchased through registered share brokers/open market and have been converted into D-mat form and after holding them for more than 12 10 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons months they have been sold through the registered broker of the recognised stock exchange and the transactions of sale of equity shares have been carried out on the SEBI platform and sale consideration has also been received through the SEBI monitored system. He further submitted that similar type of issues had come up before the Hon'ble Courts and in majority of cases, Hon'ble High Courts have decided in favour of the assessee. He also submitted that there is no judgment of the Hon'ble Jurisdictional High Court on this issue and, therefore, in view of the judgment of the Hon'ble Apex Court in the case of The Commissioner Of Income-Tax vs M/S. Vegetables Products Ltd. 88 ITR 192 (SC), the decisions which are favouring the assessee needs to be applied. He placed reliance on the recent decisions of this Tribunal in the case of DCIT vs. Bajrang Lal Bamalwa & Ors. in ITA Nos. 51 & 52/Gau/2023 & ors; Assessment Year 2012-13 & 2013-14 dt. 01/09/2023 and that in the case of M/s. Seema Holding Pvt. Ltd. in ITA Nos. 67 to 69/GTY/2023, order dt. 01/09/2023. Reliance was placed on the decision of the Co-ordinate Bench of ITAT Delhi in the case of Shri Rajesh Kumar Gupta vs. ITO in ITA No. 5120/Del/2019; Assessment Year 2015-16, order dt. 03/11/2023. Finally, reliance was placed on the decision of the Hon'ble Bombay High Court in the case of PCIT vs. Indravadan Jain HUF reported in (2023) 156 taxmann.com 605 order dated 12/07/2023.
9. The ld. D/R, on the other hand, vehemently argued supporting the orders of the lower authorities which is running into 96 pages in which plethora of judgments have been referred to. The ld. D/R further placing reliance on the judgment of the Hon'ble Jurisdictional High 11 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons Court in the case of PCIT v. Swati Bajaj and Ors ( 2022) 446 ITR 56 stated that alleged long term capital gain is bogus in nature.
10. We have heard rival contentions and perused the material placed before us. The common issue in all these appeals relates to the genuineness of the claim of exempt income in the form of long term capital gain u/s 10(38) of the Act earned from purchase and sale of equity shares of M/s. KAFL and appellant wise claim is mentioned below:-
Search and Seizure operation conducted on 17/09/2015 Assessment ITA No. Assessee Long term capital gain Name of scrip Year claimed as exempt u/s 10(38) of the Act 2015-16 376/GTY/2019 Kavita Chokhani 1,63,36,440/- Kailash Auto Finance Ltd.
2015-16 62/GTY/2020 Vishnu Chokhani and Sons 1,34,18,162/- -do- 2015-16 422/GTY/2019 Brahmadutt Chokhani and Sons 62,32,603/- -do-
2014-15 421/GTY/2019 -do- 1,03,95,250/- -do-
2015-16 380/GTY/2019 Brahmadutt Chokhani 1,63,84,187/- -do-
2015-16 379/GTY/2019 Vishnu Kant Chokhani 1,36,88,550/- -do-
2015-16 378/GTY/2019 Kamla Devi Chokhani 40,20,537/- -do-
2014-15 377/GTY/2019 -do- 1,21,94,484/- -do-
11. We observe that the ld. AO has referred to certain transactions observed by investigation wing of the Income tax Department and SEBI reports wherein bogus long term capital gain is arranged by the beneficiaries with the help of entry operators, company owners and other paper/shell entities. The assessee has also been subjected to search and except reference to the statement recorded during the course of search, no other incriminating material was found by the search team which could prove that the assessee has entered into the transactions of arranging bogus long term capital gain. The reference to the report of investigation wing is the sole basis with the ld. AO. No independent enquiry has been conducted by the ld. AO about the alleged 12 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons transactions i.e., neither any information has been called for from the directors of alleged penny stock company whose shares have been purchased and sold, nor any adverse information has been received from the broker who has sold the equity shares on the recognised stock exchange platform. Addition by the ld. Assessing Officer is purely on the theory of preponderance of probability of arranging such long term capital gain. Section 10(38) of the Act deals with the income arising from transfer of long term capital gain being equity shares in a company or selling of equity oriented funds and the gain from transfer of such long term capital asset is exempt from tax if the transactions are entered into on or after the date on which Chapter VI of the Finance (2) Act, 2004, come into force and such transactions is chargeable to STT under the chapter. Recognised stock exchange shall have the meaning assigned to it vide explanation (ii) to Section 43(5)(A) of the Act i.e., "recognised stock exchange" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. As far as the long term capital asset is concerned if the equity shares are held for more than 12 months, they fall under the category of long term capital gain. In the instant case, the assessee(s) purchased equity shares either through registered broker in virtual mode or open market and thereafter, got them converted into D-mat form and after holding them for more than 12 months has sold the equity shares on the recognised stock exchange. It is not in dispute that the STT has been paid and the sale transactions 13 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons has been duly supported by the contract note and the sale consideration have been received through banking channel via registered broker. We also notice that equity shares have been sold on the portal and the buyer is not known to the assessee and the system has been devised by the SEBI in such a way so as to facilitate carrying out such transactions of purchase and sale of equity shares and other units of mutual funds wherein on the screen the seller is appearing only through its code and not its name and the buyer is also available that too through its code. It is purely a demand and supply transaction where the price can be moving up and down based on the demand and supply of the particular scrip.
12. Now, so far as the conditions prescribed u/s 10(38) of the Act is concerned the same has been duly complied to as the equity shares were held by the assessee for more than 12 months and sold after due payment of STT and the consideration has been received through banking channels. Now, the case of the revenue is that all the transactions i.e., starting from the purchase till sale are all managed affairs and there is role of various persons to carry out such transactions. For coming to this conclusion, the ld. Assessing Officer has not made any independent enquiry and has just taken the report of the investigation wing. It is an admitted fact that in the share market, thousands of companies are traded and the procedure of purchase and sale of equity shares works from the software and other systems devised by the recognised stock exchanged which in this case is SEBI.
We do not deny that there may be come cases where certain 14 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons transactions are managed and some persons may arrange some accommodation entries but all those are fully backed up by the detailed investigation and the persons are identified who have carried out such transactions. But that is not the case before us as nothing adverse specifically against the assessee(S) has been brought by Revenue except the statement. Revenue has also not proved that assessee is part of such alleged accommodation entry group or it has any connection with such entry operators. We, therefore, after going through the facts of the case are of the considered view that since the necessary conditions for claiming exemptions u/s 10(38) of the Act have been fulfilled by the assessee, the alleged claim made u/s 10(38) of the Act i.e., exemption of long term capital gain from sale of equity shares of the listed company, deserves to be allowed.
13. Now, coming to the judicial jurisprudence, plethora of judgment have been quoted from both the sides of which some are in favour of the assessee and others in favoring the revenue. However, where there is no judgment of the Hon'ble Jurisdictional High Court on a particular issue and when there are two different views of the other Hon'ble High Courts on the very same issue, then as held by the Hon'ble Apex Court in the case of The Commissioner of Income-Tax vs M/s. Vegetables Products Ltd. (supra), the view which is more favourable to the assessee has to be followed. We observe that recently this Tribunal in the case of DCIT vs. Bajrang Lal Bamalwa & Ors. (supra) while dealing with the similar issue of long term capital gain from sale of alleged penny stock company, namely, Twenty First Century India Ltd., has held in favour of the 15 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons assessee placing reliance on the judgment of the Hon'ble Delhi High Court in the case of PCIT vs. Krishna Devi [2021] 126 taxmann.com 80 (Delhi) and the relevant finding of this Tribunal is reproduced below:-
"43. We have duly considered the rival contentions and gone through the record carefully. Ideally when we explore the scope of section 153A and addition is not sustainable on legal ground, then, the inquiry on factual aspect is not required to be made. In case, a specific ground is being raised in an appeal or C.O. that has to be adjudicated. Earlier this approach was being taken on the ground that Higher Appellate Authority may concur or not with the view of the ITAT on the legal ground and in that situation, adjudication of the issue on merit would be required. But now the Hon'ble Supreme Court has silenced the controversy in the case of PCIT -vs.- Abhisar Buildwell Pvt. Limited and there is no scope of disagreement on the scope of section 153A in further appeal unless Hon'ble Supreme Court took a different view later on.
44. A perusal of the written submissions filed by the ld. Counsel for the assessee on merit is concerned, the issue is whether capital gain earned by the assessee is to be treated as a genuine or not It is such a subject which would always remained in a grey area inspite of availability of a large number of decisions by the Hon'ble High Court as well as by the Tribunal. The assessees in response to the show-cause notice have submitted detailed evidences, as noticed by us in the earlier part of the order. They have submitted computation of income, balance-sheet, computation of long- term capital gain, copies of bank statements, etc. We have notice d in the earlier part of this order while taking note of written submissions of ld. Counsel for the assessee comprised in the paragraph no. 1.13 on pages 6 to 8 of the submission. According to the assessee, a perusal of the above would indicate that the assessee has fulfilled all the conditions for claiming this claim as a genuine. The Department did not choose to scrutinise the returns of all the respondents but in different assessment years, same transaction has been scrutinised by the Department that facts we have noticed in the earlier part of the order. The ld. Counsel for the assessee has drew our attention on those details on page no. 32 of his submissions, which read as under:-
(i) Assessment Order dt. 11.11.2014 passed u/s 143(3) in the case of Sri Bajrang Lal Bamalwafor A.Y. 2012-13 (corresponding order passed u/s 153A in respect of the very same year has also been impugned in the present set of appeals) wherein the erstwhile A.O., after inspection of relevant documents and conscious application of mind vis-à-vis the impugned issue had found the impugned share transactions in TFCIL to be perfectly genuine and allowed the Assessee's claim of exemption u/s 10(38) of the Act. The relevant holdings of the A.O are excerpted hereunder:
"4......The assessee also claimed exemption u/s 10(38) of the Income Tax Act 1961 for Long Term Capital Gains on sale of shares. The A/R filed details of 16 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons the same which were examined, verified and recorded. Thus, the increase of capital has been explained."
Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 102 to 109of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. 2012-13. Copy of the above assessment order is enclosed at pages 59-65 of PB-17
(ii) Assessment Order dated 31.03.2013 passed u/s 143(3) in the case of Sri Bajrang Lal Bamalwa for A.Y. 2010-11, wherein identical exemption of Rs. 1,41,14,446.89 claimed by the Assessee u/s 10(38) on LTCG arising on the sale of the same scrip i.e., TFCIL was allowed by the A.O after detailed inspection of the documents filed by the Assessee viz. copies of contract notes, purchase and sales bills etc. and the reply received from the Calcutta Stock Exchange in response to notice issued u/s 133(6) etc. duly confirming the sales of the impugned shares. Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 69 to 84 of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) 2012-13. Copy of the above assessment order is enclosed at pages 66-72 of PB-17
(iii) Assessment Order dated 31.03.2013 passed u/s 143(3) in the case of Sri HansrajBamalwa for A.Y. 2010-11 wherein similar exemption claimed on the LTCG arising on sale of shares of TFCIL was allowed duly by the Ld. A.O after an in-depth inspection and analysis of supporting documents furnished by the Assessee and enquiry conducted by him. Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 85 to 101of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. 2012-13. Copy of the above assessment order is enclosed at pages 73-79 of PB-17
(iv) Assessment Order dated 24.12.2018 passed u/s 147 r.w.s 143(3) in the case of Smt. MeenakshiBamalwa(also one of the Assessees herein) for A.Y. 2011-12. In the said case, reassessment proceedings were initiated by the A.O on the basis of the same purported materials/information as in the case of the Assessees herein viz. the purported information received from the DDIT(Inv), Kolkata relating to the alleged racket of availing bogus LTCG, the statements of promoters, brokers, directors etc. recorded by the Investigation Wing u/s 131 etc. The A.O after considering the purported information and evidences in his possession and the detailed documentary evidences furnished by the assessee therein, found the LTCG of Rs. 1,54,21,323/- claimed by the said assessee on the sale of TFCIL (i.e., the same scrip as in the present case) to be perfectly genuine and accordingly, 17 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons completed the assessment u/s 147 at the returned figure. Copy of the above assessment order u/s 147 is enclosed at pages 80-86 of PB-17
(v)Assessment Order dated 24.12.2018 passed u/s 147 r.w.s 143(3) in the case of Smt. Bhagwati Devi Bamalwa(also one of the Assessees herein) for A.Y. 2011-12 wherein similar to the case of Smt. MeenakshiBamalwa, supra, the reassessment proceedings were initiated on identical information as in the case of the Assessees herein. The A.O passed similar order u/s 147 duly allowing the exemption claimed by the assessee therein u/s 10(38) on LTCG of Rs. 1,52,02,169/- arising on the ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) sale of shares of TFCIL. Copy of the above assessment order u/s 147 is enclosed at pages 87-91 of PB-17
45. A perusal of these assessment orders would indicate that in five scrutiny cases of the sale of shares, i.e. TFCIL, gain earned by the assessee was accepted as a genuine by the Department itself. Out of these five cases, two are in the re-assessment under section 147 and these assessment orders have been framed after more than one year of the search. Therefore, Department was not doubting the genuineness of the transactions. It is also observed that apart from Hon'ble Calcutta High Court in the case of Swati Bajaj, the other Hon'ble High Courts have accepted the claim of these alleged bogus long-term capital gains and ld. Counsel for the assessee drew our attention towards the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs. Smt. PushpaMalpani (2012) 20 taxmann.com 597 (Raj HC) , Hon'ble Delhi High Court in the case of PCIT -vs.- Krishna Devi (supra). In that case, the jump in share price of investment made by the assessee in Goldline was 4849.2%. The ld. Counsel for the assessee has also drew our attention on the tabulated details submitted in his submission and pointed out how certain companies have performed so well and the change was 449% to 312%, whereas certain companies has performed very badly. Therefore, we have made analysis of these break-up in the light of the large number of decisions, namely 21 in number compiled in the written submission. We are of the view that the Department ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) was not possessing any details, which authorize it to doubt the claim made by the assessee. Therefore, even otherwise on merit also, no addition is sustainable.
46. In the result, all the appeals of the Revenue are dismissed and that of the Cross Objections of the assessees are allowed."
14. We also note that in another case i.e., M/s. Seema Holding Pvt. Ltd. (suupra), though the matter related to claim of bogus loss, however, reference has been made to various judgments including that of the 18 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons Hon'ble Bombay High Court in the case of PCIT vs. Indravadan Jain HUF (supra) and distinguishing the same from the judgment of the Hon'ble Calcutta High Court in the case of PCIT v. Swati Bajaj and Ors (supra) and the relevant portion of this decision reads as under:-
"18. We have heard rival contentions and perused the material available on record. It is also undisputed that these shares were purchased from the stock exchange platform through registered broker and the payment was made through cheque and similarly the sale was also effected through registered broker on stock exchange platform and payment was made through banking channel. The assessee has furnished before the AO all the requisite evidences in form of contract notes, details of payment and copy of D-mat a/c etc. to prove these transactions. We have also perused and analyzed the decisions passed by the Hon'ble Bombay High Court in the case of PCIT v. Indravadan Jain, HUF (supra) and Hon'ble Orissa High Court in the case of PCIT vs. Dipansu Mohapatra (supra), wherein the issue has been decided in favour of the assessee. Hon'ble Bombay High Court while deciding the case has held that unless the complicity of the assessee in manipulating the shares is proved, the assessee could not be held responsible for the wrong done by the brokers or persons and thus granted relief to the assessee. The Hon'ble Orissa High Court has held that where transactions are well documented and payments are routed through banking channels, the transactions of sale and purchases of shares cannot be doubted and thus held in favour of the assessee.
19. We have also carefully analyzed the judgment of the Hon'ble Calcutta High Court in the case of Swati Bajaj (supra) wherein the issue has been decided against the assessee by holding that the price of the shares were rigged and manipulated by a group of individuals and stock brokers in order to yield undue benefit in the form of bogus accommodation entries through manipulation of shares in the stock exchange and, therefore, decided the issue against the assessee.
19.1. In our opinion, where there are two constructions of the provisions of the Act are possible or available, then the construction which is favourable to the assessee has to be adopted as held in the judgment of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. We have also perused the decision passed by the Hon'ble Apex Court in the case of Pr. CIT Vs Smt Renu Aggarwal (Supra) , the SLP filed by the revenue was dismissed by observing and as under: wherein the issue was decided affirming the decision of the Hon'ble Allahabad High Court. The Hon'ble High court has dismissed the appeal of the department that no question of law arose from the order of the tribunal affirming the order of ld. CIT(A) allowing the relief to the assessee. The ld. CIT(A) allowed the relief to the assessee on the ground that there was no adverse comment from the stock exchange or the company whose shares were involved in the transactions and the AO quoted the facts pertaining to completely unrelated persons whose statements were recorded and assessee's name did not appear in those statements."19
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
15. Similar type of issue was also raised before the Co-ordinate Bench of ITAT Delhi in the case of Shri Rajesh Kumar Gupta (supra), wherein the Tribunal has held in favour of the assessee observing as follows:-
12. We have given thoughtful consideration to the orders of the authorities below.
The undisputed fact is that 6000 shares were allotted to the assessee who has applied in the IPO of the company Esteem Bio Food Processing ltd. On allotment, shares were credited in the demat account of the assessee and the payments have been made through regular banking channel. Purchase of shares was subject to security transaction tax.
13. On 05.06.2014, the assessee sold the shares and received sale consideration in his bank account on 11.06.2014. Sale transaction was also subject to security transaction tax. We find that the Assessing Officer has proceeded by heavily relying upon the investigation report of the Investigation Wing, Kolkata regarding list of companies engaged in providing accommodation entries in the garb of bogus long term capital gains, modus operandi being penny stock trading through recognized stock exchanges. We find that the assessee has furnished all details but the same were rubbished by the Assessing Officer.
14. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing, Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent evidence or source, but has merely relied upon the statement by the Investigation Wing as well as information received from the Investigation Wing, Kolkata.
15. The report of the Investigation Wing, Kolkata is much after the date of transaction when the assessee has already sold scrip. It is true that the shares of Esteem Bio Organic Food Processing Ltd were suspended from trading in stock exchange but that was from 29.06.2015, which is the date of order of the SEBI. The shares were purchased by the assessee on 05.02.2013 and sold on 05.06.2014 and these transactions have taken place much before the report of the Investigation Wing and also the order of the SEBI.
16. On identical set of facts as mentioned elsewhere, this co- ordinate bench in the case of Karuna Garg ITA No. 1069/DEL/2019 and Ors have considered the same shares i.e. Esteem Bio Organic Food Processing Ltd and deleted the addition which was affirmed by the Hon'ble High Court of Delhi in ITA No. 125/2020 and Ors dated 15.01.2021. The relevant observations/findings of the Hon'ble High Court read as under:
"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 20 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons Respondent had successfully discharged 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 ITA 125/2020 and connected matters 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 (supra) too turns ITA 125/2020 and connected matters 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.21
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.
17. On finding parity of facts, respectfully following the same, we direct the Assessing Officer to allow the exemption u/s 10(38) of the Act in respect of LTCGs and further direct the Assessing Officer to delete the hypothetical addition of Rs. 1,40,655/-.
18. In the result the appeal of the assessee in ITA No. 5120/DEL/2019 is allowed."
15.1. The Hon'ble Delhi High Court in the case of PCIT vs. Smt. Krishna Devi [2021] 126 taxmann.com 80 (Delhi), under almost identical and similar facts has held in favour of the assessee observing as under:-
"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 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 preplanned 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 22 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons 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 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 case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (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 (supra) too turns 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.23
I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons
14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration."
16. The Hon'ble Bombay High Court in the case of PCIT vs. Indravadan Jain HUF reported in (2023) 156 taxmann.com 605 order dated 12/07/2023, under identical circumstances, has held as under:-
"2. It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act.
3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was A.O.'s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent's case was re-opened under Section 148 of the Act.
4. The A.O. did not accept respondent's claim of long term capital gain and added the same in respondent's income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum 24 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal.
5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises."
17. Respectfully following the decisions referred hereinabove and considering the facts that alleged claim of long term capital gain u/s 10(38) of the Act has been held to be bogus by the ld. Assessing Officer merely on the basis of the report of the investigation wing without bringing any material on record by way of carrying out any independent enquiry and further on our finding that the assessee has carried out the transactions giving rise to long term capital u/s 10(38) of the Act within the parameters provided u/s 10(38) of the Act and has duly fulfilled the conditions thereof, are inclined to hold that the claim of the assessee u/s 10(38) of the Act deserves to be allowed. Accordingly, the finding of the ld. CIT(A) is set aside and the effective grounds raised by the assessee are allowed.
18. Since, we have allowed the claim of the assessee arising out of long term capital gain u/s 10(38) of the Act in I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani, as stated supra, the decision applies mutatis mutandis to the rest of the appeals of other 25 I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons assessee(s) wherein common issue of genuineness of claim of long term capital gain u/s 10(38) of the Act is in challenge, bearing I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani, I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani, I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani, I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani, I.T.A. No. 62/GTY/2020; Assessment Year: 2015- 16; Vishnu Chokhani and Sons, I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons and I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons, and the same are also allowed.
18. In the result all the appeals filed by the assessee are allowed.
Order pronounced in the Court on 14th June, 2024.
Sd/- Sd/-
(SONJOY SARMA) (DR. MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Kolkata, Dated 14/06/2024
*SC SrPs
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. संबंिधत आयकर आयु / Concerned Pr. CIT
4. आयकर आयु (अपील)/ The CIT(A)-
5. िवभागीय ितिनिध ,आयकर अपीलीय अिधकरण, गुवाहाटी /DR,ITAT, Guwahati,
6. गाड फाईल /Guard file.
आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Guwahati