Income Tax Appellate Tribunal - Kolkata
Sri Gautam Kumar Pincha, Kolkata vs Ito, Ward 34(4), Kolkata, Kolkata on 15 November, 2017
आयकर अपील
य अधीकरण, यायपीठ - "D" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH: KOLKATA
(सम )Before ी ऐ. ट
. वक , यायीक सद य एवं/and डॉ. अजन
ु$ लाल सैनी, लेखा सद य)
[Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
आयकर अपील सं या / I.T.A No. 569/Kol/2017
नधॉरण वषॅ/Assessment Year: 2013-14
Shri Gautam Kumar Pincha Vs. Income-tax Officer, Wd-34(4), Kolkata
(PAN: AKGPP 6211L)
(अपीलाथ*/Appellant) (+,यथ*/Respondent)
Date of Hearing 01.09.2017
Date of Pronouncement 15.11.2017
For the Appellant/ अपीलाथ* Shri Miraj D.Shah
For the Respondent/ +,यथ* Shri Sallong Yaden, Addl. CIT, DR
आदे श/ORDER
Per Shri A.T.Varkey, JM
This is an appeal filed by the assessee against the order of Ld. CIT(A)-10, Kolkata dated 20.01.2017 for AY 2013-14.
2. The only issue to be decided in this appeal of assessee is as to whether the long term capital gains of Rs.29,57,981 arising out of sale of quoted equity shares can be assessed as unexplained cash credit u/s 68 of the IT Act 1961.
3. Brief facts of the case are that the assessee is a resident individual and for the AY under appeal i.e. 2013-14, return was filed on 19/11/2014 declaring an income of Rs.3,26,968 and in the said return of income, the assessee claimed to have earned long term capital gains of Rs.29,57,981 on sale of 5800 shares of M/s Oasis Cine 2 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 Communication Ltd; and 6400 shares of M/s BSR Finance & Construction Ltd. The AO noted that the assessee had purchased 400 shares of Ms Quick Management Services Ltd in FY 2010-2011 for a consideration of Rs.1,00,000 and against these shares as a result of a scheme of amalgamation, the assessee got 6400 shares of M/s BSR Finance & Construction Ltd and this entire shares were sold during FY 2012-2013 for a consideration of Rs.12,29,111. The AO also found that the assessee had purchased 200 shares of M/s Gravity Barter Ltd for a consideration of Rs.1,00,000/- in FY 2010-2011 and as and against these shares as a result of a scheme of amalgamation, the assessee got 8800 shares of M/s Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) and part of this i.e. 5800 shares were sold during FY 2012-2013 for a consideration of Rs.18,94,780 and this resulted in long term capital gains of Rs.29,57,981.
4. The AO took note of the fact that the gain made by the assessee in the transaction of the sale of shares was very high during a short period of time and as per the AO, both the Companies i.e. BSR Finance & Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) were bogus companies and therefore, the long term capital gains earned thereon were highly suspicious. The AO issued notices and made inquiries and found that the shares were sold through two registered stock brokers who were members of the Calcutta Stock Exchange i.e. M/s Bikash Surekha and M/s S K Khemkha. The AO also noted that as per the letter dated 03/07/2015, the Directorate of Investigation of Income Tax has reported that prices of some shares of penny stock were artificially rigged to benefit some assessee through bogus claim of Long Term Capital Gains. The AO listed some 10 to 11 features as reported by the Directorate of Investigation of such kind of penny stock which were used for bogus capital gains transactions. Based on such report of the Investigation Department, the AO concluded that the capital gains earned by the assessee from the sale of shares of BSR Finance & Construction Ltd and Oasis Cine Communication Ltd 2 3 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 (which was renamed to Ecowave Infotech Ltd) were bogus and thus the entire capital gains which was claimed as exempt u/s 10(38) of the Income Tax Act 1961(herein after ''the Act'') was held to be bogus and the same was added as unexplained cash credit. The AO also held that in order to arrange for such capital gains, the assessee must have incurred some costs towards commission, and therefore the AO estimated such commission @ 0.50% of the sale value and added a sum of Rs.15,619/- and accordingly added a sum of Rs.29,73,600/- to the income of the assessee. The Ld CIT (A) relied on the observations of the AO and held that such transactions were dubious in nature and based on circumstantial evidences, the addition made by the AO was justified and thus the Ld CIT (A) upheld the additions made by the AO.
5. Aggrieved by the aforesaid order passed by the Ld. CIT(A) upholding the addition of Rs.29,73,600, the assessee has preferred this appeal before us, seeking relief for deletion of the addition and directing the AO to treat the capital gains as exempt u/s 10(38) of the Act.
6. The Ld AR submitted that the addition made by the AO and upheld by the Ld CIT (A) was based on presumptions and suspicion alone and are therefore perverse in the eyes of law. In the course of hearing of the case, the ld AR referred to various documentary evidences furnished in the Paper Book in support of the claim of the assessee to prove the genuineness of the transactions relating to LTCG on sale of shares. The documentary evidences included the following:
(i) Balance Sheet of the assessee for FY 2010-2011 wherein the investment of Rs.2,00,000 made in shares were duly recorded and reflected.
(ii) The Bills for purchase of the shares of Ms Quick Management Services Ltd
(iii) The Bills for purchase of the shares of Ms Gravity Barter Ltd 3 4 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14
(iv) The bank statement of the maintained with South Indian Bank Ltd reflecting the payment of Rs.2,00,000 to purchase the shares of Ms Quick Management Services Ltd and Ms Gravity Barter Ltd
(v) The documents relating to the merger of Ms Gravity Barter Ltd with Oasis Cine Communication Ltd approved by the Hon'ble Calcutta High Court in the CA 519 of 2011.
(vi) The documents relating to the merger of Ms Quick Management Services Ltd with BSR Finance & Construction Ltd approved by the Hon'ble Calcutta High Court in the CA 575 of 2011.
(vii) The letter of allotments for the share held in Ms Quick Management Services Ltd and exchanged with the shares of BSR Finance & Construction Ltd in terms of the ratio as approved by the Hon'ble Calcutta High Court in the CA 575 of 2011.
(vii) The letter of allotments for the share held in Ms Gravity Barter Ltd and exchanged with the shares of Oasis Cine Communication Ltd in terms of the ratio as approved by the Hon'ble Calcutta High Court in the CA 519 of 2011.
(viii) The change of name notice issued by the Calcutta Stock Exchange dated 17/10/2012 as per which it was stated that the name of Oasis Cine Communication Ltd was changed to Ms Ecowave Infotect Ltd in terms of the fresh certificate of incorporation issued by the Registrar of Companies.
(ix) Copy of share certificate issued by BSR Finance & Construction Ltd in terms of the ratio as approved by the Hon'ble Calcutta High Court in the CA 575 of 2011.
(x) Copy of share certificate issued by Oasis Cine Communication Ltd in terms of the ratio as approved by the Hon'ble Calcutta High Court in the CA 519 of 2011.
4 5 ITA No.569/Kol/2017Shri Gautam Kumar Pincha A.Y.2013-14
(xi) Copy of contract notes issued by Mr Bikash Surekha, member of Calcutta Stock Exchange having SEBI registration no INB 031119713 and code no 03/995 for sale of shares of BSR Finance & Construction Ltd.
(xii) Copy of contract notes issued by Mr S K Khemka, member of Calcutta Stock Exchange having SEBI registration no INB 030071512 and code no 03/577 for sale of shares of Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd).
(xiii) The bank statement of the maintained with South Indian Bank Ltd reflecting the payment received for the sale of shares of BSR Finance & Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd).
(xiv) Copy of demant statement of assessee maintained with Depositary Participant Ms Shree Bahubali International Ltd SBIL-000764 Client ID 10015233. Showing the shares were held in demat form and delivered to the broker in demat form.
(xv) Copy of the Balance Sheet and Profit Loss Account of BSR Finance & Construction Ltd and Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) for the year ended 31/03/2012 & 31/03/2013.
6.1. The ld AR submitted that the purchase of shares in the FY 2010-11 was accepted by the AO and the return was processed under section 143(1) of the Act, thereby accepting the purchase of shares. The ld AR also submitted that even in the impugned assessment order, the purchase of shares by the assessee was not held to be bogus. The ld AR submitted that the evidences and documents furnished by the assessee were neither found to be false nor fabricated. The ld AR submitted that the AO doubted the genuineness of the sale transactions on the basis of some purported orders of SEBI and/or the Investigation Wing however the AO has merely mentioned the date of a letter issued by the Director of Investigation. Save and except the date of the letter, according 5 6 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 to ld AR, there is nothing brought on record by the AO, as to how that investigation report concern the assessee and or the shares sold by the assessee. According to ld AR, the AO could not even bring on record any finding or material against the assessee or the Companies in which the assessee had dealt with or the stock brokers through whom the shares were sold. The ld AR submitted that the AO on pages 6-9 of the assessment order had merely stated that the Investigation Wing and SEBI conducted some inquiries in respect of some other Companies and as per the report prepared by them, certain patterns and features were identified by them and as per the AO such patterns and features were emerging in the case related to the Companies in which the assessee dealt with. However save and except making a passing remark or mere reference to so called patterns, there is nothing in the assessment order by which it can be found that the Assessee or the Company or the Brokers were named in the report of investigation. According to ld AR, the AO identified 10-11 features on page 6-7 of the Assessment order, however how this was relating to the Companies in the case of assessee was not at all demonstrated. Thus according to ld AR, there was no material whatsoever to hold that the Companies dealt by the assessee were having such pattern or features. It was submitted that the AO disallowed the assessee's claim of LTCG on sale of shares on surmises, suspicion and presumptions alone. It was submitted that the lower authorities have not brought any material or evidence on record to falsify the claim of the assessee or to hold that the share transactions were bogus.
6.2 The ld AR, in course of hearing before us, filed a copy of the audited financials of M/s BSR Finance & Construction Ltd and M/s Oasis Cine Communication Ltd (which was renamed to Ecowave Infotech Ltd) for the year ended 31/03/2012 & 31/03/2013. It is seen that M/s Oasis Cine Communication Ltd was incorporated on 27/10/1978, thus in the year under consideration it was the 34th year of the existence of the Company. On perusal of the Accounts it was seen that the Company was having Share Capital as on 31/03/2013 of Rs.57.84 crore and Reserve and Surplus of Rs.7.19 6 7 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 crore and was having assets worth Rs.62.33 crore. Similarly it is seen that M/s BSR Finance & Construction Ltd was incorporated on 17/02/1993, thus in the year under consideration it was the 19th year of the existence of the Company. On perusal of the Accounts it was seen that the Company was having Share Capital as on 31/03/2013 of Rs.33.44 crore and Reserve and Surplus of Rs.17.81 crore and was having assets worth Rs.52.29 crore and a turnover of Rs.6.97 crore as against a turnover of Rs.2.01 crore as on 31/03/2012. The ld AR submitted that as these companies were in existences for several years rather decades he concluded that in such circumstances, the merger of the two companies by the order of Hon'ble Calcutta High Court could not be said to be a pre planned arrangement to give benefit of LTCG to beneficiaries. According to ld AR, considering the balance sheets and asset position of the Company any ordinary investor could invest in the company. The ld AR drew our attention to the fact that the sale of shares was made on the online platform of the stock exchange; therefore according to ld AR, the assessee did not know the names of the buyers and has no connection and/or relations with any such persons. The transactions of sale of shares were online trading system through his broker from whom he received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation according to ld AR, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the AO. The ld AR referred to the judgement of Hon'ble Bombay High Court in the case of CIT vs. Lavanya Land Pvt. Ltd. [2017] 83 taxmann.com 161 (Bom) to contend that there was no evidence whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. In the said case, the Hon'ble High Court at Para 21 held that in absence of any 7 8 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 material to show that huge cash was transferred from one side to another, addition cannot be sustained. Similar view was taken in the following cases:-
(i) Baijnath Agarwalla vs. ACIT [2010] 40 SOT 475 (Agra Third Member)
(ii) Ganeshmull Biijay Singh Baid HUF vs. DCIT - ITA No. 544/Kol/13 dated 4.12.2015 (Kolkata Tribunal)
(iii) Malti Ghanshyambhai Patodia vs. ITO - ITA No. 3400/Ahd/2015 (Ahmedabad Tribunal)
(iv) Pratik Suryakant Shah vs. ITO -[ 2017] 77 taxmann.com 260 (Ahmedabad Tribunal)
(v) Padduchari Jeevan Prashant vs. ITO - ITA No. 452/Hyd/2015 (Hyderabad Tribunal)
(vi) Anil Nand Kishore Goyal vs.ACIT - ITA Nos. 1256/PN/2012 (Pune Tribunal)
(vii) CIT vs. Jamna Devi Agrawal - [2012] 20 taxmann.com 529 (Bom HC) 6.3. The ld AR submitted that all the observations, conclusions and findings of the lower authorities are based on suspicion, surmises and hearsay. According to ld AR, it is trite law that the suspicion howsoever strong, cannot partake the character of legal evidence. Reference was made to the judgement of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC, , Umacharan Shaw 37 ITR 271 and Omar Salay Mohamed Sait 37 ITR 151. The ld AR submitted that the entire case of the revenue is based upon the presumption that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back his unaccounted income in the form of LTCG. The ld AR referred to the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT [2017] 164 ITD 1 (Mumbai-Trib.)(SB) The Tribunal observed as under:8 9 ITA No.569/Kol/2017
Shri Gautam Kumar Pincha A.Y.2013-14
46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side.
The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee .
6.4 The ld AR submitted that there is no direct evidence against the assessee brought on record by AO to hold that the assessee introduced his own unaccounted money by way of bogus LTCG. The ld AR submitted that although various investigations were carried out by different agencies, there is no evidence against the assessee and/or the brokers and/or the Companies in which the assessee dealt with to hold that the assessee was a beneficiary to the modus operandi adopted by different entities / brokers / entry operators. The ld AR submitted that, in view of the aforesaid judgement of Special Bench of Mumbai Tribunal, various case laws relied on by the AO against the assessee are irrelevant in as much as the said orders are based on conclusions drawn on the basis of circumstantial evidences only without any material evidence on record and cannot be applied in the case in hand because assessee has discharged the burden of proof by producing relevant legally admissible evidence, which the AO could not find fault with.
6.5 The ld AR vehemently submitted that the assessee has furnished all evidences in support of the claim of the assessee that it earned LTCG on transactions of his investment in shares. The purchase of shares had been accepted by the AO in the year of its acquisition and thereafter until the same were sold. The off market transaction for 9 10 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 purchase of shares is not illegal as was held by the decision of Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No. 19/Kol/2014 dated 2.12.2016. The transactions were all through account payee cheques and reflected in the books of accounts. The purchase of shares and the sale of shares were also reflected in Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and circumstances of the case, it cannot be held that the transactions were bogus. The ld AR referred to the following judgments of Jurisdictional High Court:-
(i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed.
The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated.
(ii) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439 (Cal) - In this case the Hon'ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive.
(iii) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) - In this case the Hon'ble Calcutta High Court held that the Assessing Officer doubted the transactions 10 11 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 since the selling broker was subjected to SEBI's action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed.
(iv) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this tribunal , wherein, the tribunal allowed the appeal of the assessee where the AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the AO disallowed the loss on trading of penny stock on the basis of some information received by him. However, it was also found that the AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the AO's conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.
(v) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.
(vi) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] - In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented 11 12 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court.
6.6. The ld AR submitted before us that where the purchase and sale transactions are supported and evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when the transactions of purchase of shares were accepted by the ld AO in earlier years, the same could not be treated as bogus simply on the basis of some reports of the Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements, has referred to and relied on the following cases:-
(i) Baijnath Agarwal vs. ACIT - [2010] 40 SOT 475 (Agra (TM)
(ii) ITO vs. Bibi Rani Bansal - [2011] 44 SOT 500 (Agra) (TM)
(iii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agra/2009 (Agra ITAT)
(iv) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(v) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)
(vi) Surya Prakash Toshniwal vs. ITO - ITA No. 1213/Kol/2016 (Kol ITAT)
(vii) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)
(viii) Ms. Farrah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT)
(ix) Anil Nandkishore Goyal vs. ACIT - ITA Nos. 1256/PN/2012 (Pune ITAT)
(x) CIT vs. Sudeep Goenka - [2013] 29 taxmann.com 402 (Allahabad HC)
(xi) CIT vs. Udit Narain Agarwal - [2013] 29 taxmann.com 76 (Allahabad HC)
(xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC)
(xiii) CIT vs. Himani M. Vakil - [2014] 41 taxmann.com 425 (Gujarat HC)
(xiv) CIT vs. Maheshchandra G. Vakil - [2013] 40 taxmann.com 326 (Gujarat HC)
(xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) 12 13 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT - ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT - ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 6.7 The ld AR further submitted before us that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon'ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon'ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks.
(i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT)
(ii) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT) 6.8. The ld AR further submitted that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies 13 14 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :-
(i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT)
(ii) ACIT vs. Amita Agarwal & Others - ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(iii) Lalit Mohan Jalan (HUF) vs. ACIT - ITA No. 693/Kol/2009 (Kol ITAT)
(iv) Mukesh R. Marolia vs. Addl. CIT - [2006] 6 SOT 247 (Mum) 6.9 The ld AR also submitted that the AO was not justified in disallowing the assessee's claim of exemption under section 10(38) of the Act by concluding that the transactions of the assessee resulting in LTCG on sale of shares were bogus relying on the statements of various persons recorded by Investigation Wing wherein these persons accepted to have provided accommodation entries of various natures including LTCG to different persons. The ld AR submitted that in the statement of third parties, the name of the assessee was not implicated. Even otherwise, no adverse inference could be taken against the assessee on the basis of untested statements without allowing opportunity of cross-examination. The ld AR referred to and relied on the following judgements in support of the aforesaid submissions:-
(i) Andman Timber Industries vs. CCE - [2015] 62 taxmann.com 3 (SC)
(ii) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT)
(iii) ACIT vs. Amita Agarwal & Others - ITA No. 247/(Kol) of 2011 (Kol ITAT)
(iv) ITO vs. Bijaya Ganguly - ITA Nos. 624 & 625/Kol/2011 (Kol ITAT)
(v) Ganeshmull Bijay Singh Baid HUF vs. DCIT - ITA Nos. 544/Kol/2013 (Kolkata ITAT)
(vi) Rita Devi & Others vs. DCIT - IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) 14 15 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14
(vii) Malti Ghanshyambhai Patadia vs. ITO - ITA No.3400/Ahd/2015 (Ahmedabad ITAT)
(viii) Pratik Suryakant Shah vs. ITO - [2017] 77 taxmann.com 260 (Ahmedabad ITAT)
(ix) Sunita Jain vs. ITO - ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)
(x) Atul Kumar Khandelwal vs. DCIT - ITA No. 874/Del/2016 (Delhi ITAT)
(xi) Farah Marker vs. ITO - ITA No. 3801/Mum/2011 (Mumbai ITAT) 6.10. The ld AR also submitted that the AO was not justified in invoking the provisions of section 68 of the Act to hold that the sale proceeds of shares are unexplained cash credits in the hands of the assessee. According to him, there is no evidence on record to disbelieve that the assessee sold shares through registered share and stock broker with Calcutta Stock Exchange. The assessee produced all evidences to explain the source of the amounts received by the assessee from the brokers, therefore according to ld AR, the AO was not justified in assessing the sale proceeds of shares as unexplained cash credit under section 68 of the Act.
7. On the other hand, the Ld. DR vehemently opposed the plea of the Ld. AR and relied on the decision of the Ld CIT(A) and the AO and urged before the bench not to interfere with the order of the Ld CIT (A).
8. We have heard the rival submissions and perused the impugned order and have gone through the decisions of the Hon'ble Apex Court and High Courts relied on by both the parties. We note that in the present case the appellant had purchased 400 shares of M/s. Quick Management Services Private Limited in F.Y. 2010-11 for a consideration of Rs.1,00,000/- and against those shares as a result of amalgamation ordered by the Hon'ble Calcutta High Court, the assessee got 6400 shares of M/s. BSR Finance & Construction Limited; and when these entire shares were sold during the 15 16 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 financial year 2012-13 received a consideration of Rs.12,29.011/-. We also note that the assessee had purchased 200 shares of M/s Gravity Barter Limited for a consideration of Rs. 1,00,000/- in the financial year 2010-11 and as against these shares as a result of amalgamation, the assessee got 8800 shares of M/s. Oasis Cine Communication Limited (which was renamed to Eco Wave Infotech Ltd); and when part of this i.e. 5800 shares were sold during the financial year 2012-13 received a consideration of Rs.18,94,780/-
and this resulted in long term capital gain of Rs.29,57,981/-. We take note that in support of the transactions of the purchase, merger and sale of shares leading to capital gains, the assessee has submitted the following documents :-
i)The balance sheet of the assessee for the financial year 2010-11 wherein the investment of Rs.2 lakhs made in shares were duly recorded and reflected;
ii) The bills for purchase of shares of M/s. Quick Management Services Private Limited;
iii) Bills for purchase of shares of M/s. Gravity Barter Limited;
iv)The bank statements maintained with South Indian Bank Ltd. Reflecting the payment of Rs.2 lakhs to purchase the shares of M/s. Quick Management Services Private Limited and M/s. Gravity Barter Limited;
v)The documents relating to the merger of M/s. Gravity Barter Limited with M/s. Oasis Cine Communication Limited approved by the Hon'ble Calcutta High Court in CA No.519 of 2011;
vi) The documents relating to the merger of M/s. Quick Management Services Private Limited with M/s. BSR Finance & Construction Limited approved by the Hon'ble Calcutta High Court in CA No.575 of 2011;
vii) The letter of allotments for the shares holding in M/s. Quick Management Services Private Limited and exchange with the shares of M/s. BSR Finance & Construction Limited in terms of the ratio as approved by the Hon'ble Calcutta High Court in CA No.575 of 2011;
viii) The change of name notice issued by the Calcutta Stock Exchange dated 17.10.2012 as member. It was stated that the name of M/s. Oasis Cine Communication 16 17 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 Limited was changed to M/s. Eco Wave Infotech Ltd, in terms of the fresh certificate of incorporation issued by the Registrar of companies.
ix) Copies of share certificates issued by M/s. BSR Finance & Construction Limited in terms of the ratio as approved by the Hon'ble Calcutta High Court in CA No.575 of 2011;
x) Copy of the share certificates issued of M/s. Oasis Cine Communication Limited in terms of the ratio as approved by the Hon'ble Calcutta High Court in CA No.519 of 2011.
xi) Copy of the contract notes issued by Mr. Bikash Surekha, Member of Calcutta Stock Exchange having same Registration No.INB031119713 and Code No.03/995 for sale of shares of M/s BSR Finance & Construction Limited ;
xii) Copy of the contract notes issued by Mr. S.K.Khemka, Member of the Calcutta Stock Exchange having same Registration No.INB030071512 and Code No.3/577 for sale of shares of M/s. Oasis Cine Communication Limited which was renamed as Eco Wave Infotech Ltd.
xiii) The bank statement maintained with South Indian Bank Ltd. Reflecting the payment received for the sale of shares of M/s. Oasis Cine Communication Limited and M/s. Oasis Cine Communication Limited (which was renamed with Eco Wave Infotech Ltd.) copy of the demand statement of the assessee maintained with Repository participant M/s Shri Bahubali International Ltd. SBIL-000764 Client ID-10015233 showing that the shares were held in demat form and delivered to the broker in the demat form.
xiv) Copy of the balance sheet and profit and loss account of M/s. BSR Finance & Construction Limited and M/s. Oasis Cine Communication Limited (which was renamed with Eco Wave Infotech Ltd.) for the year ended on 31.03.2012 ad 31.03.2013.
8.1. We note in the light of the aforesaid relevant evidences, the action of the AO and CIT(A) was not justified in rejecting the claim of the assessee on the basis of theory of 17 18 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 surrounding circumstances and human conduct and preponderance of probability against the assessee. For that we rely on the decision of the Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. Vs ACIT (supra) for this proposition. The various facets of the contention of the ld. AR(supra), to rope in the assessee and for drawing adverse inferences, which remain unproved based on the evidence available on record are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the ld. AR are also not reiterated for the sake of brevity. 8.2. It is to be kept in mind that the assessee acquired more shares as a result of the scheme of amalgamation which was approved by the Hon'ble Calcutta High Court and the authorities below should not have simply brushed aside the order of the Hon'ble Calcutta High Court approving the merger and as a consequence to the merger, the shares were issued and hence the acquisition of shares cannot be disputed on this score alone and are to be held as properly explained. It should be noted that public notices in vernacular and English news papers are given during merger/de-merger proceedings and the merger or amalgamation proceedings are not conducted in secrecy. The merger or amalgamation is being done with the knowledge of the Income-tax Department as admittedly pursuant to the direction of the Hon'ble High court, the I.T. Deptt is also made aware about the happening of the merger and the very purpose of making them aware is only to implead themselves in case if they have any objection to the proposed merger. So, the allotment of shares after the merger as per the scheme allowed by the Hon'ble Calcutta High Court cannot be said to be a bogus transaction. We note that neither the purported reports relied on by the AO has been brought on record nor is there any reference to any finding of such report which directly accuses the assessee in any wrongful actions. The AO has merely carved out certain features/modus-operandi of companies indulging in practices not sanctioned by law and as mentioned in such report. We note that neither any investigation were carried out against the assessee, nor against the brokers to whom the assessee dealt with or the companies in which the assessee dealt with the purchase and sale of shares in question were done by the AO.
18 19 ITA No.569/Kol/2017Shri Gautam Kumar Pincha A.Y.2013-14 Thus the AO has failed to bring on record any material contained in the so called reports which are having adverse impact on the part of the assessee. Thus reliance on such report is held to be bad in the eyes of law and cannot be seen as a relevant material for making any adverse view or saddle addition against the assessee.
8.3. A perusal of the accounts of the companies in question, we find that M/s. Oasis Cine Communication Limited was incorporated on 27.10.1978 and thus in the year under consideration it was the 34th year of its existence. On perusal of the accounts, it is seen that the company was having share Capital as on 31.03.2013 of Rs.57.84 crores and Reserve and Surplus of Rs.7.19 crores and was having assets worth Rs.62.33 crores. Similarly it is seen that M/s. BSR Finance & Construction Limited was incorporated on 17.02.1993 and thus in the year under consideration it was the 19th year of existence. On perusal of the account, it is seen that the company was having share capital as on 31.03.2013 of Rs.33.44 crores and reserve and surplus of Rs.17.81 crores and was having assets worth Rs.52.29 crores and a turnover of Rs.6.97 crores as against the turn over of Rs.2.01 crores as on 31.03.2012. Thus the allegation that these companies did not have financial credentials is factually incorrect and on the facts narrated above makes the order of the AO perverse and this finding of the AO is held to be erroneous.
At the cost of repetitions, we find that the transactions of the sale of shares by the assessee was duly supported by relevant evidences including contract notes, demat statement, bank account reflecting the transactions, stock brokers have confirmed the transactions, the stock exchange have confirmed the transactions, the shares have been sold on the online platform of the stock exchange and each trade of sale of shares were having unique trade number and trade time. It is not the case of the AO that the shares which were sold on the date mentioned in the contract note were not the traded price on that particular date. The AO doubted the transactions due to the high rise in the stock price and for that the assessee cannot be blamed unless there was any material/ evidence to prove that the assessee or any one on his behalf has rigged or manipulated the stock 19 20 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 price. It should be noted that the stock exchange of SEBI are the statutory authority appointed by the Government of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the companies in question. In absence of any relevant evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is pertinent to note that the assessee has purchased the stocks through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Calcutta Stock Exchange, and both have confirmed the transactions and have issued valid contract notes as per law; and the Hon''ble Calcutta High Court in the case of Principal CIT vs Rungta Properties in ITA No.105 of 2016 dated 08 May, 2017 wherein it was held that "on the last point, the tribunal held that the AO had not brought relevant material to show that the transactions in shares of the company involved were false or fictitious. It is the finding of the AO that the scripts of this company was executed by a broker and the broker was suspended for some time. It is the assessee's contention that even though there are allegations against the broker, and for that reason the assessee cannot be held liable on this point, the tribunal held that -
"As a matter of fact the AO doubted the integrity of the broker and the broker firm and also AO observed that the assessee had not furnished any explanation in respect of any discussion of trading of shares. The AO relied the loss of Rs.25,30,396/- only on the basis of information submitted by stock as fictitious. The AO has also not doubted the genuineness of the documents placed by the assessee on record. The AO's observation and conclusion are merely based on information. Therefore on such basis, no disallowance can be made and accordingly we find no infirmity in the order of the ld. CT(A), who has rightly allowed the claim of the assessee. This ground no.1 of the revenue is dismissed."
We agree with the reasoning of the tribunal on this point also. We do not find any reason to interfere with the impugned order. The suggested question, in our opinion do not raise any substantial question of law.
20 21 ITA No.569/Kol/2017Shri Gautam Kumar Pincha A.Y.2013-14 8.4. In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT(A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act. For coming to such a conclusion we rely on the decision of the Hon'ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows :
"It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee. In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are 21 22 ITA No.569/Kol/2017 Shri Gautam Kumar Pincha A.Y.2013-14 genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed."
8.5. We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition.
9. In the result the appeal of the assessee is allowed.
Order is pronounced in the open court on 15th November, 2017 Sd/- Sd/-
(Dr. A. L. Saini) (Aby. T. Varkey)
Accountant Member Judicial Member
Dated :15th November, 2017
Jd.(Sr.P.S.)
Copy of the order forwarded to:
1. Appellant - Shri Gautam Kumar Pincha, Room No.604, Sixth Floor, 19, Synagogue Street, Kolkata-700001.
2 Respondent - ITO, Ward-34(4), Kolkata
3. The CIT(A), Kolkata
4. CIT , Kolkata
5. DR, Kolkata Benches, Kolkata /True Copy, By order, Sr. Pvt. Secy., 22