Document Fragment View

Matching Fragments

8. That the appellant does not deserves to be held 'in default' and should not be held responsible for the so called defaults at Kolkata level, if any at that point of time."

I.T.A. No.498/Lkw/2019 Assessment Year:2014-15

2. At the time of hearing, Learned counsel for the assessee did not argue on ground nos.5,6,8 & 9 and argued only remaining grounds. Inviting our attention to the facts of the case, Learned counsel for the assessee submitted that the assessee had earned Long Term Capital Gain of Rs.1,97,09,875/- on the sale of a scrip of M/s Sulabh Engineering and Services Ltd. which the assessee had claimed as exempt u/s 10(38) of the Act and which the authorities below have denied by relying on the report of the investigation wing of Kolkata wherein the report has said that through a racket of many persons, which included operators, exit providers and promoters of a few companies, various persons are given Long Term Capital Gain/ Short Term Capital Gain/capital loss through managed transactions. Learned counsel for the assessee submitted that while denying the benefit to the assessee, the authorities below have not considered that the report is a vague document and the share brokerage of the assessee through whom she had carried out transactions, were not examined and all the transactions were through banking channel and shares were sold through online transactions and the payment for purchase of shares was made through banking channel and also the sale proceeds of sale of shares were credited to the bank account of the assessee. The assessee had paid Security Transaction Tax, Service Tax, brokerage charges and stamp duty on the transactions and the transactions have been carried out through the SEBI registered stock broker which can be verified from the stock exchange. It was submitted that the authorities below were not justified in taking adverse view against the assessee on the ground of abnormal price rise and alleged price rigging as Hon'ble Delhi High Court in the case of Pr. CIT vs. Smt. Krishna Devi in I.T.A. No.130/2020, under similar facts and circumstances, has dealt with the issue of abnormal rise in price and after considering the case law of Hon'ble Supreme Court in the case of Sumati Dayal Vs CIT [1995] 214 ITR 801, [which has been relied on by learned CIT(A)], has I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 dismissed the theory of preponderance and has relied on the theory of evidence and has dismissed the appeal of the Revenue. It was submitted that various benches of the Tribunal including the Lucknow Bench, under similar facts and circumstances, have already decided the issue in favour of the assessee in the following cases:

3. Learned D. R., on the other hand, heavily relied on the orders of the authorities below and submitted that various assessees have been taking Long Term Capital Gain through managed transactions with the help of exit providers, operators of various scrips and in this respect our attention was invited to the investigation report wherein the investigation was carried out by the Kolkata wing and 84 companies were identified which were used for creating artificial Long Term Capital Gain.

4. We have heard the rival parties and have gone through the material placed on record. We find that there is no dispute about the documentary evidence which the assessee had filed before the Assessing Officer for claiming exemption u/s 10(38) of the Act. In support of the claim for purchase of shares from Anant Fin Consultancy (P) Limited, the assessee had filed a copy of sale bill in favour of the assessee wherein the said broker had sold 15,000 shares to the assessee for Rs.21/- per share, a copy of such sale bill is placed at page 24 of the paper book and a copy of ledger account of the assessee appearing in the books of Anant Fin Consultancy (P) Limited, placed at page 25 of the paper book wherein it has been confirmed I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 that an amount of Rs.3,15,000/- was received from the assessee against the sale of 15,000 shares to the assessee. Such amount of Rs.3,15,000/- was debited to the bank account of the assessee maintained with United Mercantile Co-operative Bank Ltd., a copy of which is placed at page 23 of the paper book. Such 15,000 shares purchased by the assessee became 1,50,000 shares of face value of Rs.1/-, the evidence of split of the shares from Rs.10/- each share to Rs.1/- each share is placed at pages 17 & 18 of the paper book. Such 1,50,000 shares were credited to the DEMAT account of the assessee maintained with Bonanza Portfolio Limited, the evidence of which is placed at page 19 of the paper book. The assessee sold such 1,50,000 shares between the period 05/08/2013 to 12/09/2013, the copy of contract notes issued by Indiabulls Securities Limited is placed at pages 5 to 14 of the paper book. Such contract notes show that brokerage, Service Tax and Security Transaction Tax was paid by the assessee and the proceeds of sales, after deduction of such expenses, was credited to the bank account of the assessee maintained with IDBI Bank, a copy of which is placed at pages 15 & 16 of the paper book. All these documentary evidences, which have been generated through the transactions made by the assessee on the electronic exchange of Mumbai, prove that assessee did sell 1,50,000 shares after holding for a period of more than one year and earned a Long Term Capital Gain. The authorities below have disallowed the claim of the assessee solely on the basis of a report from investigation department of Revenue. However, in that investigation report, neither the name of the assessee nor the name of broker of the assessee has been mentioned. Though the authorities below have relied on the statement ot certain broker and other persons, the name of the broker of the assessee do not appear in that list and neither the broker of the assessee was examined. The authorities below, on the basis of report of investigation, have held that assessee had managed to obtain Long Term Capital Gain through exit I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 providers as the finances of the company do not suggest that it can rise so quickly and so many times in a short period. While denying the claim and confirming the order of the Assessing Officer, the learned CIT(A) has relied on certain case laws. Going through the facts of those case laws, it is found that those case laws related to the issue of share capital/share premium received by various assessees and where the assessees were not able to demonstrate the creditworthiness and genuineness of the investors and that is why the Hon'ble courts have decided the issue in favour of the Revenue. The learned CIT(A) has further relied on the case law of Sumati Dayal vs. CIT (supra) wherein the human probability of preponderance of the transaction has been decided in favour of the Revenue. Similarly, learned CIT(A) has relied on the case law of Sanjay Bimalchand Jain vs. Pr. CIT, decided by Hon'ble Bombay High Court. As regards the decision of Sumati Dayal vs CIT (supra), the Hon'ble Delhi High Court in a recent judgment in the case of Pr. CIT vs. Smt. Krishna Devi, under similar facts and circumstances, has disregarded the principle of preponderance and has held that evidence produced by the assessee over power the principle of preponderance. In the case law decided by Hon'ble Delhi High Court in the case of Krishna Devi, the Tribunal allowed relief to the assessee on Long Term Capital Gain on the scrip of Goldline International Finvest Ltd. which appear at Sl.No.24 of the investigation report. The findings of Hon'ble Delhi High Court are reproduced below:

9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest 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 I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 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 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 I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 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 on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed."

9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest 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 flawed approach forms the I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 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 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 I.T.A. No.498/Lkw/2019 Assessment Year:2014-15 (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. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed."