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LTCG arising from sale of shares should be held genuine if transaction is done through recognized share broker and payment is made through banking channel: ITAT

2019-TIOL-1392-ITAT-KOL

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘C’ KOLKATA

ITA No.1899/Kol/2018
Assessment Year: 2014-15

SHRI KUSH NAHATA
1ST FLOOR, JYOTI CHHAYA, 121, RASHBEHARI AVENUE
GARIAHAT, KOLKATA-700029
PAN NO:ADDPN1413C

Vs

INCOME TAX OFFICER
WARD-35(3), KOLKATA

S S Godara, JM & A L Saini, AM

Date of Hearing: April 23, 2019
Date of Decision: May 08, 2019

Appellant Rep by: Shri Sunil Surana, FCA
Respondent Rep by: 
Shri Robin Choudhury, Addl. CIT DR

Income Tax – Long Term Capital Gain – Sale of shares – Recognized share broker.

The assessee an individual filed his return of income for relevant AY. The assessee’s case was selected for scrutiny under CASS specifying the reasons as “Suspicious long term capital gain on shares- based on inputs and information received from Investigation Wing”. The assessee, in his return of income had claimed Long Term Capital Gain (LTCG) as exempt u/s 10(38) of the Act, to the tune of Rs.1,07,74,922/- on sale of shares of Lifeline Drugs & Pharma Ltd. To prove the bona-fide and to substantiate the claim the assessee submitted Bank statements, DP statements, brokers notes and purchase bills etc. However, the AO rejected the contention of the assessee and noted that some entities involved in trade of the scrip namely, ‘Lifeline Drugs & Pharma Ltd’ and the profit earned by the beneficiaries were beyond human probabilities. Therefore, the AO held that the explanation offered by the assessee was not satisfactory and hence he made addition u/s 68 of the Act. On appeal, CIT(A) upheld the order of AO.

On appeal, Tribunal held that,

Whether LTCG arising from the sale of shares should be held genuine if transaction is done through recognized share broker and payment is made through banking channel – YES : ITAT

++ the assessee had requested for an opportunity to cross examine the person, whose statement has been relied on by the AO for making the addition. It is well established law that no adverse view can be taken against an assessee, on the basis of statement recorded by department of any person without providing copy of the statement to the assessee and also without providing opportunity for cross examination of the said person. It was noted that the assessee submitted contract notes for the sale of shares of Lifeline Drugs & Pharma Ltd. The assessee submitted balance sheet and profit & loss account of Kush Nahata as on 31.03.2013 and 31.03.2014 wherein the assessee had shown investments in shares in the asset side of the balance sheet. The transfer share certificate and Bonus share certificates were also furnished in the paper book. The assessee submitted the demat statement for the financial year 2013-14. The bank statements showing receipt of sale consideration were also submitted. The assessee submitted the purchase bill and the bank statement showing payment of purchase consideration. Apart from this the assessee also submitted the copy of income tax return for assessment year 2013-14 and assessment year 2014-15. By submitting these plethora documents the assessee has proved that the transactions are bonafide as the transactions have been done through recognized share broker and payment has been made through banking channel. There is transfer certificate and contract notes for sale of shares of Lifeline Drugs and Pharma Ltd, this clearly shows that the transaction is genuine. Apart from this, the investments, that is shares, which the assessee has purchased/sold have been duly reflected in the Balance sheet of the assessee for the year ended 31.03.2013 and 31.03.2014. Therefore, all these documents and evidences show that the transactions are genuine and there is no mala-fide intention to evade payment of tax and therefore addition made by the assessing officer should be deleted. One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, it was also noted that no material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee should be accepted and the claim that the income in question is a bona-fide should be accepted hence, Long Term Capital Gain (LTCG) arising from the sale of shares is genuine therefore, we delete the addition of Rs.1,09,74,902/-. In the result, the appeal of the assessee is allowed.

Assessee’s appeal allowed

ORDER

Per: Arjun Lal Saini:

The captioned appeal filed by the assessee, pertaining to assessment year 2014-15, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-10, Kolkata (in short the ld. ‘CIT(A)’], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’), dated 27.12.2016.

2. However, in this appeal the assessee has raised a multiple grounds of appeal, but at the time of hearing, the solitary grievance of the assessee has been confined to the issue as to whether on the facts and circumstances of the case, the ld. CIT(A) erred in confirming the order of the Assessing Officer in treating the sale consideration of shares of Lifeline Drugs and Pharma Ltd. amounting to Rs. 1,09,74,902/- as unexplained cash credit u/s 68 of the Act.

3. Brief facts qua the issue are that assessee ‘Shri Kush Nahata’ is an individual and filed his return of income for assessment year 2014-15 on 31.07.2014 declaring total income of Rs. 3,81,430/-. The assessee’s case was selected for scrutiny under CASS specifying the reasons as “Suspicious long term capital gain on shares- based on inputs and information received from Investigation Wing”. The assessee, in his return of income has claimed Long Term Capital Gain (LTCG) as exempt under section 10(38) of the Income Tax Act, to the tune of Rs.1,07,74,922/- on sale of shares of Lifeline Drugs & Pharma Ltd. To prove the bona-fide and to substantiate the claim of Long Term Capital Gain (LTCG), as exempt under section 10(38) of the Income Tax Act, the assessee submitted before the assessing officer, the Bank statements, DP statements, brokers notes and purchase bills etc.

However, the assessing officer rejected the contention of the assessee and noted that the assessee has earned a return of income approximately 5388% on the shares of Lifeline Drugs & Pharma Ltd, which is not possible and therefore assessing officer did a deeper study of the price movements and share market behavior. The assessing officer observed that some entities involved in trade of the scrip namely, ‘Lifeline Drugs & Pharma Ltd’ and the profit earned by the beneficiaries were beyond human probabilities. Therefore, the Assessing Officer in view of the above discussion and relying upon the findings of the Investigation Directorate of Income Tax Department, Kolkata, held that the explanation offered by the assessee was not satisfactory and hence he made addition to the tune of Rs.1,09,74,902/-, under section 68 of the Act.

4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the order passed by the Assessing Officer. The ld. CIT(A), just reiterated the findings of the Assessing Officer and confirmed the addition of long term capital gain to the tune of Rs. 1,09,74,902/. Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.

7. The ld. Counsel for the assessee submitted before us that the Ld. A.O. has made reference of statement dated 30/12/2014 of one Sri Devesh Upadhyay and his connection with companies M/s Mahamani Tradelink Private Limited and M/s Comfort Dealcon Private Limited and their directors. The Ld. A.O. has also made reference of a share broker Shri Amit Saraogi. It is also mentioned that M/s Mahmani Tradelink Pvt Ltd is one of the counter parties which has purchased shares from the assessee. The Ld. A.O. never discussed these names, matters and facts during the assessment proceedings. The assessee has no connection whatsoever with aforesaid persons. Moreover, since the shares were sold at the electronic system of Bombay Stock Exchange through registered broker, the assesseee has no knowledge of counter party.

The Ld. A. O. considering the surrounding circumstances and applying the test of human probabilities coupled with report of the DIT (INV) and SEBI arrived at conclusion that assessee had entered into pre-designed modes of transactions in shares of M/s Life Line Drugs and Pharma ltd, and treated the entire sale consideration as aforesaid as unexplained cash credit. The Assessee was neither confronted with the said Investigation Report of the Investigation wing and SEBI nor was given an opportunity to cross examine the persons whose statements were recorded by the Investigation wing. In fact,assessee was not confronted with any material and information possessed by the Ld. A. O. In response to show cause notice dated 14/12/2016, the assessee made a comprehensive reply on 22/12/2016. In his reply, assessee categorically stated that he is not aware of any such Investigation report of Investigation Wing and is not a party to such alleged rigging of stock prices. In his reply,assessee asked for copies of material and documents which according to the ld A O. indicate the bogus nature of transaction.

Assessee also asked for statement of any person, entry operator and brokers etc, with reference to which the ld AO concluded the bogus nature of transactions to cross examine them. The Ld. A.O. took no pain to supply the material, documents, and statements of person as aforesaid though he was duty bound to supply and confront the same with teasels view of the settled legal position and in view of principal of natural justice. The Ld. A.O. took no steps to find out whether such modus operandi existed in the present case or not. The Ld. A.O. failed to appreciate the explanation offered by the assessee. No defect was pointed out by the Ld. A. O. in the submissions, explanation of assessee and in the documentary evidences like contract notes, bills, allotment advices, Dmat account statements etc. filed by the assessee. The Ld. A. O. failed to bring any conclusive material on record directly related to the facts of the case in support of his action except citing some case laws with facts different to the present case.

The fact remains that case was selected for scrutiny on the reason “Suspicious Transaction relating to long term capital gain on shares” on the basis of report of Investigation Wing which means that the Ld. A.O. was required to convert the suspicion into the legal evidence by way of bringing concrete and conclusive findings and material on records. Since, the Ld A.O. took no step whatsoever the suspicion remains intact and suspicion whatsoever strong cannot take the position of legal evidences.

8. On the other hand, the ld. DR for the revenue submitted before us that Investigation Wing, Kolkata has prepared a sample cash trail for showing that how the mechanism works for the syndicate of providing long term capital gain/short term capital loss. For preparing this cash trail, Investigation Wing Kolkata, has followed the money movement from undisclosed proprietorship accounts, where cash is being deposited mostly, to the Jamakharchi companies who are registered as clients with the share brokers. Undisclosed and unaccounted cash gets deposited to proprietorship accounts and then it gets transferred to client companies, who exist in paper only. From the Jamakharchi client company account, money gets transferred to Beneficiaries of Long Term Capital Gain via Share Broker’s Account. On a sample basis, Investigation Wing, Kolkata has prepared cash trail of more than 1500 Crore Rupees and assessee is part of it.

The ld DR explained before us the modus operendi of the bogus transactions stating that when a person needs entry of LTCG, he approaches a share broker or entry operator. Entry operator gets him registered with some share broker as a client.Then shares of a listed penny stock are provided to beneficiaries. After a year, beneficiary provides cash to entry operator for having equaling amount of entry of LTCG. Then entry operator or share broker gets such cash deposited to the various accounts and routes it to bogus client. Bogus client purchases the penny stock shares from beneficiary on abnormally higher rate. Thus, a beneficiary gets back his unaccounted cash by cheques for receipt against sale of shares. The DR therefore, submitted before us that since the assessee is part of these penny stock transactions therefore, order of the AO should be upheld.

9. We have heard both the parties and perused the material available on record. We note that the assessee submitted before us contract notes for the sale of shares of Lifeline Drugs & Pharma Ltd.(vide PB 33 to 45). The assessee submitted before us the balance sheet of profit & loss account of Kush Nahata as on 31.03.2013 and 31.03.2014 (vide PB page no. 46 to 47) wherein the assessee has shown investments in shares in the asset side of the balance sheet. The transfer share certificate and Bonus share certificates were also furnished in the paper book (vide pb page 48 to 49). The assessee submitted the demat statement for the financial year 2013-14 (PB 50 to 52). The bank statements showing receipt of sale consideration were also submitted before us (PB 53 to 54). The assessee submitted before us the purchase bill and the bank statement showing payment of purchase consideration (vide PB 55 to 57). Apart from this the assessee also submitted the copy of income tax return for assessment year 2013-14, and assessment year 2014-15.

By submitting these plethora documents and evidences, the ld. Counsel for the assessee claimed that the transactions have been done through recognized share broker and payment has been made through banking channel. There is transfer certificate and contract notes for sale of shares of Lifeline Drugs and Pharma Ltd, this clearly shows that the transaction is genuine. Apart from this, the investments, that is shares, which the assessee has purchased/sold have been duly reflected in the Balance sheet of the assessee for the year ended 31.03.2013 and 31.03.2014. Therefore, all these documents and evidences show that the transactions are genuine and there is no mala-fide intention to evade payment of tax and therefore the ld. Counsel claimed that the addition made by the Assessing Officer is not justified.One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, we note that no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee should be accepted and the claim that the income in question is a bona- fide, hence,Long Term Capital Gain (LTCG) arising from the sale of shares should allowed.

10. We note that assessing officer mainly made addition based on theory of “Suspicious Transactions”, on the basis of report of Investigation Wing. We note that the Ld. A.O. was required to convert the suspicion into the legal evidence by way of bringing concrete and conclusive findings and material on records. Since, the Ld A.O. took no step whatsoever the suspicion remains intact and suspicion whatsoever strong cannot take the position of legal evidences. We note that the Assessing officer as well as the Commissioner (Appeals) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, the Assessing Officer as well as the Commissioner (Appeals), have not brought out any part of the investigation wing report in which the assessee has been investigated and/or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. No such action executed by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the Assessing Officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions.

We note that the Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence under these circumstances nothing can be implicated against the assessee.

11. Moreover, it was submitted before us by ld Counsel 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 dealt in and/or his broker was a party to the price rigging or manipulation of price in BSE/CSE. The ld Counsel 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)

12. We note 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. We rely on 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 Counsel 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 – ITA No. 32/Agr/2007 (Agra ITAT)

13. We note that since 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 we rely 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) = 2017-TIOL-266-ITAT-KOL

(vii) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) = 2017-TIOL-493-ITAT-AHM

(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) = 2012-TIOL-1131-HC-AHM-IT

(xiv) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) = 2012-TIOL-1132-HC-AHM-IT

(xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC)

(xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) = 2016-TIOL-200-ITAT-KOL

(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)

14. We note that when the transactions were as per norms prescribed by SEBI and concerned stock exchange and suffered STT,brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. AO did not doubt the genuineness of the documents submitted by assessee. The ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. The assessee produced the contract notes, details of demarcations and produced documents showing all payments were received by the assessee through banks. In these circumstances, the long term capital gain (LTCG) earned by the assessee should not be treated as bogus, as held by the jurisdictional Hon’ble Calcutta High court in various cases, as mentioned below:

(i). 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 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.

(ii). CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal- HC) = 2017-TIOL-1081-HC-KOL-IT

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 ld AO did not accept the explanation of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that the ld 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 ld AO did not doubt the genuineness of the documents submitted by the assessee. The Tribunal held that the ld AO’s conclusions are merely based on the information received by him. The appeal filed by the revenue was dismissed.

(iii) CIT V. Andaman Timbers Industries Ltd [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 ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.

(iv) 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 ld 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 claim of transactions entered into by the assessee have been proved, accounted for, documented 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.

(v)..The Hon’ble High Court of Calcutta in the case of ALPINE INVESTMENTS ITA 620 of 2008, dated 26th August 2008 = 2008-TIOL-825-HC-KOL-IT, held as follows:

“It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the payments made to the stock broker and all the payments received from stockbroker through account payee instruments, which were 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 came to the conclusion and allowed the appeal filed by the assessee. In doing so, the Tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore, we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA No.620 of 2008 = 2008-TIOL-825-HC-KOL-IT is dismissed.”

(vi) The Hon’ble Calcutta High Court in the case of Principal Commissioner Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by observing as follows:-

“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled.

There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand, the ld. DR relied in the order of the lower authorities.

4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence.”

(vii). 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.

(viii) 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.

We note that above mentioned judgments of Hon’ble Calcutta High Court, by and large held that where the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker through account payee cheques, then in these facts and circumstances addition made by assessing officer on account of bogus long term capital gain should be deleted. We note that unless and until the order of Jurisdictional Hon’ble High Court is reversed by Hon’ble Supreme Court, the same has to be given due effect. Judicial discipline demands that once an order has been passed in the assessee’s own case, by the Jurisdictional High court, the Tribunal is duty bound to act in accordance with the same.

We note that in the case of Union of India v. Raghubir Singh (1989) 178 ITR 548 (SC) = 2002-TIOL-810-SC-MISC, the Supreme Court held that the doctrine of binding precedent has merit of promoting certainty and consistency in judicial decisions. As per the doctrine of precedent, all lower Courts, Tribunals and authorities exercising judicial or quasi-judicial functions are bound by the decisions of the High Court within whose territorial jurisdiction these Courts, Tribunals &authorities functions. Therefore, respectfully following the judgments of the Jurisdictional, Hon’ble High Court of Calcutta, on similar and identical facts, the addition made by assessing officer should be deleted.

15. We note that when the transactions were as per norms prescribed by SEBI and concerned stock exchange and suffered STT,brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. AO did not doubt the genuineness of the documents submitted by assessee. The ld AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. The assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. In these circumstances, the long term capital gain (LTCG) earned by the assessee should not be treated as bogus, as held by the Coordinate Benches of ITAT Kolkata, in the following cases:

(i). Mr. Sanjiv Shroff, I.T.A. No. 1197/Kol/2018, Assessment Year: 2014-15, order dated, 02.01.2019

“28. We note that since 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:-

(xx) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM)

(xxi) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM)

(xxii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT)

(xxiii) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/of 2011 (Kol ITAT)

(xxiv) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)

(xxv) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT) = 2017-TIOL-266-ITAT-KOL

(xxvi) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) = 2017-TIOL-493-ITAT-AHM

(xxvii) Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)

(xxviii) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT)

(xxix) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC)

(xxx) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC)

(xxxi) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC)

(xxxii) CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC) = 2012-TIOL-1131-HC-AHM-IT

(xxxiii) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) = 2012-TIOL-1132-HC-AHM-IT

(xxxiv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC)

(xxxv) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) = 2016-TIOL-200-ITAT-KOL

(xxxvi) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT)

(xxxvii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT)

(xxxviii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT)

29. The ld AR also brought to our notice 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.

(iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)

(iv) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT)

30. Moreover, it was submitted before us by ld AR 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 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 :-

(v) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)

(vi) ACIT vs.Amita Agarwal & Others – ITA Nos. 247/(Kol)/of 2011 (Kol ITAT)

(vii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT)

(viii) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum)

31. We note that the ld. D.R. had heavily relied upon the decision of the Hon’ble Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit.

32. It is clear from the above that the facts of the case of the assessee are identical with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on sale of shares of M/s KAFL. We, therefore, respectfully following the same, and set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and delete the consequential addition.”

(ii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018, order dated 05.09.2018 = 2018-TIOL-2059-ITAT-KOL.

“35. In the light of the documents stated in para 30 at Page14(supra) we find that there is absolutely no adverse material to implicate the assessee to the entire 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 which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently 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. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation. 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 exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal 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 = 2008-TIOL-825-HC-KOL-ITwherein the High Court held as follows :

“It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment.

It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee.

In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 = 2008-TIOL-825-HC-KOL-IT is dismissed.”

36. 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 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.”

(iii). Navneet Agarwal, ITA No.2281/Kol/2017, order dated 05.09.2018

“The assessee in this case had stated that the assessee was alloted of 50000 equity shares of SCITIL. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money). Annual return no. 20B was filed with Registrar of companies by SCITIL showing the assessee’s name as shareholder. The assessee lodged the said shares with the Depository ESSBSL with a Demat request. The said shares were dematerialized and copy of demat request slip along with the transaction statement is placed on record. Later on, the High Court approved the scheme of amalgamation of SCITIL with CSL. In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of CSL. The demat shares are reflected in the transaction statement of the period from 1-11-2011 to 31-12-2013. The assessee sold 50000 shares through her broker SKP which was a SEBI registered broker and earned a Long Term Capital Gain. Copy of Form No. 10DB issued by the broker, in support of charging of S.T.T. in respect of the transactions appearing in the ledger is placed on record. The holding period of the said scrip is more than one year (above 500 days) through in order to get the benefit of claim of Long Term Capital Gain the holding period is required to be 365 days

The Assessing Officer as well as the Commissioner (Appeals) have rejected these evidences filed by the assessee by referring to ‘Modus Operandi’ of persons for earning long term capital gains which is exempt from income tax. All these observations of Investigation wing were general in nature and were applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee were not controverted by the revenue authorities. No evidence collected from third parties was confronted to the assessees. No opportunity of cross-examination of persons, on whose statements the revenue relied to make the addition, was provided to the assessee. The addition is made based on a report from the investigation wing.

The issue for consideration is whether, in such cases, the legal evidence produced by the assessee has to guide decision in the matter or the general observations based on statements, probabilities, human behaviour and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee’s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation’s office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assessee, if the Assessing Officer relies on any statements or third party as evidence to make an addition. If any material or evidence was sought to be relied upon by the Assessing Officer, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behaviour by the department.

It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the Assessing Officer relied only on a report as the basis for the addition. The evidence based on which the DDIT report was prepared is not brought on record by the Assessing Officer nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law

Just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect.

The Assessing officer as well as the Commissioner (Appeals) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, the Assessing Officer as well as the Commissioner (Appeals), have brought out any part of the investigation wing report in which the assessee has been investigated and/or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. No such action executed by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the Assessing Officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions.

The Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence under these circumstances nothing can be implicated against the assessee

One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee is accepted and the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares is allowed and hence exempt from income tax. [Para 20]”

16. To conclude,we note that,the assessee had requested for an opportunity to cross examine the person, whose statement has been relied on by the AO for making the addition. It is well established law that no adverse view can be taken against an assessee, on the basis of statement recorded by department of any person without providing copy of the statement to the assessee and also without providing opportunity for cross examination of the said person. We note that the assessee submitted before us contract notes for the sale of shares of Lifeline Drugs & Pharma Ltd.(vide PB 33 to 45). The assessee submitted before us the balance sheet of profit & loss account of Kush Nahata as on 31.03.2013 and 31.03.2014 (vide PB page no. 46 to 47) wherein the assessee has shown investments in shares in the asset side of the balance sheet. The transfer share certificate and Bonus share certificates were also furnished in the paper book (vide pb page 48 to 49). The assessee submitted the demat statement for the financial year 2013-14 (PB 50 to 52). The bank statements showing receipt of sale consideration were also submitted before us (PB 53 to 54). The assessee submitted before us the purchase bill and the bank statement showing payment of purchase consideration (vide PB 55 to 57). Apart from this the assessee also submitted the copy of income tax return for assessment year 2013-14 and assessment year 2014-15. By submitting these plethora documents the assessee has proved that the transactions are bonafide as the transactions have been done through recognized share broker and payment has been made through banking channel. There is transfer certificate and contract notes for sale of shares of Lifeline Drugs and Pharma Ltd, this clearly shows that the transaction is genuine. Apart from this, the investments, that is shares, which the assessee has purchased/sold have been duly reflected in the Balance sheet of the assessee for the year ended 31.03.2013 and 31.03.2014. Therefore, all these documents and evidences show that the transactions are genuine and there is no mala-fide intention to evade payment of tax and therefore we are of the view that addition made by the assessing officer should be deleted. One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities, we note that no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee should be accepted and the claim that the income in question is a bona-fide should be accepted hence, Long Term Capital Gain (LTCG) arising from the sale of shares is genuine therefore, we delete the addition of Rs.1,09,74,902/-.

17. In the result, the appeal of the assessee is allowed.

(Order is pronounced in the open court on 08.05.2019)

(Paras are numbered as per the original text: Editor)

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