ACIT-CENTRAL CIRCLE -2(1), NAGPUR V. SHRI NANDKUMAR KHATTUMAL HARCHANDANI , NAGPUR

ITA 411/NAG/2019

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had deleted the addition made by the AO on account of long-term capital gain claimed as exempt under section 10(38) of the Income Tax Act. The Revenue contended that the CIT(A) erred in deleting the addition without appreciating that it was a bogus accommodation entry. The Tribunal examined the submissions and evidence provided by both parties, including the detailed transactions of share purchases and sales by the assessee, and the reports from the Investigation Wing of the Income Tax Department. The Tribunal found that the assessee had substantiated the genuineness of the transactions and that the Revenue's reliance on the investigation report was misplaced as it did not directly implicate the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24314 (ITAT-NAGPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Other Referred Cases: Sumati Dayal Vs. CIT, P. Mohan Kala & Others Vs. CIT, Mont Blanc Properties and Industries Pvt. Ltd. Vs. CIT, Kishinchand Chellaram Vs. CIT, Andaman Timber Industries Vs. Commissioner Of Central Excise, Sarthak Securities Co. (P) Ltd. Vs. ITO, Dharmesh Manibhai Patel Vs. ITO, Vineet Sureshchandra Agrawal & Others Vs. ACIT, M/s. Indravadan Jain HUF Vs. ACIT, Shri Jafferali K. Rattonsey Vs. DCIT, Shri Nandkumar Khatumal Harchandani Vs. ITO, Plastic Surge Industries Pvt Ltd Vs. ACIT, Shri Vishwas Shridhar Kukde Vs. ITO, Late Shri Vijay Pal Singh & Ors. Vs. DCIT-1(1), Raipur, Prem Pal Gandhi Vs. Pr. Commissioner of Income Tax (Central), Ludhiana, Sh. Hitesh Gandhi Vs. Pr. Commissioner of Income Tax (Central), Ludhiana, Shri Kamlesh Mundra Vs. ITO, Shri Durgadevi Mundra Vs. ITO, Shri Ganesh Spinners Limited Vs. ITO, Shri Parag Shilpa Infrastructure & Services Ltd. Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDIPKUMAR SALUNKE
• Assessee Lawyers: MANOJ G. MORYANI
• Keywords: Set aside; Business income; Reassessment proceedings; Question of law; Corroborative evidences; Unexplained cash credit; Salary income; Income from undisclosed sources; Rule of consistency; Capital Gains; Principle of natural justice; Third party statement; Accommodation entries; Earning of tax free income; Reason to believe; Share purchase agreement; Rule 8D; Scheme of amalgamation; Opportunity of cross examination; Penny stocks; Bogus
• Section: 143(3); 142(1); 143(2); 195; 32; 68; 131; 54F; 14A; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER ITA no.411/Nag./2019 (Assessment Year : 2015–16) Asstt. Commissioner of Income Tax Central Circle–2(1), Nagpur ……………. Appellant v/s Shri Nandkumar Khatumal Harchandani 469, Poonam Villa, New Colony Nagpur 440 013 PAN – AATPH2594R ……………. Respondent Assessee by : Shri Manoj G. Moryani Revenue by : Shri Sandipkumar Salunke Date of Hearing – 21/01/2025 Date of Order – 25/02/2025 O R D E R PER K.M. ROY, A.M. This appeal by the Revenue is directed against the impugned order dated 31/10/2019, passed by the learned Commissioner of Income Tax (Appeals)-3, Nagpur [“learned CIT(A)], for the assessment year 2015-2016. 2. Following grounds have been raised by the Revenue:- “I On the facts and in the circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 5,60,75,185/- made by AO U/s. 68 of the I.T. Act, 1961 on account of long term capital gain claimed as exempt income u/s. 10(38) without appreciating that it was a bogus accommodation entry. i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 5,60,75,185/- made by AO on sale proceeds of the share u/s. 68 of the I.T. Act, without appreciating the fact that as per investigation done by income tax Department (Inv), Kolkata dated 27.04.2015, the name of the assessee featured in the list of the persons who have availed bogus LTCG and exemption u/s. 10(38) of the Income Tax Act. 2 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 ii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the ground realities that the documents in the case of shell companies are always in order so that they can act as a conduit in aiding tax evasion. iii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that documents are manufactured to give genuineness to the otherwise coloured transaction aiding in tax evasion. iv) On the facts and circumstances of the case & Law, the Ld. CIT(A) failed to appreciate the fact of layered transaction of purchase and sale of shares which clearly depicted that the LTCG of the assessee is a sham transaction, clearly explained by AO from Para 7.1 to 11.2. v) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to enumerate while giving relief that how the facts of the case relied upon are similar to facts of the case of the assessee. vi) On the facts and circumstances of the case & law, the Ld. CIT(A) failed to appreciate the financials of M/s. ParagShilp Infrastructure & Services Ltd. enumerated at Para 7.2 of the assessment order on whose share the assessee alleged to have earned enormous Long Term Capital Gain is very weak. vii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that M/s. ParagShilp Infrastructure & Services Ltd. is only a paper company literally having no business operations. viii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that M/s. ParagShilp Infrastructure & Services ltd., a penny stock company, does not have any worthwhile asset, creditworthy business, strong financials or any other indicator in justify its soaring share prices which has been manipulated to give accommodation entries in the form of bogus long term capital gains to beneficiaries. ix) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the role of entry operators in artificially hiking the share price of M/s. ParagShilp Infrastructure & Services Ltd. to enable to assessee to legitimize his unaccounted fund. x) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the entire gamut of direct & circumstantial evidence placed on record shows that claim of Long Term Capital Gain is Bogus in nature. xi) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the onus was on the assessee produce the parties to prove the bonafide of the sale of the share and sale proceeds received. xii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the true nature of transaction have to be ascertained in the light of surrounding circumstances as held by Hon‟ble Supreme Court in the case of SumatiDayal Vs. CIT (214 ITR 801). 3 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 xiii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the transaction through banking channel is not always genuine as held by Hon‟ble Supreme Court in P. Mohan Kala & Others (291 ITR 278) xiv) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the transaction through bank is executed to make the otherwise colourable transaction appeal genuine xv) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that even if documentary evidence is produced, the same must pass the test of human probabilities and surrounding circumstances if they do not, then the claim so made fails. xvi) On the facts and circumstances of the case & in law, the Ld. CIT(A)erred in deleting the addition of Rs. 5,60,75,185/- made by the AO on sale proceeds of the share u/s. 68 of the I.T. Act, without appreciating the fact that the assessee has failed to establish the financial and operation of the company to prove the enormous rise in share value and thereby the genuineness of the transactions to the satisfaction of the AO, thereby ignoring the Apex Court decision in the case Pavankumar M. Sanghavi Vs. Income-tax Officer (Special leave to appeal (C) No(s) 10250 of 2018 and NRA Iron & Steel Pvt. Ltd. (SLP (Civil) No. 29855 of 2018) dated 5th March, 2019 on same facts. xvii) On the facts and circumstances of the case & in law, the Ld. CIT(A) has failed to apply the ratio of decision of Tribunals &Hon‟ble Courts including jurisdictional High Courts in favour of revenue while giving relief to the assessee, elaborated upon by AO in its assessment order. xviii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the word „evidence‟ as used in section 143(3) is comprehensive enough to cover circumstantial evidence also, ad it is not confined to direct evidence. xix) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that under the tax jurisprudence, the work „evidence‟ had much wider connotations and the use of word „material‟ in section 143(3) shows that the assessing officer, not being a court could rely upon material, which might not strictly be evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. xx) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the plain reading of section 142 and 143 clearly suggests that the assessing officer may also act on the material gathered by him and the word „material/ clearly shows that the assessing officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking be accepted evidence in court of law. xxi) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the decision of the Hon‟ble ITAT Bombay Bench “B” (ITA No. 614/Bom/87 A.Y. 1983-84) in the case of M/s. Mont Blanc Properties and Industries Pvt. Ltd. which was upheld by the Hon‟ble Supreme Court where what constitute evidence under tax jurisprudence is clearly explained. 4 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 xxii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that the assessee never asked for cross-examination at the time of assessment proceedings. xxiii) On the facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate that strict principles of Indian Evidence Act are not applicable in Income tax Act and denial of opportunity of cross examination does not render the decision void ipso jure as held by Hon‟ble Supreme Court in State Bank of Patiala Vs. S.K. Sharma. xxiv) On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition on technical grounds while failing to appreciate that CIT(A)‟s power is coterminous with AO and she could have corrected the impugned error of AO clearly propounded in the decision of Hon‟ble Supreme Court in Kanpur Coal Syndicate. II On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs. 9,88,750/- on account of disallowance u/s. 14A, failing to appreciate the fact that the assessee has failed to prove that investments has been made not out of borrowed fund when the accounts are tangible and not separate accounts for investments are maintained. xxv) Any other question of law and fact to be raised at the time of appeal. xxvi) It is humbly prayed to set aside the order of the CIT(A) and restore the order of the assessing officer” 3. Fact in Brief:- The facts, as culled out from the impugned order passed by the learned CIT(A) are that, on 29/03/2016, the assessee its return of income electronically declaring net taxable income at ` 76,95,280. The assessee had purchased 4,22,500 shares on 16/03/2012, physically at the rate of ` 10j per share and the same were duly reflected in the books of account of the assessee as well as shown in Balance Sheet as investment during the assessment year 2012-13. The aforesaid shares were sold during the assessment year 2014-15 and 2015-16 onwards. The period of holding of the shares is more than twelve months the capital gain transaction were long term capital transaction and the assessee has claimed exemption under section 10(38) of Income Tax Act, 1961 (“the Act”). 5 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 4. The assessee has received physical delivery of 4,22,500 shares of Swift IT Infrastructure & Services Limited on 16/03/2012 @ of ` 10 per share. Subsequently, the company Swift IT Infrastructure Pvt. Ltd., was amalgamated with ParagShilpa Infrastructure and Services Ltd. Thereafter, the Hon’ble Bombay High Court sanctioned the amalgamation and new name is Parag Shilpa IT Infrastructure & Services Ltd. (PSIT Infrastructure & Services Ltd). The physical shares were dematerialized with Karvy Stock Broking Lt. on 11/03/2013. Later on, the aforesaid shares were transferred to MPSE Securities Ltd. from where the sales of shares were affected during the assessment year 2014-15. Thereafter assessee sold the part shares during the assessment year 2015-16. Since the period of holding of the shares were more than one year, the capital gain transaction were long term capital of the assessee and the assessee claimed exemption under section 10(38) of the Act. The assessee has submitted all the details of sale purchase of shares i.e., name of company, amalgamation of company, details of sanctioned of amalgamation from the Hon’ble Bombay High Court. New name of company, details of dematerialization, details of transfer of shares and submitted each and every details as and when desired by the Assessing Officer during the course of assessment proceedings. The Assessing Officer did not accept the contention of the assessee and relied on the report of Investigation Wing which was carried out by the Principal Director of Income Tax (Investigation), Kolkatta, in the case where the provisions of section 10(38) were being misused by the beneficiaries of bogus long term capital gain and to avoid paying the taxes, which is not related in the case of the assessee. The 6 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Assessing Officer relied on statement recorded behind the back of the assessee and no opportunity to cross examine has been granted to the assessee. The Assessing Officer has not accepted the contention of the assessee and made addition under section 68 of the Act at ` 5,87,48,683. 5. The assessee has made investment in shares amount to ` 20,59,64,034. The assessee has borrowed fund of ` 13,17,91,188, on which interest amounting to ` 9,98,869, has been paid. The said interest paid were the interest on vehicle loan and LIC loans and rightly allowable expenses under the Act. The said interest paid has no relation to investment made in shares. The Assessing Officer did not accept the contention of the assessee and made disallowance under section 14A at ` 9,88,570, though the assessee is not liable for the same. Being aggrieved, the assessee carried the matter before the first appellate authority. 6. During the proceedings before the learned CIT(A), the assessee made a detailed submission before the CIT(A), which was recorded by the learned CIT(A) in its impugned order vide Page–4 to 14, is also reproduced below for ready reference:– “5.0 The Authorised Representative of the assessee has made the following written submission Ground No. 2 To 10 : The assessee has e-filed return of income on 29/03/2016 declaring net taxable income at Rs. 76,94,280/-. In the return of income assessee has shown income from Salary, income from house property, income from business and income from other sources. The assessee has also shown income from exempt capital gains from transfer of equity shares. 7 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 The assessee has purchased 422500 shares of Swift IT Infrastructure and Services Ltd. by cheque on 16/03/2012 during the previous year relevant to Asstt. Year 2013-2014 and the same were shown in the balance sheet of the assessee as investment. The assessee has received physical delivery of the share of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share certificate during the course of assessment proceeding before the assessing officer. The assessee encloses herewith copies of share certificates, which is on Page-35 To 124 of the Paper Book. Thereafter, Later on the aforesaid shares were transferred to MPSE Securities Limited from where the sales of shares were affected on 06/03/2014 onwards. The assessee has submitted the letter regarding deliver slip for share transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvy Stock Broking Ltd and transaction statement of MPSE Securities Ltd. during the course of assessment proceeding before the assessing officer. The assessee submitted herewith details of the same which is on Page-125 To 127 of the Paper Book. The assessee is having Client ID issued by MPSE Securities Limited, which is clearly showing the name, address, bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings, which is on Page-134 of the Paper Book. The assessee has sold 106000 shares for total consideration of Rs. 5,87,48,683/- during the previous year relevant to Asstt. Year 2015-2016 and shown book profit at Rs. 5,76,88,683/-. Since the period of holding of the shares is more than one year the capital gain transaction were long term capital of the assessee and exempted U/s. 10(38) of the Income Tax Act, 1961. The assessee has submitted chart of capital Gain working and profit on sale of shares account during the course of assessment proceedings as well as in the return of income, which is on Page-32 of the Paper Book. All the transaction of sale purchase of shares was made through proper banking channel and duly reflected in the books of account of the assessee. During the course of assessment proceedings details were called and the assessee attended from time to time and filed the reply the copy of the reply on Page-178 To 199 of the Paper Book. The learned assessing officer has not considered the contention of the assessee as well as documents submitted by the assessee on the basis of a massive investigation was carried out by Pr. Director of Income Tax (Investigation), Kolkatta in the cases where the provisions of section 10(38) were being misused by the beneficiaries of bogus long term capital gain and to avoid paying taxes and have also been forwarded the details of transactions entered into by the assessee. The learned assessing officer has not any provided the details forwarded by Investigation Wing, Kolkatta as well as statement of persons, whose statement were recorded during the course of investigation made by the Pr. Director of Income Tax (Investigation), Kolkatta. Even the learned assessing officer has not granted opportunity to being cross examine to the persons, whose statement were recorded during the course of assessment proceeding to the assessee. The investments made in shares were also accepted by the assessing officer during the previous year relevant to Asstt. Year 2013-2014 in the scrutiny proceedings U/s. 143(3). The 8 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 assessee encloses herewith copy of assessment order which is on Page- 169 To 174 of the Paper Book. The learned assessing officer has relied on the judgments which are not pertains to the fact of case of the assessee and made various observation which were not related to the assessee. The addition made U/s. 68 unexplained cash credit is unjustified, unwarranted and excessive, when the assessee has submitted each and every detail with respect of sale purchase of shares. The assessee submitted herewith brief history of purchase of shares of Swift IT Infrastructure and Services Ltd., which are as under The assessee is assessed to income tax vide PAN AATPH2594R. The assessee already submitted regularly files return of Income. The assessee encloses herewith copy of Acknowledgment Return of Income, Computation of Income, Balance Sheet and Profit and loss account alongwith group Summary of Investment in securities for A.Y. 2010-11 to A.Y. 2015-16 during the course of assessment proceedings. The assessee has given sum of Rs. 1,00,00,000/- (Rs. One Crores) to MPSE Securities Limited, who is a member of Madhya Pradesh Stock exchange Ltd. through RTGS on 15/03/2010 by Oriental Bank of Commerce, Kingsway A/c No. 01342010034880. The assessee encloses herewith bank statement reflecting the transfer of funds to MPSE Securities Ltd. alongwith bank book, which is on Page-08 To 31 of Paper Book. The assessee instructed for purchase of share of Well Pack Papers And Containers Ltd. through Bombay Stock Exchange Trading Terminal. The assessee purchased 3,50,000 shares of Well Pack Papers and Containers Ltd. The amount paid for purchase of shares was Rs.1,00,07,295.84/-. The assessee encloses herewith Copy of account of MPSE Securities Ltd, which is on Page 127 of paper book alongwith contract- note of purchase and sale of shares, which is on Page-150 To 168 of Paper Book. Later on aforesaid shares were sold at Rs. 42,43,735/. The assessee further invested sum of Rs. 42,46,550/- for purchase of 2,26,000 shares of Shree Ganesh Spinners Limited through bolt of Bombay Stock Exchange Trading Terminal. The assessee encloses herewith Shares account for the period from 01/04/2009 to 31/03/2015 which is on Page- 135 To 140 of Paper Book and Credit Note Scan Infrastructure Limited, which is on Page-33 of Paper Book. The same were duly reflected in the books of accounts of assessee. The assessee already submitted copies Balance sheet alongwith Investment in securities ledger account. Later on shares of Shree Ganesh Spinner Ltd. were given to Scan Infrastructure Limited for purchase of shares of Swift IT Infrastructure & Services Limited (Non Listed Company). The assessee encloses herewith debit note by Scan Infrastructure Limited, which is on Page-34 of Paper Book Part. Thereafter, the assessee has received physical delivery of 4,22,500 shares of Swift IT Infrastructure And Services Ltd. on 16/03/2012. Swift IT Infra– structure was non listed company and does not come under the preview of SEBI (ACT). The aforesaid shares were dematerialized with Karvy Stock Broking Limited on 11/03/2013. Later on Company Swift IT Infrastructure Pvt. Ltd was amalgamated with “ParagShilpa IT Infrastructure and Services Limited”. The assessee encloses the order of Hon‟ble High Court of Judicature at Bombay sanctioning a scheme of amalgamation of Swift IT Infrastructure & 9 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Services Limited with ParagShilpa Investments Limited & New Name is ParagShipla IT Infrastructure And Services Ltd., which is on Page-128 to 133 of Paper Book. As per the order of amalgamation of Hon‟ble High Court of Judicature at Bombay, Bench at Mumbai dated 03/05/2013. The assessee has already submitted letter of demat of physical share certificates alongwith acknowledgement of receipt of shares from Karvy Stock Broking Ltd. (Page-35 To 126 of Paper book). Later on the aforesaid shares were transferred to MPSE Securities Limited from where the sales of shares were affected in the year 2014-15 onwards. The assessee already submitted the letter regarding deliver slip for share transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvy Stock Broking Ltd and transaction statement of MPSE Securities Ltd. Since the assessee was having physical delivery of shares on 16/03/2012 there is no assessee doubt that the assessee is owner of shares on 16/03/2012. The learned assessing officer has not considered the contention of the assessee as well as documents submitted by the assessee and on the basis of a massive investigation was carried out by Pr. Director of Income Tax (Investigation), Kolkatta. The learned assessing officer has not provided the details forwarded by Investigation Wing, Kolkatta as well as statement of persons, whose statement were recorded during the course of investigation made by the Pr. Director of Income Tax (Investigation), Kolkatta. The learned assessing officer has not granted opportunity to being cross examine to the persons, whose statement were recorded during the course of investigation. The assesssee has already objected & requested to the assessing officer to provide copies of details forwarded by the Investigation wing, Kolkatta as well as statement of persons, whose statement were recorded during the course of Investigation made by the Pr. Director of Income Tax( Investigation), Kolkatta. The assessee also specifically requested to grant opportunity to cross examine the persons on whose statement department is relying; copy of objection which is on page 195 To 197 of Paper book. The investments made in shares were also accepted by the assessing officer during the previous year relevant to Asstt. Year 2013-2014 in the scrutiny proceedings U/s. 143(3). The assessee encloses herewith copy of assessment order which is on Page- 169 To 174 of the Paper Book. The learned assessing officer has relied on the judgments which were not related to the fact of case of the assessee and addition made U/s. 68 as unexplained cash credit as per plain reading of aforesaid provision of section 68 is not at all applicable in the case of the assessee, when the assessee has submitted each and every detail with respect of sale purchase of shares. The assessee also respectfully submitted that claim made by the assessee may kindly be allowed on account of following reasons i. It was wrong on the point of the learning assessing officer purchase and sale transaction of shares was treated as unexplained credit U/s. 68 of the Income Tax Act; ii. The assessee has furnished contract not for purchase and sale of shares and each and every details, bank statement showing receipt of sale proceed amount and demat account statement for holding of shares; 10 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 iii. The whole assessment is based on suspicion and enquiry made by the Principal Director of Income Tax (Investigation) Kolkatta and on the basis of statement which were not confronted to the assessee; iv. The order of the assessing officer is arbitrary and without affording the reasonable opportunity to the assessee. There is violation of principles of natural justice to the assessee; v. Suspicion cannot be a good evidence for the purpose of assessment unless it is corroborated by clinching evidence brought on record after affording reasonable opportunity to the assessee; vi. Payment for purchases and sales both have been made by cheque and duly reflected in the bank statement; vii. The sale of shares has been done through MPSE Securities Limited on screen based trading system; viii. The shares were held by the assessee for more than one year and security transactions tax has been paid on this transaction; ix. These facts which emerge from the assessment order in no way have been disputed by the assessing officer. No direct evidence has been brought on record by the assessing officer to show that the transaction was an arranged/bogus transaction; x. There is no evidence on record to show that the money was assessee‟s own money which has been received back by it through this transaction; xi. The assessing officer has not been able to bring any evidence on record to show that the sale and purchases made by the assessee are factious; xii. The factum of purchases and sales both being reflected in the banks statement as well as books of account of the assessee in no way can be disputed; xiii. Identity of the company will not in dispute; xiv. Burden of proof was on the department to prove that the amount belongs to the assessee. The assessee has already submitted copies of shares transfer in the name of assessee on 16/03/2012; xv. The transaction is delivery based transaction and physical shares were delivered and transferred in the name of assessee on 16/03/2012; xvi. Purchase and sale of shares having been regularly accounted in the books of account of assessee. This fact has been confronted by the assessing officer; xvii. Documents furnished by assessee proves beyond any doubt that the transaction of purchase and sale of shares is a genuine on following a. The assessee has purchased shares by cheque; b. The purchase of shares were through registered stock broker; c. The assessee transferred the shares and same were duly recorded in the name of assessee; d. The shares were appearing in demat account of the assessee; e. The period of holding of shares were more than 1 year; f. Assessee is having Client ID of MPSE Security Limited. g. Delivery of shares from demat account h. Sale proceeds received from stock broker by cheque and the transaction were duly recorded in the Bombay Stock Exchange; i. Sale proceed of shares deposited in assessee‟s own bank account by cheque only j. The assessee has paid STT on sale transaction; On the above mentioned preposition assessee placed reliance on – 11 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 1. I.T.A. No. 24/KOL/2013 (ITAT KOL) ChainroopBohraVs Deputy Commissioner of Income Tax 2. I.T.A. No. 6248/Mum/2012 (ITAT, Mumbai) Shri KamleshMundraVs. Income Tax Officer We also hold that in the present case by virtue of independent documents as referred in paper book the assessee proved the genuineness of the share transaction and there was no justification to disallow the claim of the assessee in respectof long term capital gain merely on the basis of information received from DDIT which is based on admission of Shri MukeshChokshi. Therefore accordingly, we direct the AO to assess the long term capital gain declared by assessee as such and accept the same. 3. I.T.A. No. 3801/Mum/2011 (ITAT, Mumbai) Ms. Farrah Marker –Vs- Income Tax Officer In this factual and legal matrix of the case, as discussed above, we find that the addition under section 68 of the Act made and confirmed by the authorities below to be unsustainable and therefore, directed the AO to deleted the said addition and accept the LTCG income shown as exempt under section 10(38) of the Act. 4. (2015) 281 CTR 241 (SC) Andaman Timber Industries –Vs- Commissioner Of Central Excise Not allowing assessee to cross-examine witnesses by adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which make impugned order nullity as it amounted to violation of principles of natural justice 5. I.T.A. No. 1175/Mum/2012 (ITAT, Mumbai) Smt. DurgadeviMundra –Vs.- Income Tax Officer 6. (2010) 329 ITR 110 (High Court, Delhi) Sarthak Securities Co. (P) Ltd. –Vs- Income Tax Officer Reassessment-Reason to believe-Absence of material or rational belief-AO was made aware of the situation by the Investigation Wing and there is no mention that the companies who had invested shares in petitioner company were fictitious-What is mentioned is that these companies were used as conduits-Assessee in his objections had clearly stated that the companies had bank accounts and payments were made to the assessee company through banking channel-Identity of companies was not disputed-It would not be appropriate to required the assessee to go through the entire gamut of reassessment proceedings-Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind by AO-Notice under S. 148 quashed. 7. (1980) 125 ITR 713 (Supreme Court of India) 12 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 KishinchandChellaram –Vs.- Commissioner of Income Tax Income from undisclosed sources-Chargeability-T, an employee of Madras office of assessee making a telegraphic transfer of an amount of Rs. 107350 to N, an employee of assessee Bombay Office-On enquiry made by ITO from Madras bank, manager of bank informing ITO that telegraphic transfer of Rs. 107350 sent by assessee from Madras was receive by bank at Bombay and the amount was paid to N-ITO treating the amount as undisclosed income of assessee-Not justified-Burden of proof was on the Department to prove that the amount belonged to assessee-Letters of manager, in the absence of same being supplied to the assessee, could not be used against assessee-Manager also not examined by the Department-There was no evidence for the conclusion that the amount belonged to assessee 8. Order of the Commissioner of Income Tax (Appeals)-I, Nagpur dated 21/04/2014 vide appeal No. CIT(A)-I/296/2009-10 in case of Smt. KiranBalani –Vs.- Income Tax Officer, Ward-2(1), Nagpur 9. I.T.A. No. 4522/Mum/2012 (ITAT, Mumbai) DharmeshManibhai Patel –Vs- Income Tax Officer 10. (2011) 336 ITR 287 (High Court, Bombay) Commissioner of Income Tax -Vs- GopalPurohit Capital gains-Vis-à-vis business income-Transactions in shares- Tribunal has entered a pure finding of fact that the assessee is engaged in two different types of transactions namely, investment in shares and dealing in shares for the purposes of business-It held that the delivery based transactions are to be treated as investment transactions and the profit received therefrom is to be treated as short-term or long-term capital gain depending on the period of holding of shares-Tribunal has correctly held that though the principle of res judicata is not attracted since each assessment year is separate in itself, there ought to be uniformity in treatment and consistency when the facts and circumstances are identical-This approval of the Tribunal has to be upheld as the Revenue did not furnish any justification for adopting a divergent approach for the assessment year in question-Tribunal having applied the correct principle in arriving at the decision on the facts of the case, no substantial question of law arises 12. (2009) 20 DTR 0099 (ITAT, Mumbai) GopalPurohit –Vs- Joint Commissioner of Income Tax Assessee‟s claim of short-term and long-term capital gains from transactions in shares having been allowed on identical facts in earlier assessment year, could not be disallowed merely because in the year under consideration, the Finance Act, 2004, had conferred certain benefits on the assessee on such transaction; modus operandi of assessee remaining the same, assessee‟s claim deserved acceptance by following rule of consistency. 13 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 13. (2007) 11 SOT 627 (ITAT, Mumbai) Janak S. Rangwalla –Vs- Assistant Commissioner of Income Tax Capital gains-Vis-à-vis business income-Transactions in shares held as investment-Give rise to capital gains notwithstanding magnitude of transactions-Assessee holding large number of shares as investments and transactions in shares all along treated in part under the head „Capital Gains‟, assessee could not be treated as trader in shares for the year under consideration-Assessee was eligible for set off of long-term capital loss against short-term capital gains. 14. I.T.A. No. 79/Nag/2010 (ITAT, Nagpur) Plastic Surge Industries Pvt Ltd –Vs- Assistant Commissioner of Income Tax 15. I.T.A. No. 6429/Mum/2009 (ITAT, Mumbai) Assistant Commissioner Of Income Tax –Vs- Naishadh V. Vachharajani 16. I.T.A. No. 961/Mum/2010 (ITAT, Mumbai) Nagindas P. Sheth (HUF) –Vs- ACIT 17. (2006) 6 SOT 0247 (ITAT, Mumbai) Mukesh R. Marolia –Vs- Additional Commissioner Of Income Tax Purchase and sale of shares having been regularly accounted for by the assessee in its books and this fact having been confirmed in survey conducted by the Department, addition of sale proceeds of share under s. 69 could not be made solely on the basis of fact that transactions were not routed through stock exchange; assessee is consequently entitled to benefit of s. 54F 18. I.T.A. No. 1442/Ahd/2013 (ITAT, Ahmedabad) ACIT –Vs.-Vineet Sureshchandra Agrawal & Others. 19. I.T.A. No. 4861/Mum/2014 (ITAT, Mumbai) Income Tax Officer –Vs.- M/s. Indravadan Jain HUF 20. I.T.A. No. 5068/Mum/2009 (ITAT, Mumbai) Shri Jafferali K. Rattonsey –Vs- DCIT 21. (1983) 141 ITR 0067 (Bom. HC) Commissioner of Income Tax –Vs.-Bhaichand H. Gandhi 22. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 27/03/2017 vide appeal No. CIT(A)-4/ 128/16-17 in case of Smt. Santosh Ramprasad Agrawal -Vs.- Income Tax Officer, Ward-4(2), Nagpur 23. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 31/03/2017 vide appeal No. CIT(A)-4/ 183/16-17 in case of Shri Suresh Rochaldas Kewalramani –Vs.- Income Tax Officer, Ward-4(2), Nagpur P-II 14 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 24. Order of the Commissioner of Income Tax (Appeals)-4, Nagpur dated 24/03/2017 vide appeal No. CIT(A)-4/ 350/10-11 in case of Shri VishwasShridharKukde –Vs.- Income Tax Officer, Ward-4(2), Nagpur 25. Judgment of ITAT, Raipur Bench, Raipur vide ITA No. 21/BIL/2013 in case of DCIT-1(1), Raipur –Vs.- Late Shri Vijay Pal Singh & Ors. 26. Judgment of Hon‟ble High Court of Punjab&Hariyana ITA No. 95- 2017 in case of the Pr. Commissioner of Income Tax (Central), Ludhiana –Vs.- Prem Pal Gandhi 27. Judgment of Hon‟ble High Court of Punjab&Hariyana ITA No. 18 of 2017 in case of the Pr. Commissioner of Income Tax (Central), Ludhiana –Vs.- Sh. Hitesh Gandhi 28. (2010) 328 ITR 0656 Commissioner of Income Tax –Vs.- Smt. Jamnadevi Agrawal & Ors 29. Judgment of ITAT, Mumbai Bench “H”, Mumbai vide ITA No. 4862/MUM/2014 in case of ITO-24(3)(1), Mumbai –Vs.- M/s. Arvind Kumar Jain HUF 30. (2015) 45 CC 0275 (MumTrib) Income Tax Officer –Vs.- Khalil M. Bharwani 31. Judgment of ITAT, “B” Bench, Kolkata vide ITA No. 698- 699/Kol/2010 in case of Income Tax Officer, Wd-36(1),Kolkata –Vs.- Ravindra Sanghai (HUF) &Ors. 32. (2010) 41 DTR 0105 Assistant Commissioner of Income Tax –Vs.- Kamal Kumar S. Agrawal (Indl.) &Ors. 33. (2008) 299 ITR 0179 Commissioner of Income Tax –Vs- Anup Kapoor 34. Judgment of ITAT, Mumbai Bench “C”, Mumbai vide ITA No. 6108/MUM/2009 in case of ChandrakantBabulal Shah –Vs.- The Assessing Officer, Ward-16 (2)4, Mumbai In view of the above assessee humbly request that claimed made by the assessee is true and correct and same may kindly be allowed.” Ground No. 10 &11 : The assessee has made investment in shares amounting to Rs. 20,59,64,034/- and same were duly reflected in the books of account and also shown in the Balance Sheet as Investment, which is on page 7 of paper book. The assessee having its own capital is at Rs.37,02,61,468.58/- as well as loans at Rs. 13,17,91,187.93/- out of which sum of Rs. 12.16 crore interest free loan. Thus the assessee was having sum of Rs. 49.18 crore as interest free funds which is more than investment made in tax free securities i.e. Rs. 15 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 20.59 crore. The assessee has also possessed excess interest free fund at Rs. 28.57 crore which is sufficient than the investment made by the assessee in tax free securities, therefore the assessee has claimed interest expenses at Rs. 9,98,869/- only in the profit and loss account, The assessee encloses herewith details of the same which is on Page-6 of Paper Book. The assessee has paid interest of LIC at Rs. 7,71,264/-, interest on vehicle loan at Rs. 2,10,667/- and bank commission and charges at Rs. 16,938/- and same were duly reflected in the books of account of the assessee and also shown in the Profit & Loss Account of the assessee. The assessee encloses herewith details of Interest Paid, which is on Page-175 To 177 of Paper Book. The assessee respectfully submitted that the interest claimed has no connection with the investment in shares. Since the aforesaid amount were assessee‟s own fund available with the assessee 28.57 crore for investment in tax free securities then the assessee is eligible for deduction with respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income. In support of its contention the assessee has already submitted the chart which is on page 202 of the paper book. The learned assessing officer has not considered the contention of the assessee and made addition U/s. 14A disallowing claim of the assessee. In the circumstances assessee humbly request that expenditure disallowed by the assessing officer may kindly be allowed. On the above mentioned preposition assessee placed reliance on 1. (2014) 41 CCH 0286 (Mum. Trib) HDFC Bank Ltd. –Vs.- Deputy Commissioner of Income Tax. Expenditure incurred in relation to income not includible in total income- Applicability of Rule 8D-Assessee a Scheduled bank carrying on banking business made investment-AO made disallowance U/s. 14A on account of investment made-Assessee submitted tht disallowance U/s. 14A was not warranted since investments was made out of its own funds and reliance was placed on assessee‟s own case and there is no requirement to make any disallowance, if the investment made are strategic in nature-That securities were held as stock in trade-That quantum of disallowance should be scaled down in between 2% to 20% of exempt income-Revenue submitted that provisions of Rule 8D were applicable from AY 2008-09 onwards and hence disallowance to be made U/s. 14A was required to be examined in terms of Rule 8D-Held, provisions of Rule 8D are applicable from AU 2008-09 and onwards-AO can determine amount of disallowance in terms of Rule 80D only if he is not satisfied with correctness of claim of the assessee, that too, after having regard to accounts of assessee-In instant cases, assessee is putting forth its contention against disallowance from different angles-Some of contentions were raised for first time before Tribunal-Contentions of assessee can be appreciated only if relevant facts are available-All relevant facts are not available before Tribunal-Availability of assessee‟s own funds on date of making investments also required to be verified-Matter remitted to AO 2. Judgment of Hon‟ble Income Tax Appellate Tribunal, Bengalore Bench „B‟, Bangalore dated 20/02/2015 vide ITA No. 404 (Bang) 2013 in case of Deputy Commissioner of Income Tax –Vs.- M/s. Subramanya Construction & Development Co. Ltd. 16 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 3. (2013) 218 Taxman 0142 (Guj. HC) Commissioner of Income Tax –Vs.- Gujarat Industrial Development Corporation Ltd. Tribunal was satisfied in affirming deletion of disallowance under section 14A when revenue failed to establish that assessee had incurred any expenses for earning dividend income from the amount borrowed, therefore, tribunal was justified in affirming deletion of disallowance under section 14a. On appeal CIT(A) deleted the additions. 4. (2010) 323 ITR 0158 (Guj. HC) Commissioner of Income Tax –Vs.- Hero Cycles Ld. Income-Expenditure incurred in relation to income not includible in total income-Disalolwance-Validity-Assessee had dividend income under category of exempted income-No expenses against earning of such income had been showed in return-AO made disallowance U/s. 14A applying Rule 8D-CIT(A) deleted addition-ITAT confirmed deletion-Held, despite notices by AO to give details of expenditure made on earning of exempted income in nature of dividend, version of assessee was that he had not made any expenditure on earning such income-AO as per Section 14A(2) was to proceed further to collect material or evidence to determine expenditure, if any, incurred by assessee-But AO instead, relying on Rule 8D applied a formula applicable to assessee who has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt which was not case of present assessee-Tribunal had observed that before only disallowance is made, essentially there has to be certain expenditure which much have been incurred by assessee, which in present case was missing-AO had not brought on record any expenses having been incurred by assessee to earn non-exempt or exempt income-In absence of same, it could not be said that assessee had actually incurred any expenditure-In view of above, no substantial question of law arose for adjudication 5. (2013) 361 ITR 0131 (P&H HC) Commissioner of Income Tax –Vs.- Deepak Mittal Business expenditure-Disallowance under s. 14A-Apportionment of expenditure-Disallowance under s. 14A required finding of incurring of expenditure-Where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand-In view of finding of the Tribunal, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds was out of the dividend proceeds-In view of this finding of fact, disallowance under s. 14A was not sustainable. In view of the fact claim made by the assessee is true and correct and same may kindly be allowed.” 7. We have heard the rival contention of both the parties; perused material placed on record and duly considered the facts of the case in the 17 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 light of settled legal position and the case laws relied upon by the assessee as well as revenue. Ground No. I(i) To (xxiv) 8. The learned Departmental Representative strongly relied on the order of the Assessing Officer and vehemently objected to the impugned order passed by the learned CIT(A). 9. The learned CIT(A), while considering the submissions of the assessee emphatically, dealt with the issues while recording his findings vide Page–17 to 41 of the impugned order passed by the learned CIT(A), which are reproduced below for ready reference:– “7 Ground Nos. 2 To 10 : The appellant has challenged the addition made by AO of Rs. 5,87,48,683/- as sale proceeds on sale of shares u/s. 68 of the I.T. Act. I have gone through the assessment order, the grounds of appeal, the submission made by the appellant and the relevant judicial pronouncements of the Hon‟ble Courts on the subject and the facts of the case are examined on the basis of supporting evidences that were produced before the Assessing Officer. 7.1 The assessee has filed e-return of income on 29.03.2016 declaring net taxable income at Rs. 76,94,280/- and agricultural income of Rs. 9,14,600/-. The case was selected for scrutiny and notices u/s. 143(2) & 142(1) were issued to the assessee. In response to notices, the counsel for the assessee attended from time to time and submitted the details called and explained the return. The assessee had purchased 422500 shares of Swift IT Infrastructure & Services Limited (SITSL) on 16/03/2012 physically at the rate of Rs. 10/- and same were duly reflected in the books of account of the assessee as well as shown in balance sheet as investment during the previous year relevant to A.Y. 2012-13. The aforesaid shares were sold during the previous year relevant to AY 2014-2015 and AY 2015-16. The period of holding of the share is more than twelve months, and the said transaction were treated as long term capital transaction on which the assessee has claimed exemption u/s. 10(38) of Income Tax Act, 1961. 7.2 The assessing officer has not accepted the claim of the long term capital gains. The reason for the same is the report of investigation carried out by Pr. Director of Income Tax (Investigation), Kolkata in certain cases where the provisions of section 10(38) were being misused by the beneficiaries of bogus 18 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 long term capital gain (LTCG) to avoid paying the taxes on such profits earned. The assessing officer has relied on certain statements recorded of persons indulging in similar modus operandi and the LTCG earned by him was non-genuine. The AR of the assessee has refuted this and furnished documentary evidences to prove the genuineness of the transactions which are as under 1. The assessee had purchased 422500 share of Swift IT Infrastructure & Services Limited (SITIT) at the rate of Rs. 10 each, the physical delivery of which were received on 16/03/2012. 2. Later on the company, Swift IT Infrastructure Pvt. Ltd was amalgamated with ParagShilpa Infrastructure and Services LTD. (PSIT) on the basis of sanction by Hon‟ble Bombay High Court and the company was renamed as ParagShilpa IT Infrastructure & Services Ltd (PSIT Infrastructure & Services Ltd). The physical shares of SITIT were sent for dematerialization with Karvey Stock Broking Limited on 11/03//2013. 3. Thereafter, the foresaid shares were transferred to MPSE Securities Limited from where the sales of share were affected during the previous year relevant to Asstt. Year 2014-15 onwards. The assessee sold part of the share held during the previous year relevant to A.Y. 2014-15. 4. The assessee has submitted all the details of sale purchase of shares i.e. name of company, amalgamation of company, details of sanction order of amalgamation from the Hon‟ble Bombay High Court, new name of company, details of dematerialization, details of transfer of shares and submitted each & every details as & when called by the assessing officer during the course of assessment proceedings. 7.3 The issues and the submission of the appellant for AY 2014-15 and AY 2015-16 are identical. In this case, the submission for AY 2014- 15 were sent to the Assessing Officer on remand on 26.05.2017, the report of which was received on 30.06.2017. Further clarification and the report of Investigation Wing were again called for on 29.08.2017. The same was received on with annexures 28.09.2017. These were perused. The appellant has furnished his rebuttal of the issues reiterated in the Remand Report for AY 2014-15 and on the basis of all the documents available on record the matter was heard. The issues raised in remand report are common and identical for both AY 2014-15 and 2015-16, and hence the arguments for AY 2014-15 are identical for AY 2015-16 as well. 7.4. To enable clarity on the issues raised in AY 2014-15, which is also the same for the AY 2015-16 and the basis for addition in the present year, the clarifications given by the assessee for AY 2014-15 provide compelling arguments against the addition made in AY 2015-16 as well. These clarification are relevant for AY 2015-2016 and reproduced as under ; 19 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 1. As per Para-1 – “It is seen that the name of Shri Nandkumar Khattumal Harchandani son of Shri Khattumal Harchandani also features in the list of cases who availed bogus LTCG and claimed exemption from tax as per provision of Section 10(38) of the I.T. Act, 1961”. The assessee strongly objects to the said allegation made in the report. As the list of paper companies, list of dummy directors and even the statements of persons involved in providing accommodation entries provided, nowhere the name of assesse or company “Parag Shilpa Infrastructure Ltd.” features in the list. The assessee is merely an individual who has invested the said amount as an investment and later on sold the same. The assessee has invested the amount as an investment and sold the share. The assessee has made all the transaction through BSE through proper banking channel and paid STT as well as these transactions were legally valid transaction. The entire amount was received through proper banking channel and credited the books of account of the assessee. The Sale amount mentioned in the report were also incorrect. Therefore, the assessee respectfully submits that the assessing officer has committed gross error by making addition in assessee‟s case on the basis of just information received from the Pr. Director of Income Tax (Inv.) Kolkata, which were not related to the assessee at all. 3. As per Para-3.1 the learned Assessing Officer stated in modus operandi that there are two types of penny stock companies. The assessee respectfully submits that assessee case does not fall in any such modus operandi. The assessee has invested in the share of M/s. Swift IT Infrastructure Limited. The said company is not a new company. The assessee respectfully submitted that the said company was a listed company on stock exchange and after amalgamation through High Court order dated 3rd May 2013 and at present also not a new company as stated in the report that the said was floated for the purpose of giving LTCG entries. The entire allegations made in the report were totally denied. The assessee respectfully submits that the assessing officer has committed gross error by making addition in the assessee‟s case on the basis of the modus operandi mentioned in the report. The assessee respectfully submits that the said modus operandi were not applicable in assessee‟s case as assessee merely an individual who has invested the said amount as an investment only. The assessee is neither having any knowledge of accommodation entries nor about any pre-arranged organized racket of generating bogus entries of long term capital gains. The assessee has invested the amount as an investment and sold the share through Bombay Stock Exchange and paid STT. The assessee has made all the transaction through proper banking channel as well as all these transaction are legally valid. The entire amount was received through proper banking channel and entered into the books of account of the assessee as credit. The ld. AO has failed to substantiate the involvement and have not established any direct nexus of the assessee 20 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 with any such organized rackets, brokers or operators. The learned assessing officer has filed to provide any director or corroborative evidence against the assessee to prove the involvement of the assessee. Thus, the assessee has proved beyond doubts that the said transaction was valid and done through proper banking channels and hence there is no question of applying the conventional method or merger method in the assessee‟s case as mentioned in the report. The Assessing Officer observed that the companies are controlled by them through dummy directors. The assessee respectfully submitted that there is no dummy director in the case of assessee. It is further observed by the learned A.O. that the broker often compromises of KYC norms of the clients to help the syndicate member. The assessee respectfully submitted that in the case of assessee all norms of KYC were followed and were followed regularly. In the aforesaid para, the Assessing Officer referred two types of method i.e. conventional method and merger method. The assessee respectfully submitted in the case of assessee both the method were not applicable. Modus operandi as described by the learned AO in his order is totally different and irrelevant in the case of the assessee as - No evidence on record approaching to the Entry Operator by the assessee. - No nexus of any nature has been established between the Assessee and Entry Operators, Brokers, Sub-Brokers and other entities. - No purchases of share by the Assessee through private placement. - No evidence of delivering cash to the entry operator. - No evidence of routing cash in the books of bogus companies. - The script ParagShilpa Investment Ltd. is not classified as penny stock by SEBI and was not barred from trading on stock exchange any time. As per Para-3.3 “the learned A.O. described the transaction as beneficiary sold a fixed number of shares at a nominal rate by offline trading done to save STT”. But in the case of assessee, the transactions were online transaction done through BSE & assessee has paid the STT on entire transaction. As per Para-3.3.3 “the learned assessing officer mentioned that the beneficiary provides the required amount of cash which is routed through some of the paper companies of the entry operator and is finally parked in one company which will buy the share from beneficiary. The paper company issues cheque to the beneficiary”. The assessee denies all such allegations and entire allegations were incorrect. The assessee has made whole transaction through proper banking channel and same were duly reflected in the books of account of the assessee. There is no movement of cash in the assessee transaction. The assessee has made whole transaction through Bombay Stock Exchange and on entire sale and 21 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 purchase STT was paid on entire transaction, which was deposited in government account through stock exchange and entire transaction was duly reflected in the Bombay Stock Exchange. The assessee has already submitted all the details with respect to share transaction during the course of assessment proceedings before the assessing officer and thus proved the genuineness of the transaction beyond doubts. On the contrary the assessing officer has neither pointed out any defect in books of account nor in any documents submitted by the assessee to negate the claim made by the assessee and failed to provide any evidence on record showing the said transactions were made for providing accommodation entries. The ld. AO has failed to substantiate that the assessee has brought back his own unaccounted money under the grab of LTCG as no evidence was produced in this regard. Further, nothing has been brought on record to prove that unaccounted money was involved in the said transaction of the assessee. The learned AO completed the assessment proceedings in an arbitrary manner based on certain assumption, suspicions and surmises. Further, no evidence of any movement of cash have been found by the ld. AO showing that the share were purchased for obtaining accommodation entry. The learned assessing officer have as well failed to provide any direct or corroborative evidence against the assessee to prove this allegation. Therefore allegation made with respect of bogus LTCG or accommodation entry is factually incorrect and denied in toto. Relevant Case Law : • Recently Hon‟ble ITAT Delhi in the case of Chander Prakash v. ITO in ITA No. 6880/Del/2017 dated 12.03.2018 held that 2018 deleting addition on same facts of the assessee under No addition u/s 68 on account of penny stock if assessee submitted all evidences in support of sale and purchase and entire transaction was through banking channel. The AO made an addition of Rs. 31,10,915/- holding that the long-term capital gain earned by the assessee on its investment in the shares of M/s. HPC Biosciences Ltd. was not genuine and represented the unaccounted income of the assessee. The CIT(A) stated that the rise in value of the share was abnormal over a period of 13 to 14 months, ad realization of such capital gain without any past experience in trading of shares raised a very strong suspicion so as to question the authenticity of the transaction. Thus, the CIT(A) also confirmed the addition made by the AO holding that the transaction was against human probability. The Tribunal took note of the fact that the assessee has shown LTCG from sale of 6000 shares of M/s. HPC Biosciences Limited and the same has been claimed as exempt u/s. 10(38) of the Act. Tribunal further observed that the assessee had submitted all documentary evidences in support of sale and purchase of shares. The ITAT also took note of the fact that the entire transaction was through banking channel and the rejection by the AO as well as the CIT(A) treating the transaction as bogus long-term capital gain was without any basis. ITAT further noted that the AO and the CIT(A) relied upon the statement recorded by the Investigation Wine, Kolkata, which had no nexus with the case of assesse. Therefore, relying upon the 22 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 recent judgment of Hon‟ble High Court of Punjab & Haryana in the case of Pr. CIT v. Prem Pal Gandhi in ITA No. 95 of 2017 dated 18.01.2018, the Tribunal concluded that considering the fact and circumstances in the case of assessee the ratio laid down by the said judgment, the addition made by the AO and sustained by the CIT(A) was to be deleted. The assessee has purchased 422500 shares of Swift IT Infrastructure and Services Ltd. by cheque on 16/03/2012 during the previous year relevant to Asstt. Year 2013-2014 and the same were shown in the balance sheet of the assessee as investment and entire investment were duly accepted by the assessing officer during the previous yer relevant to Asstt. Year 2013-2014 in the scrutiny assessment and assessment were completed U/s. 143(3). The assessee has already submitted copy of assessment order for A.Y. 2013-14 with earlier reply. The assessee has received physical delivery of the share of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share certificate during the course of assessment proceeding before the assessing officer. The assessee encloses herewith copies of share certificates, which is on Page-9 To 98 of the Paper Book (Part-I). Thereafter, Later on the aforesaid physical shares were dematerialized with Karey Stock broking Limited on 11/03/2013. In support of the contention the assessee has submitted letter of demat of physical share certificates alongwith acknowledgment of receipt of share from Karve Stock Broking Ltd. Later on these shares were amalgamated to Parag Shilpa Infrastructure Limited. Thereafter the share were transferred to MPSE Securities Limited from where the sales of shares were affected on 04/03/2014 onwards. In support of contentions, the assessee has submitted the letter regarding deliver slip for share transfer to “Mittal Share brokers Pvt. Ltd.” alongwith statement of accounts of Karvey Stock Broking Ltd and transaction statement of MPSe Securities Ltd. during the course of assessment proceedings before the assessing officer. In support of its contention the assessee has submitted details of the same which is on Page-101 To 110 of the Paper Book (Part-I). The assessee is having Client ID issued by MPSE Securities Limited, which is clearly shows the name, address, bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings, which is on Page-111 of the Paper Book (Part-I). The assessee has sold the aforesaid shares for total consideration of Rs. 2,84,34,115/- during the previous year relevant to Asstt. Year 2014-2015 and shown book profit at Rs. 2,79,05,115/-. Since the period of holding of the shares is more than one year the capital gain transaction were long term capital of the assessee and exempted U/s. 10(38) of the Income Tax Act, 1961. The assessee has submitted chart of capital Gain working and profit on sale of shares account during the course of assessment proceedings as well as in the return of income, which is on Page-8 of the Paper Book (Part-I) . All the transaction of sale purchase of shares was made through proper banking channel and duly reflected in the books of account of the assessee. 23 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 5. “In Para-4.1 the A.O. referred that the assessee has indulged in merger method.” The assessee respectfully submitted that in the case of assessee on line trading for sale is through Bombay Stock Exchange and not through any paper company. There is no involvement of any paper companies in the case of assessee. Entire trading was made through Bombay Stock Exchange. In the report Assessing Officer has mentioned, that “Purchasing/loss booking companies in the Script PS IT infrastructure & Services Ltd./ParagShilpa Investments Ltd. the most purchases were at abnormally higher rates done by paper companies”. The assessing officer has mentioned the names and details of paper companies in the report. But the same were not the assessee company and not the companies in which assesse has invested. Even the assessee do not know the companies and have not entered into any transactions with such paper companies as mentioned by the assessing officer. The assessee has nothing to do with such paper companies and there was no name of the assesse and no name of company “ParagShilpa Infrastructure Ltd.” in the details of companies. It is mentioned in the Para-4.3 of the report by the assessing officer that “statement of Operators were recorded by the Kolkata Directorate wherein they have admitted their statements that they have indulged in providing accommodation entries for Long term capital gains”. The assessee respectfully submitted that nowhere in the statement or the report it is stated that assesse or the companies in which assessee invested were involved in any such bogus transactions and there is neither name of assessee nor name of the company “Parag Shilpa Infrastructure Ltd.” in the entire report. As per Para 4.6, the assessing officer stated that “the assessee has purchased the share of M/s. PSIT Infrastructure Ltd. for a very low price”. The assessee has actually not purchased PS IT Infrastructure shares, but assessee has purchased Swift IT Infrastructure Ltd. was amalgamated with Parag Shilpa IT Infrastructure Ltd. Therefore, information given with respect of market movement of shares of Parag Shilpa Investment Ltd. which the assessee received by virtue of amalgamation order of Hon. High Court, was beyond the control of the assessee and assessee cannot influence the same. The learned assessing officer has not proved that assessee has influenced the same and no evidence was brought on record. The assessee also respectfully submitted that share market behaves in a unique manner. Further, each script generates its own unique return and has its own behaviour pattern. There are innumerable cases of such companies wherein the share prices increases so many times. This sometimes results in investor earning less than market return and sometime more than market return. In the instant case, the assessee has earned good returns on the said investments and just like any other prudent investor encashed the same where he felt it was the right opportunity to do so. 24 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Merely because the share prices have fluctuated so much, the transaction of the assessee cannot be treated as non-genuine without furnishing any evidence in its support to prove the involvement of the assessee. We may also submit that this is not a one time transaction of the assessee and assessee is a regular investor in stocks since many years and undertakes share transactions through registered stock brokers and have made profits and losses from his investments in shares. The assessee has purchased these share on the suggestion of Sanjay Jalani who is family friend of assessee. Now in this situation it is baseless to say that shares transaction are aimed only to bring unaccounted money in the guise of exempted long term capital gain and paper work has been got up and done merely to give the colour of authenticity to the transactions and creating façade of legitimate transactions and so allegation made against the assessee is denied in toto. It is pertinent to note that the assessee has purchased the shares of Unlisted Company named Swift IT Infrastructure & Services Limited about 14 months before amalgamation. The assessee has received the share of ParagShilpa Investments Limited by virtue of amalgamation of two companies by approved order of Hon‟ble Bombay High Court. Relevant Case law : • Hon‟ble ITAT, Jodhpur in the case of DCIT vs. Smt. HansaChoudhary [2012] 23 taxmann.com 302 (Jodhpur-Trib) was clearly seen that assesse purchased shares in earlier year. They were shown in the balance sheet which was filed alongwith the return of income. The payments were made through books of account which had not been doubted. The shares belonged to a listed company which was also not in doubt. The company itself had issued certificate that all those shares had been demated, copy of the same was placed on record. Once the purchase of shares was not doubted, then the same of same shares should not have been doubted. Further, the payment was received through cheque. The assessing officer had failed to discharge his onus to prove that assessee had invested his own money except relying on statement of a third persons who had given a general statement that he was issuing accommodation entries to some persons. Accordingly, addition made by the Assessing Officer was to be deleted. 6. As per Para 5.1, 5.2 of report : In the case of the assessee, he has got the shares pursuant to the scheme of Amalgamation of Swift IT Infrastructure & Services Limited with ParagShilpa Investments Limited as approved by the shareholders and sanctioned by Hon‟ble High Court. It is also pertinent to note that the assessee has received the shares by virtue of the amalgamation, and the assessee have not invested directly in the said stock. Further the assessing officer in Para 5.2, mentioned that “assessee wrote letter to Karvy on 26/02/2014 for share transfer but tis letter does not mention the name of ParagShilpa or Swift Infra”. The assesse respectfully submits that since the Karvy stock broking Ltd. were not giving proper response and not giving the delivery slips of shares to 25 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 assessee and creating routine nuisance, the assessee has decided to transfer all the shares with Karvy Stock broking Ltd. to Mittal Share brokers Pvt. Ltd. It was the personal business problem faced by the assessee as an investor due to which the assessee transferred the shred from Karvy Stock broking Ltd. to Mittal Share brokers Pvt. Ltd. Hence the said issue is no way connected with the said transaction as mentioned in the report. 7. As per Para 6.1 & 6.2 “the assessee has adopted a very old modus operandi of showing of investment for purchasing shares of Shri Ganesh Spinners Ltd”. The assessee denies the Modus operandi mentioned by the assessing officer in the report. Assessee denied that any back dated purchase bill been issued. There was not cash transaction. All the transactions were through proper banking channel itself. “Assessing officer stated that there is no actual delivery of shares takes place because the entire purchases are fraudulently shown to have taken place on an earlier dated”. The entire story stated above were denied by the assessee. As there was actually physical delivery of share of Swift IT Infrastructure Ltd. on 16/03/2012 and same were also dematerialized with Karvey Stock Exchange Pvt. Ltd. “Assessing officer mentioned that some minor balance lying the ledger account is transferred to the discount account” but in the case of assessee there is no such minor balance and there is no such discount account maintained by the assessee. “The Assessing Officer mentioned in the report that shares were transferred to the demat account of the client (Off Market) generally around a few days before the date when the client wished to avail the gain”. But in the case of assessee the shares of Swift IT Infrastructure Ltd. were dematerialized with Karvey Stock exchange Pvt Ltd. on 11/03/2013 itself which is more than one year before the share were sold. The Assessing Officer have further mentioned in the report that “Many Clients ask for Holding letters, which re basically letters issued from the entry providers that they have purchased “X” amount of shares on behalf of such clients on a particular date and these companies are holding them in their pool account on behalf of these clients. These letter is usually produced before various authorities to prove that the alleged purchase of share has taken place over a year ago. All these action are in violation of the provisions of the securities contract (Regulations) Act 1956 and hence are illegal”. The assessee respectfully submitted that assessee has never violates any of the provisions of Securities Contract (Regulations) Act, 1956. The assesse has never issued or received any holding letters ever. Hence the said allegations is totally denied. The assessee always follow due procedure of law and provisions laid down in SEBI for purchase and sale of shares. Swap of Shares 26 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 The assessee has purchased the share of Well Pack Containers‟ Pvt. Ltd., which were sold at the loss of Rs. 57,46,180/-, the entire loss has been taken in the return of income filed by the assessee and accepted by the department and against the sale proceedings the assessee has invested the amount for purchase of 226000 share of Shri Ganesh Spinners. Entire transaction were took place through registered broker through Bombay Stock Exchange. This 226000 share were sold to Scan Infrastructure Pvt. Ltd. for an amount of Rs. 42,6,200/- on 19/09/2011. Scan Infrastructure Pvt. Ltd has not paid the sale proceeds for Shree Ganesh Spinners and requested to assessee to take the share of Swift Infrastructure Ltd. which were physically delivered on 16/03/2012, hence this manner how share of Swift IT Infrastructure Ltd. were purchased by the assessee. After that being the shares of limited non listed company the same is not necessary to be dematerialized hence the assessee had not dematerialized the same. The assessee also draw attention that so far as section 16 of Security Contract (Regularization) Act 1956 i.e. SCRA, the same were not applicable for non listed companies. The SEBI is applicable for only listed companies. As per para 6.3 “Here also assessee has shown purchase of 350000shares of Wellpack Papers & Containers Ltd. for Rs. 1,00,07,296/- from MPSE Securities Ltd. on 15/03/2010. The contract note is produced. This was sold for Rs. 42,43,735/- and this amount is claimed as source of investment for purchase of shares of Ganesh Spinners”. The assessee has submitted all the documents, Share statements, contract notes, and all other documents related to Wellpack Paper & Containers Ltd., Ganesh Spinners and even ParagShilpa Infrastructure Ltd. during the course of assessment proceedings. The assessee draw attention that entire loss were accepted by the department in the order passed U/s. 143(3). The assessee has already submitted copy of the assessment order with its earlier reply. 8. As to Para-7.1 : Share Swapping The assessee has purchased 422500 share of Swift IT Infrastructure and Services Ltd. physically on 16/03/2012 during the previous year relevant to Asstt. Year 2013-2014 and the same were shown in the balance sheet of the assessee as investment and entire transaction as investment were duly accepted by the assessing officer in the scrutiny proceedings U/s. 143(3). The assessee has received physical delivery of the share of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share certificate during the course of assessment proceedings before the assessing officer. In support of its contention the assessee has submitted copies of share certificates. The assessing officer wrongly mentioned in the report that in Para 7.3 that, “these shares were never materialized and assessee received share of ParagShilpa only on 03/03/2014 and 07/03/2019”. The assessee respectfully submits that assessee has dematerialized the said shares on 11/03/2013 with Karvy stock broking Ltd. The date mentioned by the assessing officer i.e. 03/03/2014 and 07/03/2014 is the date of transfer 27 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 of share from Karvey Stock Broking Ltd. to MPSE Securities Ltd. The same can be evidence from the statement of account of Karvey Stock Broking Ltd. where there were opening balance of 422500 shares and from there 100000 shares were first transferred to MPSE Securities Ltd. on 03/03/2014 and 302500 share were later transferred on 07/03/2014 to MPSE Securities Ltd. As per Para-7.4 The assessing officer wrongly mentioned in the report that “assessee cannot claim that he hold the shares for more than one year”. The assessee respectfully submitted that assessee has purchased 422500 shres on 16/03/2012 and during the previous year relevant to Asstt. Year 2014-15, the assessee has sold 53000 shares on 04/03/2014 onwards i.e. also holding of more than 24 months from the date of purchase of shares. The assessee further submitted during the previous year relevant to Asstt. Year 2015-2016, the assessee sold 106000 shares on 10/05/2014 onwards i.e. also holding of more than 24 months from the date of purchase of shares. The assessing officer has also mentioned in Para 7.3 “in the case of the scrip of Parag Shilpa also the entry operators have admitted to this modus operandi namely (1) Devesh Upadhyaya, (2) Praveen Agarwal and (3) Jagdish Purohit”. The assessee draws attention that in the statements of the said entry operators (1) Devesh Upadhyaya, (2) Praveen Agarwala and (3)Jagdish Purohit there is no script or the assessee even the name of the assessee or company Parag Shilpa Infrastructure Ltd. any where as bogus or paper companies. Further there are many ambiguities in the extracts of statements so quoted by the ld. A.O. The assessee has also not provided copies of report as several request were made by the assessee. The assessee also request to provide opportunity to being cross examining those entry operators which were also not provided to the assessee. In view of the aforesaid fact and circumstances of the case, the assessment order passed and the additions were made are bad in law as the same was made relying on the aforesaid information without confronting the same to the assessee and not providing opportunity to submit explanation in this regard, without pointing any specific discrepancy in the assessee transaction and without providing assessee opportunity to cross examine the parties on whose statement department were relying and passing the order is against the principle of nature justice. The ld. AO while framing assessment order and making additions, has not shared any information with the assessee. Non-sharing of complete information on the basis of which additions were made and additional tax liability was imposed on the assessee is against the principles of natural justice. The assessee respectfully submitted that no liability can be imposed on any assessee with respect of certain information received from third party until and unless the assessee were confronted with the same and offered an opportunity to rebut the same as the same amounts to violation of principles of natural justice. 28 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 The assessment order was passed and additions were made merely on the basis of certain information received from the investigation wing of IT Department without application of mind by the ld. A.O. and without establishing a link between the information received and the captioned transaction of the assessee. This clearly shows that the assessment was made in a pre-decided manner and as per the whims and wishes of the ld. AO. Hence, the assessment so made is bad in law and deserves to be quashed. Reliance in this regard is placed on the following • Hon‟ble Rajasthan High Court judgment in the case of CIT v. A.L. lalpuria Construction (P.) Ltd. (32 taxmann.com 384) wherein it was held that oral statement of third party recorded by search authorities which was never placed to be confronted by assessee and no documentary evidence was supplied to assessee, could not be considered in making addition on account of alleged accommodation entries. • Hon‟ble ITAT Mumbai in case of Kamlesh Mundra Vs. ITO, ITA No. 6248/Mum/2012-Assessee has produced the bills showing the purchase of the shares. The assessee has also proved that the shares were sold through the registered share broker and produced the proof of the same. The only basis on arriving at the conclusion that the transaction is not genuine is on the basis of statement given by the Mr.Mukesh Chokshi. • Hon‟ble ITAT Mumbai in case Arvind Asmal Mehta Vs. ITO (ITA No. 2799/Mum/2015)-Where in the year of purchase of shares, AO has not challenged the acquisition of shares, it is quite inappropriate to hold such acquisition as bogus in the year when subsequently such shares are sold. D-mat a/c. of assessee is evident that sale of share does justify an inference that assessee was indeed in possession of shares. Though a reference has been made to the investigation in case of Mr.Mukesh Chokshi, but no effort has been made by the AO to demonstrate that qua the instant transaction of the assessee, any infirmity has been confessed by Sh. Mukesh Chokshi. Inspite of several request made by the assessee to authorities to cross examine Mr.Mukesh Chokshi statement. Also the addition in respect of commission payable in respect of accommodation entries was also directed to be deleted. • Hon‟ble ITAT Hyderabad (SB) in case of Colonisers v. Asstt. CIT (41 ITD 57) (1992) held that additions on account of non observance of principles of natural justice to be declared as null and void. • Hon‟ble Bombay High Court in the case of H.R. Mehta v. Asstt. CIT (72 taxmann.com 110) held that AO should have provided assessee material used against him apart from providing him opportunity to cross examine the deponents whose statements were relied upon • Hon‟ble Delhi High Court in the case of CIT v. SMC Share Brokers Ltd. [2007] 159 Taxman 306 held that in absence of Manoj Agarwal being made available for cross examination, his statements cannot be relied upon to assessee‟s detriment. The relevant extract is reproduced as under “There is no doubt that the statement of Manoj Agarwal had evidentiary value but weight could not be given to it in proceedings against the 29 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 assessee without it being tested under cross examination. In the absence of the statement being tested, it cannot be said that it should be believed completely to the prejudice of the assessee.” • Hon‟ble Agra ITAT in the case of ITO v. Mayur Agarwal (2011) (128 ITD 55) held that no addition can be made merely on the basis of evidence procured from the party unless and until that party was put to the assessee for cross examination. The relevant extract is reproduced here as under: “From the copy of the assessee‟s account in the books of the third party, namely. „N‟, it was clear that against all the transactions relating to the assesse, the bill numbers were duly mentioned but the respect of the transaction relating to Rs. X which the assessee had denied, „N‟ had not mentioned any bill number but had shown the bank draft, etc. No addition could be made merely on the basis of the evidence procured from the third party unless and until that party was put to the assessee for cross-examination, specially when the assessee had categorically denied the transaction. Statement relied on by the revenue itself did not disclose the bill number though which transaction was entered into. It contained through drafts, etc. only. Therefore, this evidence, could not be a valid evidence to make the addition. Once the assessee had denied the transaction, the Assessing Officer was bound to adduce the evidences for the rebuttal of assessee. The Assessing Officer had not done so. Therefore, under the facts of the case, the order of the Judicial Member confirming the order of Commissioner (Appeals) deleting the impugned addition was justifiable. [Para-14]” • Hon‟ble Ahmedabad ITAT in the case of Vijaybhai H. Shah v. Dy. CIT (6 SOT 75) held that statement of a person recorded on back of assessee can be used against assessee only if opportunity for cross- examination is granted. • Hon‟ble ITAT Mumbai in the case of Ms. Farrah Maker v. ITO, ITA Number 3801/Mum/2011-Held that the addition u/s 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the said shares‟ of M/s Shukun Constructions Ltd., copies of the physical share certificate and here D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transaction of buying and selling of the „said shares‟ by the respective stock brokers receipt of sale proceeds through banking channels, etc. It was also found that the assessee was not provided the opportunity to cross-examine a witness shoes statement was relied upon to form the basis for taking an adverse view in that case, overlooking the direct documentary evidence placed on record of sale/purchase transaction in shares such as brokers contract notes, confirmation of receipt of sale proceeds through regular banking channels, reflection of these transactions in the assessee‟s audited financial statement and relevant returns of income and it was held by the Bench that in these circumstances, the sale of shares could not be held to be non-genuine. 30 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Thus in view of the above fact and submission and supported case laws, it can be held that the assessment was completed without following the principles of natural justice and entire addition was made without any basis and same my kindly be deleted. 7.5 The above submissions make for strong argument against the assessment made by the AO. Having considered these arguments, and the assessment order, the issues raised were considered and the assessee‟s arguments were verified by examining the documentary evidences produced before me. In the assessment order, the AO has raised certain issues which are dealt with as under 1. Issue : According to the AO, in the report sent by the Office of Pr. Director of Income Tax (Investigation), Kolkata to the Pr. Director of Income Tax (Investigation), Nagpur vide letter dated 27/04/2015, name of the assessee features in the list of the persons who have availed bogus LTCG and claimed exemption u/s 10(38) of the Act. The details of transactions entered into by the assessee were also forwarded to the AO Facts on the issue :The copies of statements sent to the AO by the Investigation wing, in fact does not contain the name of the assessee, or even the company Parag Shilp Infrastructure Ltd. The modus of operandi described in the report is general information passed on the AO. The assessee has furnished all the necessary evidences as proof of the transactions. These documents were not falsified by AO. No contrary evidences were found to support the allegation that the assessee had participated in the modus operandi indulged by the persons in Kolkata, or had any connections with them. Even the statements that were recorded of the persons referred in the report did not mention the assessee‟s name. Therefore, the first allegation is wrong factually. The assessee is an individual who has invested in the share of SITIT as an investment, and later on sold the same. The sale transaction were through BSE and through regular banking channel and STT was paid thereon as well while makes these transactions legally valid transaction. The entire amount of sale proceeds was received through proper banking channel and credited in the books of account of the assessee. The sales amount mentioned in the remand report were also incorrect. Therefore, the assessee has submitted that the assessing officer has committed gross error by making addition in the assessee‟s case on the basis of just information received from the Pr. Director of Income Tax (Inv) Kolkata, which were not related to the assessee at all and as none of the evidence furnished have been falsified by the AO. 2. issue of bogus LTCG : In Para-6.1, the Assessing Officer has mentioned that M/s. Swift IT Infrastructure Limited is a new company. In Para-6.2, the Assessing Officer observed that companies are controlled by them through dummy directors. In para 6.3, the A.O. has described the transaction as beneficiary sold a fixed number of shares at a nominal rate by offline trading done to save STT. The Assessing Officer referred to two type of method, i.e. conventional method and merger method of acquiring LTCG. In Para-701, the A.O. has alleged that the assessee has indulged in the merger method of acquiring large of shares. In Para-7.3, the A.O. mentioned names of company alongwith its operators. On Page-5, the A.O. observed that the statements of 31 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 some operators of the said companies under section 131 have been recorded by the Kolkata Directorate and in the statement they have admitted that they had indulged in providing accommodation entry of LTGC through the above companies controlled by them. The observations made by the Assessing Officer in Para-7.4 is that “there is a strong, non –rebuttable evidence that the company was a paper company and was used for giving bogus entries to the assessee”. The A.O. in Para-9.1 has stated that the assessee purchased 226000 shares of M/s. Shree Ganesh Spinners Ltd. during 2011-12 for S. 42,46,550/- through MPSE Securities Ltd. but no details provided. The assessing officer mentioned that assessee furnished copies of physical share certificate of Swift IT Infrastructure Limited which got transferred on 16/03/2012. The A.O. further observed that through it was swap of shares but these shares of “Swift” were not immediately handed over to the assessee. The A.O. alleged in Para-9.2 that on 05/09/2014, the balance sheet were further split into 26,35,000/- shares. In Para-9.4, the AO alleged there is cash transaction. In Para-9.9, the AO has held that the gains arising from sale of shares was short term in nature and not LTGC. The assessee purchased shares on 16/03/2012 and dematerialized on 11/03/2013 and sold the same during period from 04/03/2014 to 18/03/2014. In Para-10, the A.O. stated that the statement of assessee was recorded under section 131 of the Act and the assessee has submitted all the details and explanation alongwith entire transaction. 2.1 Fact of the case. It has been pointed out that the assessee purchased 422500 shares physically of Swift IT Infrastructure &Services Limited (SITIT) at the rate of Rs. 10 each, the physical delivery of which were received on 16/03/2012. Swift IT Infrastructure & Services Limited was thereafter amalgamated with Parag Shilpa Infrastructure and Services Ltd. The Hon‟ble Bombay Court sanctioned the amalgamation and the new name Parag Shilpa IT Infrastructure & Services Ltd. (PSIT Infrastructure & Services Ltd). The physical share of SITIT were sent to dematerialization with Karvy Stock Broking Limited on 11/03/2013. These are uncontroverted facts. Supporting documents have been submitted and examined at various levels-by the Investigation wing, by the AO and during appellate proceedings. In the case of assessee, all norms of KYC were followed and were followed regularly. In the case of assessee, the transaction was online trading transaction and STT was paid on the sale transaction. 2.1.1 Documentation submitted during the assessment proceedings were examined during the appellate proceedings it was found that- 1. Regarding the transactions per se, the assessee has physically received 422500 share of Swift IT Infrastructure and Services Ltd. on 16/03/2012 during the previous year relevant to Asstt. Year 2013-14 and the same were shown in the balance sheet of the assessee as investment. The AO has tried to link the sale of shares Ganesh Spinners which was sold on 19.09.2012 to the purchase of shares of Swift It on 16.03.2012, by alleging swapping of shares of Ganesh Spinners and purchase of share of Swift IT Infrastructure & Services Ltd. are two separate transactions and removed from the other by at least 6 months. The assessee has received physical delivery of shares of Swift IT Infrastructure & Services Limited on 16/03/2012 at the rate of Rs. 10 each. The assessee has submitted the copies of share 32 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 certificate during the course of assessment proceedings before the assessing officer. Purchase were through banking channels. 2. The physical share were got dematerialized with Karvey Stock broking Limited on 11/03/2013. As evidence for the same, the assessee has submitted letter requesting demat of physical shares certificates alongwith acknowledgment of receipt of shares from Karvy Stock Broking Ltd. However, the company Swift IT Infrastructure was amalgamated with ParagShilpa IT Infrastructure & Services Limited. Thereafter, the aforesaid share were transferred to MPSE Securities Limited from where the sales of shares were affected on 06/03/2014 onwards. The assessee has submitted the letter confirming deliver slip for shares transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of accounts of Karvey Stock Broking Ltd and transaction statement f MPSE Securities Ltd. These evidence were before the AO, during the course of assessment proceedings. The assessee had Client ID issued by MPSE Securities Limited, which clearly shows the assessee‟s name, address and bank details. The assessee has also submitted details of Client ID during the course of assessment proceedings. I find that these evidence have not been controverted and neither has the AO falsified these documents, or proved them non- genuine. 3. The assessee has sold 106000 shares from 10.05.2014 to 07.07.2017 for a total consideration of Rs. 5,87,48,683/- during the previous year relevant to Asstt. Year 2015-2016 and shown book profit at Rs. 5,76,88,683/-. The sale consideration was received through proper banking channel and are duly recorded in the books of accounts of the assessee. Since the period of holdingof the shares is more than one year (purchased on 16.3.2012 and sold in May to July 2014), the capital gain transaction were longterm capital of the assessee and exempt u/s. 10(38) of the Income Tax Act, 1961. The assessee has already submitted chart of capital gain working and profit on sale of shares account during the course of appellate proceedings. All the transactions of sale/purchase of shares were made through banking channel and duly reflected in the books of account of the assessee. I find that these evidence have not been controverted and neither have the AO falsified these documents, or proved them non-genuine. 4. The A.O. has alleged that the assessee has indulged in the merger method for obtaining high valume of shares, and sale thereof. I find this allegation quite glaringly untrue. That the shares of Swift IT Infrastructure and Services Ltd. was merged with some other companies was an independent event and the assessee‟s hand in this merger was not found, and hence the question of indulgences did not arise. In the case of assessee, the sale of the shares (renamed as Parag Shilpa by the order of Bombay High Court) was through Bombay Exchange and not to any shell company as stated in the assessment order. After examining all the documents in the present case, there is found no involvement of any shell companies in the case of assessee. The entire trading was made through Bombay Stock Exchange, and the company Parag Shilpa is still an active company in the records of ROC. 33 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 5. The A.O. has mentioned certain names of company alongwith its promoters. The A.O. observed that the statements of some operators of the said companies had been recorded under section 131 by the Kolkata Investigation Wine and in these statement they have admitted that they had indulged in providing accommodation entry of LTCG through the above companies controlled by them. The assessee had for the copies of statements of such operators of companies but these were not provided to the assessee and no opportunity of cross examination was granted to the assessee and as such no credence can be given to such statements. I find that the name of assessee does not appeal in these statements and also in the case of assessee, as all the sale transactions are done online through BSE. Therefore, even if the AO has blindly relied on statements given by third parties, these statements do not implicate the assessee, nor do they show or even indicate the assessee‟s involvement in the said alleged scheme, and hence the allegations against the assessee is misguided and presumptive. 6. The A.O. has stated that the assessee purchased 226000 shares of M/s. Shree Ganesh Spinners Ltd. during A.Y. 2011-12 for Rs. 42,46,550/- through MPSE Securities Ltd. but no details provided. This allegation is incorrect as all details had been provided during the assessment proceedings as well during the remand proceedings. The assessee has furnished all documents to show the transactions. The assessee has furnished all documents to show the transaction through MPSE Securities Ltd. and the details of purchase of shares of M/s. Shree Ganesh Spinners-such as quantity, rates and these were furnished before the AO. The AO has alleged that the shares of Ganesh Spinners were not sold but exchanged. I find this allegation to be factually incorrect and contrary to real events. The company Ganesh Spinners is a listed company and its shares cannot be exchanged or swapped. The assessee sold the share of Ganesh Spinners on 19.09.2011 and purchased share of Swift IT Infrastructure Ltd. on 16.3.2012. The AO mentioned that assessee furnished copies of physical share certificate of Swift IT Infrastructure Limited which got transferred on 16/03/2012. These share were handed over to Karvey on 11/03/2013 for which Acknowledgment in the form of Receipt of shares given by Karvy Stock Broking Ltd. exists. The A.O. further observed that these transactions were swap of share although the share of “Swift” were not immediately handed over to the assessee. I find that the AO has again leveled an untested allegation, as the stated transactions are normal procedural actions to which no malafide can be ascribed. The AO has made an imaginative attempt to cast doubt on the transactions, where no anomalies are proved or found. 7. The assessee has infact produced all possible documents to show the series of share transactions over the five year period from F.Y. 2009-10 to 2014-2015 to prove that he has regularly engaged in investments in shares since long. It is a fact that the assessee has not undertaken a one-off transaction that could justify the allegations made by the AO. The assessee regularly filed return of Income. The assessee has submitted copy of Acknowledgment of return of income, computation of income, balance sheet and profit and loss account 34 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 alongwith group summary of investment in securities for A.Y. 2010-11 to A.Y. 2015-2016, which are part of record. The entire transactions beginning with the purchase of Well Pack Paper and Containers Ltd. in 2010 has been substantiated adequately. The assessee has paid an amount of Rs. 1,00,00,000/- (Rs. One Crores) to MPSE Securities Limited, who is a member of Madhya Pradesh Stock Exchange Ltd. through RTGS on 15/03/2010 by Oriental Bank of Commerce, Kingsway A/c. No. 01342010034880 for purchase of share of Well Pack Paper and Containers ltd. and bank statement reflecting the transfer of funds to MPSE Securities Ltd. alongwith bank book, was produced. The assessee had instructed for purchase of share of Well Pack Paper And Containers Ltd. through Bombay Stock Exchange Trading Terminal and purchased 3,50,000 shares of Well Pack Papers and Containers Ltd. The amount paid for purchase of shares was Rs. 1,00,07,295.84/-. The assessee has submitted copy of account of MPSE Securities Ltd. alongwith contract- note of purchase and sale of shares, which is part of Paper book and also sent on remand. On 18.03.2011, the aforesaid share were sold for the Rs. 42,53,735/-. Demat account and Sale Note were produced. The loss incurred at Rs. 57,46,180/- was reflected in the ITR for A.Y. 2011- 12. At the same time, the assessee further invested sum of Rs. 42,46,550/- for purchase of 2,26,000 shares of Shree Ganesh Spinners Limited through Bombay Stock Exchange Trading Terminal, which is also reflected in the Balance Sheet of A.Y. 2011-12. These shares were sold on 19.09.211. The assessee has submitted Demat Share account for the period from 01/04/2009 To 31/03/2015 and the credit not issued by Scan Infrastructure Limited. The sale of share were duly reflected in the books of account of assessee, and the assesse has submitted copies of Balance Sheet alongwith investment A/c. in securities ledger account. The assessee thereafter placed on order for purchase of shares of Swift IT Infrastructure & Services Limited (unlisted company) and received physical delivery of 4,22,550 shares of Swift IT Infrastructure and Services Ltd. on 16/03/2012. Swift IT Infrastructure being an unlisted company and did not come under the preview of SEBI (Act). These share were dematerialized with Karvy Stock Broking Limited on 11/03/2013. Later on Swift IT Infrastructure Pvt. Ltd. was amalgamated with “Parag Shilpa IT Infrastructure and Services Limited”. The assessee has submitted order of Hon‟ble High Court of Judicature at Bombay sanctioning a scheme of amalgamation of Swift IT Infrastructure & Services Limited with Parag Shilpa Investments Limited & New name is Parag Shilpa IT Infrastructure And Services ltd., which is part of record. As per order of amalgamation of Hon‟ble High Court of Judicature at Bombay, Bench at Mumbai dated 03/05/2013. The assessee has submitted letter of demat of physical share certificate alongwith acknowledgment of receipt of shares from Karvey Stock Broking Ltd. Later on the aforesaid share were transferred to MPSE Securities Limited from where the sale of share were affected on 06/03/2014 onwards. The assessee has already submitted the letter regarding deliver slip for share transfer to “Mittal Share Brokers Pvt. Ltd.” alongwith statement of account of Karvy Stock Broking Ltd. and transaction statement of MPSE Securities Ltd. The fact that the assessee received physical deliver of share on 16/03/2012 undoubtedly proves that the assessee was the owner of share on 16/03/2012. The AO‟s contention that the shares were dematerialized 35 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 later in 2013, and hence the shares were held less than one year is based on his unwillingness to recognize and appreciate true and correct facts, or his purposeful disregard for facts of the case. Either ways, the AO‟s contention is not acceptable. The uncontroverted fact are therefore that the assessee purchased share on 16/03/2012 and dematerialized them on 11/03/2013 and sold them during period from 06/03/2014 To07/07/2014. 8. So far as statement two persons recorded by the Investigation Wing are concerned, the assesse has himself stated in the statement recorded by the Investigation Wing, Nagpur/AO that he was not acquainted with Shri Praveen Agarwal or Shri Devesh Upadhyaya and was not aware on their business dealings. The assessee has categorically denied knowing any of the family members of Shri Praveen Kumar Agarwal and Shri Devesh Upadhyaya as mentioned in the statement recorded on various dates. The assessee also had no dealing with the companies in which Shri Praveen Agarwal and Shri Devesh Upadhyaya were the Directors. During the courseof statement recorded by DDIT (Investigation) Kolkata, Shri Praveen Kumar Agarwal and Shri Devesh Upadhyaya had accepted the list of companies formed by them for providing accommodation entry. The assessee has categorically stated that in the aforesaid list of companies there is neither the name of assesse nor the name of company “Parag Shilpa Infrastructure Ltd.” in which assessee had invested in shares. Similarly, the assesse had no connection with Shri Jagdish Prasad Purohit and was unaware of his business operations. The assessee also drew attention to the fact that Shri Praveen Kumar Agarwal and the other two named persons had themselves stated during the course of investigation that few of their listed companies were genuine companies. Since in these listed o companies as mentioned in their statements, there is neither the mention of the name of the assessee nor the name of company “Parag Shilpa Infrastructure Ltd.” in which assessee has invested, thee is no justification for relying on such statements recorded by the Investigation Wing, Kolkata to make the impugned addition. I find that the AO has not brought in direct evidences to show that the two/three above named persons were connected with business dealings with the assessee in any way. I also find that such reliance on statements of unrelated third parties that did not contain direct accusations against the assessee, makes the addition untenable and unsustainable. It is settled law that the third party statement is not binding and cannot be used against the assessee unless and until the same were confronted to the assessee and opportunity to cross examine has been granted to the assessee. 9. In the above circumstances, the assessee has rightfully argued that his investment and transaction in various shares, and the share of Parag Shilpa Infrastructure cannot be termed bogus merely on the basis of doubts and aspersions. 7.6 Thus, in view of the above facts and submissions which are supported by legal evidences and the case law reflected by the assessee as detailed in Para 7.4 above, it is held that the assessment was completed without following the principles of natural justice and the entire addition were made 36 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 without any basis. The AO has made certain assumptions on the basis of Investigation Wing report received by him, without adducing any direct evidences that supports his assumptions. The AO has also ignored the evidences furnished by the assessee which is unfortunate, and which makes the assessment untenable. On the above mentioned admitted factual position, the judgments cited by the AR of the assessee fully support the case of the assessee. For the previous AY 2014-15, the appeal of assessee on identical issues has been allowed vide CIT(A)-3/83/2016-17 after considering these arguments and the documentary evidences furnished. 7.7 Following the same. I hold that the addition made by the A.O. is not correct, factually and legally, and disallowance of exemption u/s. 10(38) of Rs. 5,60,75,185/- is directed to be deleted. Hence these grounds are allowed.” Since the learned CIT(A) decided the aforesaid issue in favour of the assessee, the Revenue being aggrieved filed appeal before Tribunal. Ground no I(i) to (xxiv) 10. The learned Departmental Representative assailing the impugned order passed by the learned CIT(A), vehemently argued on the issue while supporting the assessment order passed by the Assessing Officer. The learned Departmental Representative seriously objected to the contents of the impugned order passed by the learned CIT(A) and prayed that the assessment order passed by the Assessing Officer be upheld. 11. The learned Counsel for the assessee while reiterating the submission made before the authorities below, strongly relied on the impugned order passed by the learned CIT(A). 12. We have heard the argument of the both the side and considered the fact and circumstances of the case and also gone through case laws relied by the learned Counsel for the assessee. It is admitted fact that the assessee had purchased 4,22,500 share of Swift IT Infrastructure & Services Limited 37 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 (SITIT) at the rate of ` 10 each, the physical delivery of which were received on 16/03/2012. We further note that later on the company, Swift IT Infrastructure Pvt. Ltd was amalgamated with Parag Shilpa Infrastructure and Services Ltd., on the basis of sanction by Hon’ble Bombay High Court and the company was renamed as Parag Shilpa IT Infrastructure & Services Ltd (PSIT Infrastructure & Services Ltd). The physical shares of SITIT were sent for dematerialization with Karvey Stock Broking Limited on 11/03//2013. Thereafter, the aforesaid shares were transferred to MPSE Securities Ltd., from where the sales of share were affected during the assessment year 2014-15 onwards. The assessee sold part of the share held during the assessment year 2014-15. We further note that the assessee has furnished all the details of sale purchase of shares i.e. name of company, amalgamation of company, details of sanction order of amalgamation from the Hon’ble Bombay High Court, new name of company, details of dematerialization, details of transfer of shares and submitted each and every details as & when called by the Assessing Officer during the course of assessment proceedings. The learned counsel for the assessee appraised us with the submission of the assessee before learned CIT(A) along with supporting evidence during the appellate proceedings as well as before the assessment proceedings. During the course of assessment proceedings, all the facts and contents with respect of the transaction duly mentioned in the remand report and the learned counsel explained all the issues effectively. We have also gone through the remand report wherein we find that according to Assessing Officer, in the report sent by the Office of Principal Director of Income Tax (Investigation), 38 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 Kolkata, to the Principal Director of Income Tax (Investigation), Nagpur, vide letter dated 27/04/2015, the name of the assessee features in the list of the persons who have availed bogus LTCG and claimed exemption under section 10(38) of the Act. The details of transactions entered into by the assessee were also forwarded to the Assessing Officer. We also noticed that he learned CIT(A) has righly observed the all facts with respect to the transaction and also explained all the issues. We have gone through the impugned order passed by the learned CIT(A) as well as arguments of the learned Counsel for the assessee with supporting evidence. Keeping in view the over facts and circumstances of the case and legal matrix of the case, we are thus in agreement with the learned Counsel for the assessee that the issue for our adjudication is covered from the following case laws:- i) PCIT v/s Indravandanjain (HUF), ITA no. 545 of 2018, judgment dated 12/07/2023 (Bom); ii) PCIT v/s Kishore Kumar Mohapatra vide ITA No. 20 of 2022, judgment dated 09/02/2023 (Cuttack) iii) PCIT v/s DivyabenPrafulchandraParmar, ITA no. 812 of 2023, judgment dated 02/01/2023 (Guj.); and iv) ChiragTejprakashDangi v/s ITO, ITA no. 3256/Mum./2022, order dated 22/02/2024 (Mum.Trib). 13. The assessee also placed reliance on various case laws for the Hon’ble High Court and the decision of the Co-ordinate of the Tribunal, which also support the case of assessee. These case laws are referred to as under:– “i) Commissioner of Income Tax –Vs.- Kishore Kumar Mohapatra, Judgment dated 05/04/2024 (SC); ii) Principal Commissioner of Income Tax –Vs.-Shilpaben Harshil Deliwala, ITA No. 967 of 2024, judgment dated 14/10/2024; 39 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 iii) Tejas Ramesh Shah HUF –Vs.- Income Tax Officer, ITA no. 5813- 5814/Mum./2024, order dated 06/1/2025; iv) Gatway Leasing (P) Ltd. –V.s- Assistant Commissioner of Income Tax &Ors, ITA No. 2518 of 2019, dated 11/03/2020; v) Vikram N. Chandan –Vs.- Income Tax Officer, ITa No. 70/Mum/2024 order dated 30/07/2024; vi) Archit Gupta –Vs.- Assistant Commissioner of Income Tax, ITA No. 2624-2525/Del/2022, order dated 30/09/2024; vii) Ahmed P. Surani –V.s- Assistant Commissioner of Income Tax, ITA No. 361/Mum./2024, order dated 30/09/2024; viii) Principal Commissioner of Income Tax –Vs.-Ziauddin A Siddique, ITA No. 2012 of 2017, judgment dated 04/03/2022 (Bom); ix) Commissioner of Income Tax –Vs.-Shyam R. Pawar, [2015] 229 Taxman 256 (Bom. HC); x) Commissioner of Income Tax –Vs.- Smt. Jamnadevi Agrawal &Ors., [2010] 328 ITR 656 (Bom HC); xi) Principal Commissioner of Income Tax –Vs.- Smt. Krishna Devi [2021] 431 ITR 361 (Del. HC) 14. Accordingly, in the facts and circumstances of the case, we are of the considered opinion that the decision rendered by the Hon’ble Jurisdictional High Courts in the case laws cited supra, shall mutatis mutandis apply to the present case. Since the Assessing Officer has not established that the assessee was involved in bogus long term capital gains and to avoid paying the taxes as well and the Assessing Officer could not find fault with any of the documents furnished by the assessee, Revenue fails on this issue. 15. We have also noticed earlier that the Assessing Officer has assessed the sale consideration of shares as unexplained cash credit under section 68 of the Act. It is pertinent to note that the purchase of shares made in an earlier year has been accepted by the Revenue. The sale of share has taken place in 40 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 the online platform of Stock Exchange and the sale consideration has been received through the stock broker in banking channels. Hence, in the facts of the case, the sale consideration cannot be considered to be unexplained cash credit in terms of section 68. We also hold that the addition made by the Assessing Officer is incorrect, factually and legally, and disallowances of exemption section 10(38) and addition made under section at ` 5,60,75,185 has rightly been deleted by the learned CIT(A). 16. Since we have held that the sale transaction or shares cannot be doubted with, the addition made by Assessing Officer with regard to the provisions of section 68 was rightly deleted by the learned CIT(A). The sale consideration received on sale of shares cannot be assessed as unexplained cash credit under section 68 of the Act and the long term capital gains declared by the assessee cannot be doubted with. The impugned order passed by the learned CIT(A) is upheld on this issue by dismissing the grounds raised by the Revenue. Ground No. II 17. It is admitted fact that the assessee has made investment in share amount to ` 20,59,64,034, as on 31/03/2014. The assessee has borrowed fund of ` 13,17,91,188, and on which interest amounting to ` 9,98,869, has been paid. The assessee has received dividend amounting to ` 37,294, which was claimed exempt under section 10(34) of the Act and claimed expenditure at ` 8,03,566, in the return of income. The Assessing Officer has made 41 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 disallowances under section 14A at ` 9,88,570, through according to the assessee, he is not liable for the same. 18. After examination of Balance Sheet, it is admitted fact that the assessee has made investment in shares amount to ` 20,59 crore and same were duly reflected in the books of account and also shown in the Balance Sheet as investment. It is admitted fact that the assessee had own capital is at ` 37.02 crore, as well as loans at ` 13.17 crore out of which loan amount of ` 12.16 crore was interest free loan. Thus the assesse had available with him a total sum of ` 49.18 crores as interest-free fund which is more than the investment made in tax free securities i.e., ` 20.59 crore. It is fact that the assessee also possessed excess interest free fund of ` 49.18 crore which was sufficient to make such investment. Hence, the assessee has claimed interest expenses at ` 9,98,869 only. Further examination of the interest paid show that the assessee paid interest to LIC at ` 7,71,264, interest on vehicle loan at ` 2,10,667 and bank commission and charges at ` 16,938 and same were duly reflected in the books of account of the assessee and also shown in the Profit & Loss Account of the assessee. It is clear, therefore, that the interest expenses claimed were not related to funds that were invested in shares and securities. It is also obvious that since his own funds/capital available was ` 30.84 crore, these were utilized in making investment in tax free securities. Any disallowance under section 14A required finding of incurring of expendi– ture. Where it is found that for earning exempted income, no expenditure has been incurred, disallowance under section 14A cannot stand. This is the 42 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 ratio of the decision of High Court of Punjab & Haryana (2013) 361 ITR 0131 (P&H HC). 19. The learned Departmental Representative strongly relied on the order of Assessing Officer and vehemently objected to the contents of the impugned order passed by the learned CIT(A). 20. The learned Counsel for the assessee relied on impugned order passed by the learned CIT(A) who dealt with the issues at Page-41 to 44, which are reproduced below:– “8. Ground No. 10, 11 &12 : Disallowance u/s. 14A of Rs. 9,88,570/- In these grounds of appeal, the appellant has challenged the addition of Rs. 9,88,570/- by working out the disallowable expenditure under section 14A of Income Tax Act 1961 r.w.s. Rule 8D of Income Tax Rules, 1962. The A.O. has discussed the addition in Para 12 of the assessment order. 8.1 The facts in brief leading to the dispute are that the assessee has made investment in shares amount to Rs. 20,59,64,034/- on 31.3.2014. The assessee has borrowed fund of Rs. 13,17,91,188/- and on which interest amounting to Rs. 9,98,869/- has been paid. The assessee has received dividend amounting to Rs. 37,294/- which was claimed exempt u/s. 10(34) of the Act and claimed expenditure at Rs. 8,03,566/- in the return of income. The assessing officer has made disallowance u/s 14A at Rs. 9,88,750/- 8.2 The Balance Sheet of the assessee was examined. The assessee has made investment in shares amounting to Rs. 20.59 crore and same were duly reflected in the books of account and also shown in the Balance Sheet as Investment. The assessee had own capital is at Rs. 37.02 crore, as well as loans at Rs. 13.17 crore out of which Loan amount of Rs. 12.16 crore was interest free loan. Thus, the assessee had available with him, a total sum of Rs. 49.18 crores as interest-free fund which is more than the investment made in tax free securities Rs. 20.59 crore. Hence the assessee has claimed interest expenses at Rs. 9,98,869/- only. Further examination of the interest paid show that the assessee paid interest to LIC at Rs. 7,71,264/-, interest on vehicle loan at Rs. 2,10,667/- and bank commission and charges at Rs. 16,938/- and same were duly reflected in the books of account of the assessee and also shown in the Profit & Loss Account of the assessee. It is clear therefore, that the interest expenses claimed were not related to funds that were invested in shares and securities. It is also obvious that since his own funds/capital available was Rs. 30.84 crore, these were utilized in making investment in tax free securities. Any disallowance under section 14A 43 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 required finding of incurring of expenditure. Where it is found that for earning exempted income, no expenditure has been incurred, disallowance under s. 14A cannot stand. This is the ratio of the decision of High Court of Punjab & Haryana (2013) 361 ITR 0131 (P&H HC) in the case of Commissioner of Income Tax –Vs.- Deepak Mittal. 8.3 The AR has also argued that the assessee has own funds more than the average investment yielding exempt income, and when the same is considered, the position of law is settled by decision of Hon. High Court Gujarat in PCIT Vs. Sintex Industries Ltd. 82 Taxmann.com 428, which is confirmed by Hon. SC. The Hon. High Court is Sintex Industries Ltd. (supra), has held that, where assessee is having interest free own surplus funds which is more than average investment, there was no question making any disallowances of expenditure in respect of interest and administrative expenses under section 14A, and hence, there was no question of estimation of expenditure in respect of interest & administrative expenses under Rule 8D of the Rules. The SLP filed by I.T. Department against this decision was dismissed vide order dtd. 23.03.2018, 93 Taxmann.com 24 (SC). In instant assessee‟s case too thee are no interest bearing borrowed funds which were used for making investment and the total of own funds is more than the average investment yielding exempt income. The above decisions of the High Court &Hon‟ble Supreme Court are squarely applicable and have binding precedents. 8.4 It can be seen that, same view has been taken by the jurisdictional High Court of Bombay. Once the surplus/interest free funds are excess of investment made, then in view of the ratio and principle laid down by Hon‟ble Bombay High Court in Reliance Utilities (2009) 313 ITR 340 (Bom) and HDFC Bank (2014) 366 ITR 505 (Bom) as relied upon by the Ld. Counsel, no disallowance under section 14A on account of interest expenditure should be made. Their Lordships have clearly opined that, once in the Balance Sheet, the assessee has reflected surplus/own funds and also interest bearing funds, then presumption is that, investments must have been made out of interest free funds only and once that is so, then no disallowance of interest should be made.” 21. The same view has been taken by other co-ordinate Bench of the Tribunal and the various High Courts as mentioned under:- i) DIT (IT) v. BNP Paribas SA [2013] 32 taxmann.com 276/214 Taxman 548 (Bom. HC) ii) CIT v. HDFC Bank Ltd. [2014] 49 taxmann.com 335/226 Taxman 132 (Mag.)366 ITR 505 iii) Dhampur Sugar Mills Ltd. v. CIT [2014] 51 taxmann.com 508/ [2015] 228 Taxman 326/370 ITR 187 (All. HC) 44 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 iv) CIT v. SBI DHFL Ltd. [2015] 63 taxmann.com 345/376 ITR 296 (Bom. HC) v) CIT v. Karnataka State Industrial & Infrastructure Development Corpn. Ltd. [2016] 65 taxmann.com 295/237 Taxman 240 (Kar HC) vi) Yes Bank Ltd. v. Dy. CIT [2015] 57 taxmann.com 14/68 SOT 291 (Mum. ITAT) vii) Asstt. CIT v. Bandekar Brothers (p.) Ltd. [2015] 63 taxmann.com 198/155 ITD 1174 (Panji ITAT) 23 The ratio laid down in the above mentioned judgments is in favour of the assessee to this effect that under the specific circumstances when the Assessing Officer has failed to establish the nexus that investment was made out on interest bearing funds, disallowance towards administrative expenditure is not permissible. We also find the fact of the present case is similarly situated and in the absence of any changed facts of the case, We am unable to support the estimated disallowance to the tune of ` 9,88,570, as made by the Assessing Officer. Hence, respectfully following the above decisions of Hon’ble Supreme Court, Hon’ble Bombay High Court and the decisions of the Co–ordinate Bench of the Tribunal cited supra, the disallowance of ` 9,88,570 made under section 14A in the instant case is hereby deleted. The Revenue fails on this issue also. 24. Since we are considering the argument of the learned Counsel for the assessee and details submitted with respect of addition under section 14A as well as gone through the impugned order passed by the learned CIT(A) the addition rightly deleted by the learned CIT(A) under section 14A and addition made at ` 9,88,570. Accordingly, we uphold the impugned order passed by the learned CIT(A) by dismissing the grounds raised by the Revenue. 45 Shri Nandkumar Khatumal Harchandani ITA no.410/Nag./2019 A.Y. 2014–15 22. In the result, appeal of the Revenue stands dismissed. Order pronounced in the open Court on 25/02/2025 Sd/- V. DURGA RAO JUDICIAL MEMBER Sd/- K.M. ROY ACCOUNTANT MEMBER NAGPUR, DATED: 25/02/2025 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "