DHARAMENDRA BHANDARI (HUF),GURGAON V. ASSISTANT COMMISSIONER OF INCOME TAX, DELHI

ITA 3787/DEL/2023

AI Insights

The case revolves around the denial of exemption on LTCG claimed by Dharamendra Bhandari (HUF) on the sale of shares of CCL International Ltd, which was initially assessed as bogus by the Assessing Officer (AO) based on information that the scrip was involved in price manipulation and was a penny stock. The National Faceless Appeal Centre (NFAC) upheld the AO's decision. However, the Tribunal found that the assessee had provided sufficient documentary evidence, including bank statements and demat account statements, to prove the genuineness of the transactions. The Tribunal also noted that the shares were sold at prevailing market prices and that there was no direct evidence linking the assessee to any price manipulation scheme.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 34768 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-08-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2023
• Other Referred Cases: Mukesh Ratilal Marolia vs Additional CIT, CIT vs Jamnadevi Agarwal, PCIT vs Laxman Industrial Resources Ltd, PCIT vs Krishna Devi and others, PCIT vs Ziauddin A Siddique, M/s Classic Growers Ltd vs CIT, CIT vs Shreyashi Ganguli, CIT vs Bhagwati Prasad Agarwal, PCIT (Central), Ludhiana vs Prem Pal Gandhi, PCIT (Central), Ludhiana vs Hitesh Gandhi
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T JAMES SINGSON
• Assessee Lawyers: R.S.AHUJA
• Keywords: Question of law; Unexplained cash credit; Unexplained expenditure; Income from undisclosed sources; Gift; Capital Gains; Sham transactions; Accommodation entries; Wrong claim; Source of fund; Earning of tax free income; Penny stocks; Deduction for capital gain; Bogus
• Section: 148; 143(3); 48; 68; 22; 13; 20

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER ITA No. 3787/Del/2023 (Assessment Year: 2013-14) Dharamendra Bhandari (HUF), A-126, Sushant Lok-1, Gurgaon, Haryana Vs. CIT(A), National Faceless Appeal Centre, Delhi (Appellant) (Respondent) PAN:AADHD2238J Assessee by : Shri R. S. Ahuja, CA Shri PUshpdeep Singh, Adv Revenue by: Shri T James Singson, CIT DR Date of Hearing 02/08/2024 Date of pronouncement 28/10/2024 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.3787 /Del/2023 for AY 2013-14, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. NFAC’, in short] in Appeal No. ITBA/NFAC/S/250/2023- 24/1058097186(1) dated 21.11.2023 against the order of assessment passed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 25.12.2018 by the Assessing Officer, ACIT, Circle-25(1), New Delhi (hereinafter referred to as ‘ld. AO’). 2. Though the assessee has raised several grounds before us, we find that the effective issue to be issued in this appeal is as to whether the ld. NFAC was justified in confirming the action of the ld.AO in denying the exemption claimed u/s 10(38) of the Act in respect of long term capital gain derived from sale of shares of CCL International Ltd, in the facts and ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 2 circumstances of the case. The inter connected issue involved therein is whether the ld. NFAC was justified in confirming the addition @ 3% of transaction amount of long term capital gain as unexplained expenditure u/s 69C of the Act in the facts and circumstances of the case. 3. We have heard the rival submissions and perused the materials available on record. The assessee is a HUF having income from house property, capital gains and other sources during the year under consideration. The return of income for the Asst Year 2013-14 was filed by the assessee on 31.7.2013 declaring total income of Rs 72,71,110/- and exempt income u/s 10(38) of the Act of Rs 14,07,66,123/- being Long Term Capital Gain (LTCG) on sale of equity shares of listed company M/s CCL International Ltd after payment of Securities Transaction Tax (STT). 4. The following factual points require consideration:- a) Shri Dharmendra Bhandari (Individual) applied for allotment of 1000000 equity shares having face value of Rs 10 each of M/s AAR Infrastructure Ltd at Rs 10 per share for a total purchase consideration of Rs 1,00,00,000/-. This was paid by Shri Dharmendra Bhandari (Individual) through Account Payee Cheque No. 62371 dated 12.2.2011 drawn on Corporation Bank, GUrgaon Branch. b) The shares were allotted on 27.4.2011 and got credited to the Demat Account of Shri Dharmendra Bhandari (Individual) on 27.4.2011 in Client ID 32268334 maintained with HDFC Bank Ltd (Depository Participant). c) Thereafter, M/s AAR Infrastructure Ltd was merged with M/s CCL International Ltd by virtue of order passed by Hon’ble Delhi High Court on 9.2.2012. d) As a result of merger, Shri Dharmendra Bhandari (Individual) was allotted 2500000 equity shares having face value of Rs 2 each of M/s CCL ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 3 International Ltd in lieu of 1000000 equity shares having face value of Rs 10 each of M/s AAR Infrastructure Ltd on 20.6.2012. e) Shri Dharmendra Bhandari (Individual) gifts 1000000 equity shares of M/s CCL International Ltd to his HUF in the month of October and November 2012. A declaration to this effect given by Shri Dharmendra Bhandari (Individual) to his HUF is enclosed in Page 20 of the Paper Book. The said gifted shares got credited in the Demat account of assessee HUF maintained in Client ID 36536877 maintained with HDFC Bank Ltd (Depository Participant) in the following manner:- 4.10.2012 – 500000 shares 30.10.2012 - 250000 shares 23.11.2012 - 250000 shares TOTAL 1000000 shares f) The assessee sold the above 1000000 equity shares of M/s CCL International Ltd in various tranches starting from 5.10.2012 to 11.12.2012 at varied market prices for total consideration of Rs 14,47,66,123/- through its registered stock broker M/s HDFC Securities Ltd in the recognized stock exchange (i.e Bombay Stock Exchange- BSE in short) after suffering STT of Rs 1,44,949/- and earned Long Term Capital Gain of Rs 14,07,66,123/-. g) The total holding period of shares from the time of acquisition and sale was more than 20 months. h) The assessee provided the relevant documents such as bank statements evidencing the payment made for purchase of shares by account payee cheque from the disclosed bank account out of disclosed source of income ; bank statements evidencing the credit of sale proceeds of shares from the registered stock broker through the recognized stock exchange ; Demat ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 4 statements of Individual and HUF duly showing the credit of shares to the respective account, gift of shares from Individual to HUF account , debit of shares from the Demat account due to sale of shares in the open market ; and sale contract notes issued by the registered share broker. i) The Demat Statement of the assessee also reflects that the assessee was also holding the shares of other listed companies in its kitty. j) M/s CCL International Ltd is incorporated in 1991 engaged in the business of construction of infrastructure projects, civil engineering works, including work contract operations and land / plots/ residential units commercial complex and trading division of the company is engaged in trading of ferrous and non-ferrous items. The company’s business divisions included Chirawa commodities and Creteroads Construction. The Chirawa commodities division focused on trading of iron and steel , cotton fabrics, among others. The company’s product range includes angles, beams, channels, thermo mechanically treated (TMT) and hot rolled coil and sheets. The Creteroads construction division focused on the construction / re- construction and designing / re-designing of new, as well as existing roads and bridges. It utilized vocrete, a formulation for modification of soil in order to make it appropriate for road construction. These submissions were made by the assessee before the ld. AO vide reply letter dated 15.12.2018 enclosed in Page 42 of the Paper Book. k) The Turnover of M/s CCL International Ltd , profit before tax and dividends paid by them are tabulated as under:- Particulars 31.03.2010 31.03.2011 31.03.2012 31.03.2013 31.03.2014 31.03.2015 Turnover Lacs 5524.28 5394.16 7296.74 7889.38 8019.52 9492.45 Profit After Tax 110.60 96.18 91.93 174.86 99.15 102.69 Dividend Paid - - 47,98,150 47,98,150 47,98,150 47,98,150 ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 5 5. The ld AO reopened the case of the assessee for the Asst Year 2013- 14 vide issuance of notice u/s 148 of the Act on the basis of general information received from Deputy Director of Income Tax (Inv. ) II, Gurugram that M/s CCL International Ltd is a Penny stock company and the assessee has claimed huge amount of non-genuine LTCG on sale of shares of M/s CCL International Ltd. The assessee requested the ld AO to provide the copy of the statements and also allow or provide an opportunity to cross examine the persons/ brokers/entry operators whose statement has been relied to come to the conclusion that the LTCG earned by the assessee is bogus. This was not provided by the ld AO to the assessee. The ld AO in the re-assessment proceedings denied the claim of exemption u/s 10(38) of the Act to the assessee on the ground on the basis of aforesaid observation that claim is bogus and the scrip of M/s CCL International Ltd was involved in artificial rigging of market prices by some entry operators and SEBI had also levied penalty on certain persons who were involved therein. This action of the ld AO was upheld by the ld NFAC. 6. It is pertinent to note that the ld AO in page 11 of his order had reflected the graph of movement of price of shares of M/s CCL International Ltd for various years starting from 2010 to 2017. It is relevant to note that the assessee had sold the shares in Asst Year 2013-14, during which time, even according to the graphical presentation of the ld AO, the market price of the said scrip had not increased heavily. The assessee had sold the shares at the price ranging from Rs 131 to Rs 145 per share. After the sales made by the assessee, the share price had actually jacked up several times and reached the pinnacle of Rs 3000 per share and even on the date of presentation of graph by the ld AO in page 11 of his order the share price was Rs 1478.50 in the BSE. We find that the said scrip is still listed in the BSE as on the date of passing of this order. At the outset, given the financials of the said company, we hold that the said company cannot be ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 6 categorized as a Penny Stock Company and hence the entire allegations of the lower authorities in their orders fall flat as they are absolutely without any basis and devoid of merit. Moreover, the ld AO relies on 3 statements of persons who are claimed as brokers / entry operators. None of them had even mentioned either the name of the assessee or his broker HDFC Securities Ltd. Hence there is absolutely no evidence brought on record by the revenue that either the assessee or his broker had connived with the so called entry operators / brokers for artificial rigging of market prices of shares of M/s CCL International Ltd. Even the request of the assessee to cross examine those persons during the course of assessment proceedings vide letter dated 15.12.2018 was denied by the ld AO. Hence those statements even if found to be correct cannot be used against the assessee as they were not subjected to cross –examination by the assessee. Moreover, we find that even the statements of the persons which were relied upon by the ld AO in his assessment order were not against assessee or adverse to the facts of the case before us. The persons had only stated that they had dealt in CCL shares and had earned a profit of Rs 2,49,536/- in Asst Year 2013-14. There is no evidence brought on record by the revenue that the assessee had given his unaccounted cash and had converted the same in the form of exempt LTCG in an organized manner. The ld. DR has relied upon SEBI’s order dated 29.11.2022 in the case of CCL International Ltd whereby it is noted that price manipulation in scrip of CCL International Ltd was done so as to arrange entry of bogus LTCG to various beneficiaries. But it is pertinent to note that on perusal of the said SEBI order, we find that nowhere even the name of the present assessee or his broker HDFC Securities Ltd were mentioned to part of the larger price manipulation. First of all, we hold that the share prices had increased manifold after the assessee had sold the shares of CCL International Ltd and hence the entire allegation that assessee was part of the price manipulation ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 7 itself is devoid of merit. Once the assessee is out of the scenario, the entire allegations leveled by the ld AO becomes very vague and general in nature and cannot be used against the assessee herein. In the said SEBI order dated 29.11.2022, we find that SEBI had mentioned various persons in Pages 18 to 19 of his order mentioning their connection with the promoters of CCL International Ltd and other companies and ultimately decided to levy penalty only on Mr Anil Kumar, Tanvi Fincap Private Limited , Rama Anil Gupta Associates Pvt Ltd and Mr Sayuj Pallithazath Arumugham. The investigation carried out by SEBI on the said scrip CCL International Ltd was for the period prior to the date of even purchase of shares by the assessee. In any event, SEBI final order was subsequently quashed by Securities Appellate Tribunal (SAT) vide its order dated 27.7.2023. Hence practically there is nothing adverse against the assessee or his broker HDFC Securities Ltd in the order of SEBI which was heavily relied upon by the ld DR. Hence in our considered opinion, the reliance placed on SEBI order does not advance the case of the revenue in the facts and circumstances of the instant case. 7. The main grievance of the ld. AO is that rise in share price of CCL International Ltd is devoid of commercial principle or market factors; that transactions are based on mutual connivance on part of assessee and operators; that assessee resorted to preconceived scheme to procure bogus long term capital gains and hence the transactions are not bonafide; that these are close circuit transactions and are pre-structured; that assessee had failed to discharge his onus cast on her; that net worth of CCL International Ltd is negligible and that its share prices were artificially rigged ; that investigations prove that cash is routed through various accounts to provide these bogus long term capital gain entries. The ld. AO by making these observations proceeded to treat the LTCG portion arising on sale of shares of Rs 14,07,66,123/- alone as unexplained cash credit u/s 68 of the ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 8 Act. Meaning thereby, the cost incurred by the assessee on purchase of shares in the sum of Rs 40,00,000/- was accepted as genuine and all the three ingredients of section 68 of the Act were satisfied to the extent of Rs 40 lakhs but the same three ingredients were doubted by the revenue for the LTCG portion alone. If the revenue had doubted the transactions as genuine, then they should have doubted the entire sale consideration itself. Here only LTCG portion is doubted by the revenue out of the entire sale consideration. How can the three ingredients be satisfied partially for cost portion of Rs 40 lakhs and how can the same be not satisfied for LTCG portion? Hence the denial of exemption u/s 10(38) of the Act deserves to be allowed on this count itself. 8. We find that the documentary evidences submitted by the assessee were found to be genuine and no adverse inferences were drawn by the ld.AO on the same. We find that no enquiries were carried out by the ld. AO either on the broker or with the stock exchange with regard to transactions carried out by the assessee. The ld. AO had merely relied on the investigation report without linking the assessee with the various allegations leveled in the said investigation report. We find that the ld. AO had not proved with any cogent evidence on record that assessee was involved in converting his unaccounted income into exempt long term capital gains by conniving with the so called entry operators and brokers who were involved in artificial price rigging of shares. No evidence is brought on record to prove that assessee was directly involved in price manipulation of the shares dealt by him in connivance with the brokers and entry operators. It is not in dispute that the assessee had made purchase of shares in off-market by making payment for purchase of shares by account payee cheque out of disclosed bank account and out of disclosed sources of income. Now the next issue that arises for our consideration is as to whether an off market purchase of shares could be taken as a ground to declare the entire ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 9 transaction as sham. In our considered opinion, the transactions could not be treated as sham merely because they are done in off-market, if the assessee had discharged his onus of proving the fact that shares purchased by him were dematerialized in the Demat account and held by the assessee till the same were sold from the Demat account of the assessee. The transaction of holding the shares are reflected in Demat account and sale of shares are through Demat account. More so, when there is no dispute regarding the purchase price and sale price of shares. Our view is further fortified by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Jamnadevi Agarwal reported in 328 ITR 656 (Bom) wherein it was held that - “From the documents produced before the Court it was seen that the shares in question were, in fact, purchased by the assessees on the respective dates and the company had confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares of the respective buyer was also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates, as was seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions could not be a ground to treat the transactions as sham transactions. On a perusal of those documentary evidences, the Tribunal had arrived at a finding of fact that the transactions were genuine. Nothing was brought to notice of the Court that the findings recorded by the Tribunal were contrary to the documentary evidences on record. Therefore, no substantial question of law arose from the order of the Tribunal. 9. Hence it could be safely concluded that the assessee herein is merely a gullible investor, who had resorted to make investment in the shares of CCL International Ltd based on market information and had sold the shares in the secondary market in prevailing market prices. It is not the case of the ld. AO that assessee herein had directly sold the shares in the secondary market with clear knowledge of the name of the person to whom the said shares were sold. In secondary market transactions, the buyer and seller ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 10 are not supposed to know each other unless it is a case of ‘block deals’. Same is the case of the assessee herein. Admittedly, the assessee’s case does not fall under the category of ‘block deals’. 10. We are unable to persuade ourselves to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus. First of all, from the financials of CCL International Ltd, it is very much evident that the said scrip cannot be categorized as a Penny stock per se. Even if it be so, so many investors enter the capital market just to make it a chance by investing their surplus monies. They also end up with making investment in certain scrips (read penny stocks) based on market information and try to exit at an appropriate time the moment they make their profits. In this process, they also burn their fingers by incurring huge losses without knowing the fact that the particular scrip invested is operated by certain interested parties with an ulterior motive and once their motives are achieved, the price falls like pack of cards and eventually make the gullible investors incur huge losses. In this background, the only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action against them. In the instant case, SEBI had not passed any adverse order on the assessee or his broker HDFC Securities Ltd and had not even named both of them in their order. There is absolutely no whisper as to the fact whether the assessee or his broker HDFC Securities Ltd were subjected to any investigation or enquiry by SEBI. Hence the transaction carried out by the assessee cannot be termed as bogus. ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 11 11. We hold that the entire addition has been made based on mere surmise, suspicion and conjecture and by making baseless allegations against the assessee herein. Now another issue that arises is as to whether the ld. AO merely on the basis of Kolkata investigation wing report could come to a conclusion that the transactions carried out by the assessee as bogus. In our considered opinion, the ld. AO is expected to conduct independent verification of the matter before reaching to the conclusion that the transactions of the assessee are bogus. More importantly, it is bounden duty of the ld. AO to prove that the evidences furnished by the assessee to support the purchase and sale of shares as bogus. This view of ours is further fortified by the decision of Hon’ble Jurisdictional High Court in the case of PCIT vs Laxman Industrial Resources Ltd in ITA No. 169/2017 dated 14.03.2017 (Del HC). It is well settled that the suspicion however strong could not partake the character of legal evidence. Hence the greater onus is casted on the revenue to corroborate the impugned addition by controverting the documentary evidences furnished by the assessee and by bringing on record cogent material to sustain the addition. No evidence has been brought on record to establish any link between the assessee herein with the entry operators who were allegedly involved in price rigging of shares artificially or any other person named in the assessment order being involved in any price rigging and also the exit provider. This onus is admittedly not discharged by the revenue in the instant case. 12. We find that the Co-ordinate Bench of Mumbai Tribunal in the case of Mukesh Ratilal Marolia vs Additional CIT reported in 6 SOT 247 (Mum ITAT) dated 15.12.2005 had held that personal knowledge and excitement on events should not lead the ld. AO to a state of affairs where salient evidences are overlooked. It was held that when every transaction has been accounted, documented and supported, it would be very difficult to brush aside the contentions of the assessee that he had purchased shares and had ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 12 sold shares and ultimately purchased a flat utilizing the sale proceeds of those shares and therefore, the co-ordinate bench chose to delete the impugned additions. We find that this tribunal decision was approved by the Hon’ble Jurisdictional High Court in ITA No. 456 of 2007 dated 07.09.2011. It is pertinent to note that the Special Leave Petition preferred by the Revenue against this decision before the Hon’ble Supreme Court has been dismissed vide SLP No. 20146 of 2012 dated 27.01.2014. 13. Further we find that in the decision rendered by Hon’ble Bombay High Court in the case of CIT vs Shyam S Pawar reported in 54 taxmann.com 108 (Bom), it was held that where Demat account and contract note showed details of share transaction and the ld.AO had not proved the said transaction as bogus, the long term capital gain earned on said transaction could not be treated as unaccounted income u/s 68 of the Act. The relevant operative portion of the said judgement is reproduced below:- “5. We have perused the concurrent findings and on which heavy reliance is placed by Mr.Sureshkumar. While it is true that the Commissioner extensively referred to the correspondence and the contents of the report of the Investigation carried out in paras 20, 20.1, 20.2 and 21 of his order, what was important and vital for the purpose of the present case was whether the transactions in shares were genuine or sham and bogus. If the purchase and sale of shares are reflected in the Assessee's DMAT account, yet they are termed as arranged transactions and projected to be real, then, such conclusion which has been reached by the Commissioner and the Assessing Officer required a deeper scrutiny. It was also revealed during the course of inquiry by the Assessing Officer that the Calcutta Stock Exchange records showed that the shares were purchased for code numbers S003 and R121 of Sagar Trade Pvt Ltd. and Rockey Marketing Pvt. Ltd. respectively. Out of these two, only Rockey Marketing Pvt.Ltd. is listed in the appraisal report and it is stated to be involved in the modus-operandi. It is on this material that he holds that the transactions in sale and purchase of shares are doubtful and not genuine. In relation to Assessee's role in all this, all that the Commissioner observed is that the Assessee transacted through brokers at Calcutta, which itself raises doubt about the genuineness of the transactions and the financial result and performance of the Company was not such as would justify the increase in the share prices. Therefore, he reached the conclusion that certain operators and brokers devised the scheme to convert the unaccounted money of the Assessee to the accounted income and the present Assessee utilized the scheme. ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 13 6. It is in that regard that we find that Mr.Gopal's contentions are well founded. The Tribunal concluded that there was something more which was required, which would connect the present Assessee to the transactions and which are attributed to the Promoters/Directors of the two companies. The Tribunal referred to the entire material and found that the investigation stopped at a particular point and was not carried forward by the Revenue. There are 1,30,000 shares of Bolton Properties Ltd. purchased by the Assessee during the month of January 2003 and he continued to hold them till 31 March 2003. The present case related to 20,000 shares of Mantra Online Ltd for the total consideration of Rs.25,93,150/-. These shares were sold and how they were sold, on what dates and for what consideration and the sums received by cheques have been referred extensively by the Tribunal in para 10. A copy of the DMAT account, placed at pages 36 & 37 of the Appeal Paper Book before the Tribunal showed the credit of share transaction. The contract notes in Form-A with two brokers were available and which gave details of the transactions. The contract note is a system generated and prescribed by the Stock Exchange. From this material, in para 11 the Tribunal concluded that this was not mere accommodation of cash and enabling it to be converted into accounted or regular payment. The discrepancy pointed out by the Calcutta Stock Exchange regarding client Code has been referred to. But the Tribunal concluded that itself, is not enough to prove that the transactions in the impugned shares were bogus/sham. The details received from Stock Exchange have been relied upon and for the purposes of faulting the Revenue in failing to discharge the basic onus. If the Tribunal proceeds on this line and concluded that inquiry was not carried forward and with a view to discharge the initial or basic onus, then such conclusion of the Tribunal cannot be termed as perverse. The conclusions as recorded in para 12 of the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr.Sureshkumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs. 8. Even the additional question cannot be said to be substantial question of law, because it arises in the context of same transactions, dealings, same investigation and same charge or allegation of accommodation of unaccounted money being converted into accounted or regular as such. The relevant details pertaining to the shares were already on record. This question is also a fall out of the issue or question dealt with by the Tribunal and pertaining to the addition of Rs.25,93,150/-. Barring the figure of loss that is stated to have been taken, no distinguishable feature can be or could be placed on record. For the same reasons, even this additional question cannot be termed as substantial question of law.” 14. We are conscious of the decision of Hon’ble Jurisdictional High Court in the case of Suman Poddar vs ITO reported in 112 taxmann.com 329 (Del HC) dated 17.09.2019 where the decision was rendered in favour of the revenue. The Special Leave Petition filed by the assessee before the Hon’ble Supreme Court in this case was dismissed by the Hon’ble Apex ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 14 Court vide its order dated 22/11/2019. But we find that there is yet another decision of Hon’ble Jurisdictional High Court in the case of PCIT vs Krishna Devi and others in ITA 125/2020 ; 130 & 131/2020 dated 15.01.2021 reported in 126 taxmann.com 80 (Delhi HC) wherein similar issue of penny stock vis a vis long term capital gain exemption u/s 10(38) of the Act was subject matter of adjudication, in favour of the assessee. This decision rendered in the case of Smt Krishna Devi considers all the propositions laid out hereinabove and are squarely applicable to the facts before us. Infact the Hon’ble Jurisdictional High Court duly endorses the elaborate findings given by the Delhi Tribunal on various facets of the issue. Moreover, in this decision, the Hon’ble Jurisdictional High Court duly considered the decision of Suman Poddar (earlier Hon’ble Delhi High Court decision referred to supra) and also the decision of Hon’ble Supreme Court in the case of Sumati Dayal which was heavily relied upon by the ld. DR before us also herein. The relevant operative portion of the decision of Hon’ble Jurisdictional High Court in the case of Smt Krishna Devi is reproduced hereunder:- “10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 15 on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that \"There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.\" The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 16 not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed. (emphasis supplied by us)” 15. The transactions of sale of shares were done in online platform of BSE through the registered share broker from whom the assessee received the sale consideration. The broker also receives payments for all his transactions from Stock Exchange. The seller and the buyer cannot know the names of each other as well as their respective brokers, who were involved in the trading transactions in the secondary platform. In such a situation, it cannot be presumed that there could be any transfer of cash between the buyers and sellers to convert the unaccounted money of the beneficiaries as alleged by the ld AO. There is absolutely no evidence brought on record whatsoever to allege that money changed hands between the assessee and the broker or any other person including the alleged exit provider whatsoever to convert unaccounted money for getting benefit of LTCG as alleged. Hence we hold that in the absence of any material to show that huge cash was transferred from one side to another, addition cannot be sustained. 16. We find that all the observations, conclusions and findings of the ld. AO are based on suspicion, surmises and hearsay. It is trite law that the suspicion howsoever strong cannot partake the character of legal evidence. We find that the entire case of the revenue hinges upon the presumption ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 17 that the assessee has ploughed back his own unaccounted money in the form of bogus LTCG. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a link that the assessee had brought back her unaccounted income in the form of LTCG. Reliance in this regard is placed on the decision of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. vs. ACIT reported in 80 taxmann.com 284 (Mumbai-Trib.)(SB). The Tribunal observed as under: “46. ......... Ultimately the entire case of Revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish a link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of „preponderance of probability‟ is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumptions of facts that might go against the assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigations have been carried out, then nothing can be implicated against the assessee.” 17. We find that the Hon’ble Jurisdictional High Court in the recent case of PCIT vs Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04.03.2022 had held as under:- “2. We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramakrishna Fincap Ltd (“RFL”) is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax (“STT”) has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 18 4. Mr. Walve placed reliance on a judgement of the Apex Court in Principal Commissioner of Income Tax (Central)- 1 vs. NRA Iron & Steel (P) Ltd (2019) 103 taxmann.com 48 (SC) but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of merits and it is dismissed with no order as to costs.” 18. We find that the Hon’ble Calcutta High Court in the case of M/s Classic Growers Ltd. vs. CIT in ITA No. 129 of 2012 had observed that in that case, the ld. AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the ld. AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld. AO but he miserably failed to substantiate that. The Hon’ble High Court held that the transactions were at the prevailing price and therefore the suspicion of the ld. AO was misplaced and not substantiated. 19. We find that the Hon’ble Calcutta High Court in the case of CIT vs Shreyashi Ganguli in ITA No. 196 of 2012 had observed that in that case, the Hon’ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI’s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. We find that the assessee’s case before us is in a much stronger footing as no action has been initiated on the Broker by SEBI on the assessee or his broker. ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 19 20. We find that the Hon’ble Calcutta High Court in the case of CIT vs Bhagwati Prasad Agarwal reported in 2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009, had observed that the assessee claimed exemption of income from Long Term Capital Gains. However, the ld. AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded there. He therefore held that the transactions were bogus. The Hon’ble High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by Hon’ble High Court. In the instant case of the assessee before us, no such enquiries were even sought to be made by the ld. AO with the stock exchange to understand whether the transactions carried out in online platform of BSE were genuine or not. Hence the assessee’s case before us stands on a better pedestal. 21. We find that the Hon’ble Punjab & Haryana High Court in the case of PCIT (Central), Ludhiana vs Prem Pal Gandhi reported in 401 ITR 253 (P&H) in Para 4 & 5 of its order and the PCIT (Central), Ludhiana vs Hitesh Gandhi in ITA NO. 18 of 2017 dated 16.02.2017 (P&H) in Para 5 & 6 of its order had rendered the similar decisions in favour of the assessee on identical facts and circumstances. 22. We find that the Hon’ble Jharkhand High Court in the case of CIT vs Arun Kumar Agarwal HUF reported in 210 taxman 405 (Jharkhand) had rendered the similar decision on identical facts and circumstances as under:- ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 20 “10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enqiury report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case. 11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has risen from Rs.5 to 55 and from 9 to 160 and one person was holding the shares much prior to that start of rise of the share, then how it can be inferred that such person entered into sham transaction few years ago and prepared for getting the benefit after few years when the share will start rising steeply. In present case even there was no reason for such suspicion when the shares were purchased years before the unusual fluctuation in the share price. Here in this case, we have given example of one of the Tax Appeal wherein the shares were purchased in the year 2004 and were sold in the year 2006, which is said to be one of the case wherein the gap in the purchase and sale of the shares was narrowest. In other cases as we have noticed from the various orders of the C.I.T(Appeals) that, the shares of some of the companies were purchased by the assessees even five years ago from the time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares. 12. Hence, these Appeals are dismissed.” 23. We find that scrip of CCL International Ltd was subject matter of consideration by the Co-ordinate Bench of this Tribunal in the case of Sarika Bindal vs ITO in ITA No. 1999/Del/2020 for Asst Year 2015-16 dated ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 21 13.12.2023 wherein it was categorically held that CCL International Ltd is engaged in substantial business with significant turnover and fixed assets base. Hence the LTCG arising on sale of such shares cannot be construed as penny stock and exemption u/s 10(38) of the Act cannot be denied. Similar was the view taken in yet another Delhi Tribunal decision in the case of Reeshu Goel vs ITO in ITA No. 1691/Del/2019 for Asst Year 2013-14 dated 7.10.2019 wherein after analysing all the aspects of price rise in detail with specific reference to various dates thereon, the Tribunal held that CCL International Ltd cannot be considered as a Penny stock scrip and LTCG on sale of such share cannot be considered as bogus. It is pertinent to note that this decision of Delhi Tribunal had been approved by the Hon’ble Jurisdictional High Court in the case of PCIT vs Reeshu Goel in ITA 173/2021 dated 14.12.2021. 24. In any case, we find that the assessee had duly proved the nature and source of credit representing sale proceeds of shares of CCL International Ltd within the meaning of section 68 of the Act. The sale proceeds have been received by the assessee from the stock exchange through the SEBI registered share broker by account payee cheques through regular banking channels. We find that the three ingredients of section 68 of the Act are duly fulfilled by the assessee in the instant case. Hence there is no question of making any addition as unexplained cash credit u/s 68 of the Act in the instant case. 25. Considering the totality of the facts and circumstances of the instant case and respectfully following the various judicial precedents relied upon hereinabove, we hold that both the lower authorities grossly erred in denying exemption for long term capital gains u/s 10(38) of the Act and ITA No. 3787/Del/2023 Dharamendra Bhandari (HUF) Page | 22 further erred in making an estimated commission @ 3% against the same. Accordingly, the grounds raised by the assessee are allowed. 26. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 28/10/2024. -Sd/- -Sd/- (MADHUMITA ROY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 28/10/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "