Hari Ram Agarwal , Kolkata V. ITO, Ward - 22(4) , Kolkata

ITA 2363/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9330 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 15-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Income from undisclosed sources; Earning of tax free income; Accommodation entries; Scheme of amalgamation; Penny stocks; TDS; Set aside
• Section: 143(3); 234B; 133(6); 143(1); 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH B) BEFORE SHRI ABY. T. VARKEY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER I.T.A. NO.2363/KOL/2018 (ASSESSMENT YEAR 2014-15) ORDER PER M. BALAGANESH: THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -6, KOLKATA [ IN SHORT LD CITA] IN APPEAL NO.CIT(A), KOLKATA-/10295/2016-17 DATED 2.8.2018 AGAINST THE ORDER OF ASSESSMENT FRAMED BY LEARNED INCOME TAX OFFICER, WARD 22(4), KOLKATA [IN SHORT THE LD AO] U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ON 21.12.2016 FOR THE ASST YEAR 2014-15. 2. THOUGH THE ASSESSEE HAD RAISED SEVERAL GROUNDS OF APPEAL, THE FOLLOWING COMMON ISSUES ARE INVOLVED IN THIS APPEAL AND THE QUESTIONS RAISED THEREON ARE REFRAMED AS UNDER:- HARI RAM AGARWAL [PAN :ACDPA 1946 N] -VS- ITO, WARD-22(4), KOLKATA. (APPELLANT) .. (RESPONDENT) FOR THE APPELLANT SHRI M. D. SHAH, AR FOR THE RESPONDENT SHRI ROBIN CHOUDHURY, ADDL. CIT- SR. DR. DATE OF HEARING 28.03.2019 DATE OF PRONOUNCEMENT 03.04.2019 HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CITA WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE BY THE LD AO U/S 68 OF THE ACT IN RESPECT OF SALE PROCEEDS OF SHARES OF KAILASH AUTO FINANCE LIMITED (KAFL) TREATING THE SAME AS INCOME FROM UNDISCLOSED SOURCES AFTER REJECTING THE ASSESSEES CLAIM OF LONG TERM CAPITAL GAINS (LTCG) ON SALE OF THOSE SHARES. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CITA WAS JUSTIFIED IN UPHOLDING THE CHARGING OF INTEREST U/S 234A, 234B AND 234C OF THE ACT. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE CLAIMED LONG TERM CAPITAL GAINS FROM TRANSACTIONS IN SHARES OF KAILASH AUTO FINANCE LIMITED (KAFL). THE ASSESSEE ON 1.3.2012 PURCHASED 50000 SHARES OF THE FACE VALUE OF RS.1 EACH IN CAREFUL PROJECTS ADVISORY LIMITED (CPAL) THROUGH OFF MARKET FROM M/S. NEEDFUL VINCOM PVT LTD FOR A CONSIDERATION OF RS.50,000/-. THE PAYMENT FOR THE SAME WAS MADE BY ACCOUNT PAYEE CHEQUE NO. 231563 DRAWN ON VIJAYA BANK, N S ROAD BRNACH KOLKATA ON 10.3.2012. THIS INVESTMENT IN SHARES TO THE EXTENT OF RS 50,000/- WAS DULY DISCLOSED IN THE BALANCE SHEET OF THE ASSESSEE AS AT 31.3.2013 TOGETHER WITH VARIOUS OTHER INVESTMENT IN SHARES OF LISTED AND UNLISTED SCRIPS. THIS COMPANY (IE CPAL) WAS LATER AMALGAMATED WITH KAFL BY VIRTUE OF AN ORDER OF HONBLE ALLAHABAD HIGH COURT AND IN PURSUANCE TO SUCH AMALGAMATION, THE ASSESSEE WAS ALLOTTED 50000 SHARES OF KAFL OF THE FACE VALUE OF RS.1 EACH. PURSUANT TO SUCH ALLOTMENT OF 50000 SHARES OF KAFL, THE ASSESSEE DEMATTED THE SAID SHARES WITH SKP SECURITIES LTD ON 13.7.2013 WHEREIN THE FACT OF SCHEME OF ARRANGEMENT I.E AMALGAMATION WAS DULY MENTIONED IN THE DEMAT STATEMENT. THE ASSESSEE SOLD THESE 50000 SHARES THROUGH M/S. SKP SECURITIES LTD, A REGISTERED SHARE BROKER OF BSE. THE SAID SHARES WERE SOLD THROUGH THE ONLINE MEDIUM OF STOCK EXCHANGE ON DIFFERENT DATES FALLING WITHIN THE PREVIOUS YEAR 2013-14 RELEVANT TO ASST YEAR 2014-15. THE AFORESAID TRANSACTIONS RESULTED IN LONG TERM CAPITAL GAINS AND THE ASSESSEE CLAIMED EXEMPTION U/S 10(38) OF THE ACT TO THE TUNE OF RS 18,88,141/-. TOTAL SALE VALUE OF SHARES AFTER DEDUCTING BROKERAGE WAS RS HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 3 19,38,141/- AND COST OF RS 50,000/- WAS REDUCED THEREFROM AND LONG TERM CAPITAL GAIN OF RS 18,88,141/- WAS ARRIVED BY THE ASSESSEE. 3.1. THE LD AO OBSERVED THAT THE ASSESSEE HAD BOUGHT 50000 SHARES OF RE 1 EACH OF CPAL FROM M/S NEEDFUL VINCOM PRIVATE LIMITED IN OFF MARKET. THE COPY OF PURCHASE BILL AND SALE CONTRACT NOTE WAS PRODUCED BY THE ASSESSEE BEFORE THE LD AO. NOTICE U/S 133(6) OF THE ACT WAS ISSUED BY THE LD AO TO EXAMINE THE VERACITY OF THE PURCHASE FROM M/S NEEDFUL VINCOM PRIVATE LIMITED. THE SAID NOTICE WAS RETURNED BACK WITH A POSTAL REMARK ADDRESSEE MOVED / NOT KNOWN. ACCORDINGLY, THE LD AO CONCLUDED THAT THE PURCHASE OF SHARES AS STATED BY THE ASSESSEE TO BE BOGUS. THEREAFTER THE LD AO PROCEEDED TO SEEK CONFIRMATION FROM THE BROKER M/S SKP SECURITIES LTD ABOUT THE SHARE TRANSACTIONS WHICH WERE DULY COMPLIED WITH BY THE BROKER VIDE LETTER DATED 29.11.2016. THE LD AO OBSERVED THAT THE ASSESSEE MADE ABNORMAL GAIN WITHIN A SHORT SPAN OF HOLDING PERIOD OF THE SHARES. THE PRICE MOVEMENT OF THE SCRIP IN THE SHORT SPAN RAISED DOUBTS IN THE MIND OF THE LD AO THAT PROFIT EARNED BY THE ASSESSEE WERE BEYOND HUMAN PROBABILITIES. THE LD AO THEREFORE MADE A DEEPER STUDY TO ASCERTAIN WHETHER THE TRANSACTIONS WERE GENUINE INVESTMENT TRANSACTIONS OR SHAM / COLOURABLE DEVICE TO CONVERT THE UNACCOUNTED CASH INTO TAX EXEMPT INCOME. THE LD AO MERELY MADE GENERAL OBSERVATIONS AS UNDER:- AN INVESTIGATION WAS CONDUCTED ON A NUMBER OF PENNY STOCK COMPANIES BY THE DIRECTORATE OF INVESTIGATION , KOLKATA WHEREIN 84 PENNY STOCK COMPANIES WERE IDENTIFIED AND WORKED UPON. AFTER THAT, NUMBER OF SEARCH AND SURVEYS WERE CONDUCTED IN THE OFFICE PREMISES OF MORE THAN 32 SHARE BROKING ENTITIES WHICH ACCEPTED THAT THEY WERE ACTIVELY INVOLVED IN THE BOGUS LTCG / STCL SCAM. SURVEYS WERE ALSO CONDUCTED IN THE OFFICE PREMISES OF MANY ACCOMMODATION ENTRY PROVIDERS AND THEIR STATEMENTS RECORDED. ALL HAVE ACCEPTED THEIR ROLE IN THE SCAM. BENEFICIARIES OF MORE THAN 38000 CRORE HAVE BEEN IDENTIFIED AND SEGREGATED DGIT(INVESTIGATION) WISE. TOTAL NUMBER OF MORE THAN 60000 PANS OF THE BENEFICIARIES HAVE BEEN IDENTIFIED WHICH HAVE BEEN REPORTED TO THE ASSESSMENT WING THROUGH THE DGITS. OUT OF 84 PENNY STOCK COMPANIES WHICH HAVE BEEN USED FOR GENERATING BOGUS LTCG, THE ABOVE NAMED PENNY STOCK , I.E M/S KAILASH HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 4 AUTO FINANCE LIMITED IS ONE OF THE SAME. FURTHER, THE SCRIP HAS ALSO BEEN BANNED BY SEBI. THE BASIC TRADE PATTERN OF ALL THE 84 SCRIPS ARE SAME. A CLOSE VIEW OF ALL SUCH DATA SUGGESTED THAT THERE IS A COMMON PATTERN IN THE TRADING OF SUCH SCRIPS AND THE PATTERN IS THAT THEY REPRESENT A BELL SHAPE IN THEIR TRADING. IT MEANS FIRST, THEIR PRICES START FROM LOW RANGE, THEN IT RISES RAPIDLY, STAYS THERE FOR A WHILE AND THEN IT DECREASES MORE RAPIDLY. THUS TRADE PATTERN MAKES A BELL SHAPE. APART FROM THAT FROM THE BALANCE SHEET OF THE PENNY STOCKS IT WILL BE FOUND THAT THEY HAVE NO ACTUAL FINANCIAL CREDENTIALS TO SUPPORT THEIR SHARE MOVEMENT PATTERN. ALMOST ALL THE COMPANIES HAVE NO FIXED ASSET, NO TURNOVER, NO PROFITABILITY AND THEY DID NOT PAY TAXES. IT SHOWS THAT THESE ARE MADE SPECIALLY FOR THE PURPOSE OF PROVIDING BOGUS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL LOSS TO WILLING BENEFICIARIES. 3.2. THE LD AO OBSERVED THAT THE REPLY OF THE ASSESSEE TO THE AFORESAID SHOW CAUSE LETTER WAS RECEIVED ON 20.12.2016 WHEREIN THE ASSESSEE WAS SILENT REGARDING BELL SHAPE STRUCTURE OF TRADING OF THE SCRIP AND SALE OF THE SAME AT A RIGGED VALUE ALMOST 39 TIMES OF ITS PURCHASE WITHIN A SPAN OF AROUND TWO YEARS AND ACCORDINGLY THE REMAINING PORTION OF THE REPLY OF THE ASSESSEE WAS CONSIDERED TO BE NOT TENABLE. BASED ON THESE OBSERVATIONS, THE LD AO PROCEEDED TO DENY THE TREAT THE LONG TERM CAPITAL GAINS ON SALE OF SHARES OF KAFL IN THE SUM OF RS 18,88,141/- AS FICTITIOUS AND DENIED THE CLAIM OF EXEMPTION U/S 10(38) OF THE ACT THEREON. 4. ON FIRST APPEAL, THE LD CIT(A) DISMISSED THE GROUNDS RAISED BY THE ASSESSEE AGAINST HIS CLAIM OF EXEMPTION U/S 10(38) OF THE ACT AND HE ALSO CONFIRMED THE ADDITIONS MADE BY THE LD AO UNDER SECTION 68 OF THE ACT BY OBSERVING THAT THE ENTIRE PROCESS OF PURCHASE IN OFF MARKET AND SELLING AT AN INFLATED PRICE IS STAGE MANAGED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD AO HAD TREATED THE PURCHASE OF SHARES FROM NEEDFUL HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 5 VINCOM PRIVATE LIMITED TO BE BOGUS. HOW CAN THE SAME BE TREATED AS BOGUS WHEN THE ASSESSEE WAS ALLOTTED FRESH 50000 SHARES IN KAFL IN LIEU OF SHARES HELD BY HIM IN CPAL PURSUANT TO SCHEME OF AMALGAMATION, WHICH WAS APPROVED BY THE HONBLE ALLAHABAD HIGH COURT. MOREOVER, THE SHARES SO ALLOTTED IN KAFL WERE DULY DEMATTED BY THE ASSESSEE WITH THE REGISTERED DEPOSITORY PARTICIPANT AND THEREAFTER THE SHARES WERE SOLD THROUGH THE ONLINE MEDIUM OF STOCK EXCHANGE THROUGH A REGISTERED SHARE BROKER. THE DOCUMENTS IN SUPPORT OF THESE TRANSACTIONS WERE DULY SUBMITTED BY THE ASSESSEE AND THE SAME ARE NOT DISPUTED BY THE LD AO OR BY THE LD CITA. IN OUR CONSIDERED OPINION, WHAT HAD DISTURBED THE REVENUE IS ONLY THE ABNORMAL INCREASE IN PRICE OF SHARES OF KAFL FROM THE DATE OF PURCHASE TILL THE DATE OF SALE OF THE SHARES BY THE ASSESSEE. WE FIND THAT THE HOLDING PERIOD OF SHARES , PURCHASE PRICE, DOCUMENTATION FOR SALE OF SHARES ARE NOT AT ALL DISPUTED BY THE REVENUE. WE ALSO FIND THAT THE MOMENT THE NOTICE U/S 133(6) OF THE ACT SENT TO NEEDFUL VINCOM PRIVATE LIMITED WAS RETURNED WITH A POSTAL REMARK ADDRESSEE MOVED / NOT KNOWN, THE LD AO SOUGHT TO VERIFY THE TRANSACTIONS WITH THE BROKER I.E M/S SKP SECURITIES LTD, WHO HAD DULY CONFIRMED THE SHARE TRANSACTIONS BY WAY OF A WRITTEN REPLY DATED 29.11.2016. THIS FACT IS ALSO DULY MENTIONED BY THE LD AO IN PAGE 2 OF HIS ASSESSMENT ORDER. REPLY WAS ALSO SOUGHT FROM BOMBAY STOCK EXCHANGE (BSE) BY THE LD AO WHICH REMAINED UNCOMPLIED BY BSE. WE HOLD THAT THE ASSESSEE CANNOT BE FAULTED WITH IN THIS REGARD FOR NON-COMPLIANCE ON THE PART OF BSE TO THE NOTICE ISSUED BY THE LD AO, AS ADMITTEDLY THE SAME WAS DONE BEHIND THE BACK OF THE ASSESSEE. 5.1. IN THE COURSE OF HEARING OF THE CASE, THE LD AR REFERRED TO VARIOUS DOCUMENTARY EVIDENCES FURNISHED IN THE PAPER BOOK IN SUPPORT OF THE CLAIM OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS RELATING TO LTCG ON SALE OF SHARES OF KAFL. THE DOCUMENTARY EVIDENCES INCLUDED THE FOLLOWING: HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 6 (I) PURCHASE BILL FOR PURCHASE OF 50000 SHARES OF CPAL FROM M/S NEEDFUL VINCOM PRIVATE LIMITED ON 1.3.2012 FALLING IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012-13. (II) BANK STATEMENT SHOWING PAYMENT OF THE PURCHASE CONSIDERATION OF SHARES OF CPAL TO NEEDFUL VINCOM PVT LTD. (III) BALANCE SHEET OF THE ASSESSEE FOR THE FY 2012-13 TO SHOW THAT THE INVESTMENT IN THE SHARES OF CPAL WAS DULY DISCLOSED. (IV) DEMAT STATEMENT WITH SKP SECURITIES LTD, A DEPOSITORY PARTICIPANT (DP) SHOWING THE AFORESAID SHARES OF CPAL IN THE ACCOUNT OF THE ASSESSEE. (V) ORDER OF HONBLE ALLAHABAD HIGH COURT DATED 10.7.2013 FOR MERGER OF CPAL WITH KAFL AND ALLOTMENT OF EQUITY SHARES BY THE TRANSFEREE COMPANY IN THE RATIO OF 1:1. (VI) THE DEMAT STATEMENT OF THE ASSESSEE WITH SKP SECURITIES LTD SHOWING RECEIPT OF SHARES OF KAFL ON AMALGAMATION AS AFORESAID. (VII) CONTRACT NOTES OF SKP SECURITIES LTD., SHARE BROKER THROUGH WHOM THE ASSESSEE SOLD SHARES OF KAFL IN THE FY 2013-14 RELEVANT TO THE AY 2014-15. (VIII) BANK STATEMENT SHOWING RECEIPT OF SALE CONSIDERATION FROM M/S SKP SECURITIES LTD BY ACCOUNT PAYEE CHEQUES. (IX) DEMAT STATEMENT SHOWING DELIVERY OF SHARES OF KAFL ON SALE OF SHARES. (X) ASSESSEES COMPUTATION, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AS AT 31.3.2014 ALONG WITH INVESTMENT SCHEDULE AND CAPITAL GAINS STATEMENT. 5.2. IT IS ALSO PERTINENT TO NOTE THAT THE TOTAL SALE CONSIDERATION OF SHARES OF KAFL WAS RS 19,38,141/- AND OUT OF WHICH,THE LD AO HAD TREATED ONLY A PART OF THE SUM OF RS 18,88,141/- AS FICTITIOUS , BEING THE AMOUNT OF LONG TERM CAPITAL GAIN CLAIMED AS EXEMPT. THE NATURAL COROLLARY TO THIS WOULD BE THAT THE LD AO ACCEPTS PART OF HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 7 THE CONSIDERATION TO THE TUNE OF RS 50,000/- TO BE GENUINE. THIS DIVERGENT STAND TAKEN BY THE LD AO IS NOT SUSTAINABLE IN LAW. 5.3. WE FIND THAT THE ISSUE UNDER DISPUTE HAS BEEN THE SUBJECT MATTER OF ADJUDICATION BY THIS TRIBUNAL IN THE CASE OF MANISH KUMAR BAID AND MAHENDRA KUMAR BAID VS ACIT IN ITA NOS. 1236 & 1237/KOL/2017 DATED 18.8.2017 WHEREIN IT WAS OBSERVED AS UNDER:- 5. THE LD AR ARGUED THAT THE LD CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE LD AO ON THE BASIS OF THE AFORESAID FINDINGS AND VARIOUS OBSERVATIONS MADE IN THE IMPUGNED ASSESSMENT ORDER. THE LD AR SUBMITTED THAT THE FINDINGS OF THE LD AO ARE BASED ON PRESUMPTIONS AND SUSPICION ALONE AND ARE PERVERSE. IN THE COURSE OF HEARING OF THE CASE, THE LD AR REFERRED TO VARIOUS DOCUMENTARY EVIDENCES FURNISHED IN THE PAPER BOOK IN SUPPORT OF THE CLAIM OF THE ASSESSEE TO PROVE THE GENUINENESS OF THE TRANSACTIONS RELATING TO LTCG ON SALE OF SHARES OF KAFL. THE DOCUMENTARY EVIDENCES INCLUDED THE FOLLOWING: (I) PURCHASE BILL FOR PURCHASE OF 2,40,000 SHARES OF CPAL FROM M/S BRIJDHARA MERCANTILE PVT. LTD. ON 20.12.2011 FALLING IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012-13. (II) BANK STATEMENT SHOWING PAYMENT OF THE PURCHASE CONSIDERATION OF SHARES OF CPAL TO BRIJDHARA. (III) BALANCE SHEET OF THE ASSESSEE FOR THE FY 2011-12 TO 2012-13 TO SHOW THAT THE INVESTMENT IN THE SHARES OF CPAL WAS DULY DISCLOSED. (IV) DEMAT STATEMENT WITH UNITED BANK OF INDIA, A DEPOSITORY PARTICIPANT (DP) SHOWING THE AFORESAID SHARES OF CPAL IN THE ACCOUNT OF THE ASSESSEE. (V) THE LETTER DATED 8 TH JUNE, 2013 OF KAFL INFORMING THE ASSESSEE THAT THE CPAL WAS MERGED WITH KAFL BY VIRTUE OF COURT ORDER AND THE ASSESSEE WAS ALLOTTED SHARES OF KAFL AS AGAINST THE SHARES OF CPAL IN THE RATIO OF 1:1. (VI) THE DEMAT STATEMENT OF THE ASSESSEE WITH UNITED BANK OF INDIA SHOWING RECEIPT OF SHARES OF KAFL ON AMALGAMATION AS AFORESAID. (VII) CONTRACT NOTES OF ASHIKA STOCK BROKING LTD., SHARE BROKER THROUGH WHOM THE ASSESSEE SOLD SHARES OF KAFL IN THE FY 2013-14 RELEVANT TO THE AY 2014-15. (VIII) BANK STATEMENT SHOWING RECEIPT OF SALE CONSIDERATION FROM M/S ASHIKA STOCK BROKING LTD. BY ACCOUNT PAYEE CHEQUES. HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 8 (IX) DEMAT STATEMENT SHOWING DELIVERY OF SHARES OF KAFL ON SALE OF SHARES. 5.1. THE LD AR SUBMITTED THAT THE PURCHASE OF SHARES IN THE FY 2011-12 WAS ACCEPTED BY THE LD AO. IN THE CASE OF SRI MAHENDRA KUMAR BAID THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2012-13 WAS PASSED UNDER SECTION 143(3) ON 30 TH JANUARY, 2015 AND THE PURCHASE OF SHARES OF CPAL WAS ACCEPTED. THE ASSESSMENT IN THE CASE OF MANISH KUMAR BAID WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ACCEPTING THE PURCHASE OF SHARES. THE LD AR ALSO SUBMITTED THAT EVEN IN THE IMPUGNED ASSESSMENT ORDER THE PURCHASE OF SHARES BY THE ASSESSEE WAS NOT HELD TO BE BOGUS. THE LD AR SUBMITTED THAT THE EVIDENCES AND DOCUMENTS FURNISHED BY THE ASSESSEE WERE NEITHER FOUND TO BE FALSE NOR FABRICATED. THE LD AR SUBMITTED THAT THE LD AO DOUBTED THE GENUINENESS OF THE SALE TRANSACTIONS ON THE BASIS OF VARIOUS ORDERS OF SEBI AND/OR THE INVESTIGATION WING AND THE STATEMENTS OF VARIOUS PERSONS RECORDED BY INVESTIGATION WING IN THE CASES OF PERSONS UNCONNECTED TO THE ASSESSEE. IT WAS SUBMITTED THAT THE LD AO DISALLOWED THE ASSESSEES CLAIM OF LTCG ON SALE OF SHARES OF KAFL ON SUSPICION AND PRESUMPTIONS ALONE. IT WAS SUBMITTED THAT THE LOWER AUTHORITIES HAVE NOT BROUGHT ANY MATERIAL OR EVIDENCE ON RECORD TO FALSIFY THE CLAIM OF THE ASSESSEE OR TO HOLD THAT THE SHARE TRANSACTIONS WERE BOGUS. 5.2. THE LD AR HAS SHOWN THAT THE THREE ORDERS OF SEBI AND THE REPORT OF THE INVESTIGATION WING AND/OR THE STATEMENTS OF DIFFERENT PERSONS RECORDED BY INVESTIGATION WING NOWHERE NAMED THE ASSESSEE AS A BENEFICIARY TO THE TRANSACTIONS RELATING TO KAFL . IT IS SEEN FROM THE INTERIM ORDER DATED 29 TH MARCH, 2016 THAT SEBI HAS LISTED THE NAMES OF VARIOUS ENTITIES/PERSONS WHO WERE THE PROMOTERS AND/OR THE CONNECTED OR RELATED PARTIES PROVIDED BOGUS TRANSACTIONS OF LTCG TO VARIOUS BENEFICIARIES. THE LIST OF THE NAMES OF THE BENEFICIARIES WAS ALSO GIVEN IN THE SAID ORDER. THE LD AR REFERRING TO THE SAID LISTS HAS SHOWN TO US THAT THE NAME OF THE ASSESSEE AND/OR HIS BROKER NAMELY ASHIKA STOCK BROKING LTD. NOWHERE APPEAR IN THE SAID LISTS ANNEXED TO SEBIS INTERIM ORDER DATED 29 TH MARCH, 2016. ON A SPECIFIC QUERY TO THE LD DR APPEARING FOR REVENUE, HE FAIRLY AGREED THAT THE ASSESSEES NAME AND/OR THE NAME OF ASHIKA STOCK BROKING LTD. DO NOT APPEAR IN THE LIST ANNEXED TO VARIOUS ORDERS OF THE SEBI INCLUDING FINAL ORDER DATED 15 TH JUNE, 2016 REFERRED TO IN THE IMPUGNED ASSESSMENT ORDER. 5.3. THE LD AR ALSO BROUGHT OUR ATTENTION TO THE ENQUIRY REPORT MADE BY PR. DIRECTOR OF INCOME TAX (INVESTIGATION), KOLKATA IN THE MATTER OF TRANSACTIONS OF KAFL. THE LD AO RELIED ON THE STATEMENTS OF DIFFERENT PERSONS INCLUDING SRI SUNIL KUMAR DOKANIA RECORDED BY THE INVESTIGATION WING OF KOLKATA WHO EXPLAINED THE MODUS OPERANDI OF PROVIDING HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 9 ACCOMMODATION ENTRIES OF LTCG AND SHORT TERM CAPITAL LOSS (STCL). THESE PERSONS ALSO PROVIDED THE LISTS OF BENEFICIARIES TO WHOM THEY PROVIDED ACCOMMODATION ENTRIES. THE LD AR HAS SHOWN THAT THE LIST OF BENEFICIARIES PROVIDED BY THESE PERSONS ALSO DID NOT CONTAIN THE NAME OF THE ASSESSEE AND/OR THE NAME OF THE SHARE BROKER VIZ. ASHIKA STOCK BROKING LTD. 5.4. THE LD AR, ON THE OTHER HAND, RELIED ON THE AD INTERIM EXPARTE ORDER DATED 29 TH MARCH, 2016 PASSED BY SEBI IN FAVOUR OF ASSESSEE. HE DREW OUR ATTENTION TO PARA 24 OF THE SAID ORDER WHEREIN SEBI FOUND THAT SOME INNOCENT AND GULLIBLE INVESTORS HAD BEEN LURED INTO THE TRADING OF SHARES OF KAFL AND HAD BEEN ENTRAPPED IN THE PRICE FLUCTUATION OF THE SCRIPT. THIS FINDING OF SEBI SUPPORTS THE CASE OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE WAS LURED TO PURCHASE SHARES OF CPAL, WHEN HE KNEW THAT THE COMPANY ALLOTTED BONUS SHARES IN THE RATIO OF 1:55. THE ASSESSEE SOLD THE SHARES OF KAFL WHEN HE FOUND THAT THE PRICES INCREASED SUBSTANTIALLY IN THE MARKET. THE LD AR SUBMITTED THAT HE BEING INNOCENT GULLIBLE INVESTOR, HIS NAME DID NOT APPEAR IN THE LIST OF SEBI WHO WERE NAMED AS BENEFICIARY TO THE ALLEGED SCHEME FORMULATED BY SOME PERSONS. 5.5 THE LD AR, IN COURSE OF HEARING BEFORE US, FILED A COPY OF THE AUDITED FINANCIALS OF KAFL FOR THE FY 2012-13 AND DREW OUR ATTENTION TO THE NOTICE CONVENING THE AGM. HE SUBMITTED THAT IT WAS THE 28 TH AGM OF KAFL WHICH SHOWS THAT THE SAID COMPANY WAS INCORPORATED FOR MORE THAN 28 YEARS AS ON THE END OF THE SAID FINANCIAL YEAR I.E. 2011-12. HE CONCLUDED THAT IN SUCH CIRCUMSTANCES, THE MERGER OF THE TWO COMPANIES WITH KAFL COULD NOT BE SAID TO BE A PREMEDITATED ARRANGEMENT TO GIVE BENEFIT OF LTCG TO BENEFICIARIES. AT LEAST A GULLIBLE INVESTOR WOULD BE LURED TO MAKE INVESTMENT IN SUCH COMPANIES. 5.6. THE LD AR ALSO BROUGHT TO OUR NOTICE THE FINANCIALS OF KAFL REPORTED IN SEBIS INTERIM ORDER DATED 29 TH MARCH, 2016 TO SHOW THAT THE PRICE EARNINGS RATIO (IN SHORT P/E RATIO) OF THAT COMPANY INCREASED TO RS.4,065 IN FY 2013-14 FROM RS. NIL IN THE FY 2012-13. THE LD AR STATED THAT THE CONCLUSION DRAWN BY LD AO THAT THE FINANCIALS OF THE COMPANY SHOWS NIL P/E RATIO AND DID NOT GIVE RISE TO STEEP INCREASE OF MARKET PRICE OF THE SHARES OF KAFL, IS CONTRARY TO THE FACTS ON RECORD. 5.7. THE LD AR ALSO REFERRED TO THE STATEMENT OF SRI SUNIL DOKANIA RELIED ON BY THE LD AO TO DRAW ADVERSE INFERENCE AGAINST THE ASSESSEE. HE REFERRED TO THE FOLLOWING STATEMENT AGAINST Q. NO. 15 :- HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 10 Q.15 PLEASE EXPLAIN THE MODUS OPERANDI OF GETTING BOGUS LONG TERM CAPITAL GAIN THROUGH SCRIPS CONTROLLED AND MANAGED BY YOU. ANS. GENERALLY BENEFICIARIES APPROACHED TO THE BROKER/ENTRY OPERATOR IN SEARCH OF GENERATION OF CAPITAL IN AN EASIER MANNER WITHOUT PAYING ANY TAX ON IT. BROKERS IDENTIFY THE VARIOUS BOGUS SCRIPTS TO PROVIDE LTCG AS THE SAME IS EXEMPT FROM THE TAX. KAILASH AUTO IS SUCH SCRIPS WHICH IS ENGAGED IN PROVIDING ACCOMMODATION ENTRY IN FORM OF LTCG / STCL TO VARIOUS BENEFICIARIES. BENEFICIARIES ARE ALLOTTED THE SHARES AT NOMINAL PRICE AND THE PRICE OF THE SHARES RISE ARTIFICIALLY BY USING LOOPHOLES OF STOCK EXCHANGE MECHANISM AND THE SHARES WERE SOLD AT DESIRED LEVEL TO VARIOUS BOGUS ENTITIES. THESE BOGUS ENTITIES ARE PAID BY THE UNACCOUNTED MONEY OF THE BENEFICIARIES IN CASH. AS A RESULT UNACCOUNTED INCOME PLOUGHED BACK IN THE FILE OF INDIVIDUALS AND HUFS IN THE FORM OF BOGUS LTCG WITHOUT PAYING INCOME TAX ON IT. IN PROCESS THE BOGUS SHORT TERM CAPITAL LOSS IS ALSO BOOKED BY THE ENTITIES WHO WANTS TO REDUCE THEIR TAXABILITY. 5.8. THE LD AR SUBMITTED THAT THERE IS NO ALLEGATION BY SHRI SUNIL DOKANIA AND/OR THE LD AO THAT THE ASSESSEE EVER APPROACHED SHRI DOKANIA AND/OR ANY OTHER PERSON WHATSOEVER, TO APPROACH FOR SUCH BOGUS LTCG. THEREFORE THE LD AO HAS WRONGLY DRAWN INFERENCE AGAINST THE ASSESSEE FROM THE STATEMENT OF SHRI DOKANIA. THE LD. AR ALSO REFERRED TO THE STATEMENTS OF VARIOUS OTHER PERSONS ANNEXED WITH THE ASSESSMENT ORDER TO SHOW THAT NONE OF THE SAID PERSONS NAMED THE ASSESSEE TO HAVE BEEN BENEFITTED BY THEM IN RESPECT OF LTCG CLAIMED BY THE ASSESSEE. THE LD AR SUBMITTED THAT THE LD AO WAS UNJUSTIFIED IN DRAWING AN ADVERSE INFERENCE AGAINST THE ASSESSEE ON THE BASIS OF HIS ENQUIRY MADE FROM BSE TO FIND OUT THE NAMES OF BUYERS WHO ULTIMATELY BOUGHT THE SHARES SOLD BY THE ASSESSEE. ON THE BASIS OF SUCH ENQUIRY, THE LD AO PREPARED A CASH TRAIL TO ALLEGE THAT CASH DEPOSITED IN 5 TH OR 6 TH LAYER WERE THE UNACCOUNTED INCOME OF THE ASSESSEE. IT WAS HIS SUBMISSION THAT THE ASSESSEE DID NOT KNOW THE NAMES OF THE BUYERS AND HAS NO CONNECTION AND/OR RELATIONS WITH ANY SUCH PERSONS. THE TRANSACTIONS OF SALE OF SHARES WERE ONLINE TRADING SYSTEM THROUGH HIS BROKER FROM WHOM HE RECEIVED THE SALE CONSIDERATION. THE BROKER ALSO RECEIVES PAYMENTS FOR ALL HIS TRANSACTIONS FROM STOCK EXCHANGE. THE SELLER AND THE BUYER CANNOT KNOW THE NAMES OF EACH OTHER AS WELL AS THEIR RESPECTIVE BROKERS, WHO WERE INVOLVED IN THE TRADING TRANSACTIONS IN THE SECONDARY PLATFORM. IN SUCH A SITUATION 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. THE LD AR REFERRED TO THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 11 CIT VS. LAVANYA LAND PVT. LTD. [2017] 83 TAXMANN.COM 161 (BOM) TO CONTEND THAT THERE WAS NO EVIDENCE WHATSOEVER TO ALLEGE THAT MONEY CHANGED HANDS BETWEEN THE ASSESSEE AND THE BROKER OR ANY OTHER PERSON INCLUDING THE ALLEGED EXIT PROVIDER WHATSOEVER TO CONVERT UNACCOUNTED MONEY FOR GETTING BENEFIT OF LTCG AS ALLEGED. IN THE SAID CASE, THE HONBLE HIGH COURT AT PARA 21 HELD THAT IN ABSENCE OF ANY MATERIAL TO SHOW THAT HUGE CASH WAS TRANSFERRED FROM ONE SIDE TO ANOTHER , ADDITION CANNOT BE SUSTAINED. SIMILAR VIEW WAS TAKEN IN THE FOLLOWING CASES:- (I) BAIJNATH AGARWALLA VS. ACIT [2010] 40 SOT 475 (AGRA THIRD MEMBER) (II) GANESHMULL BIIJAY SINGH BAID HUF VS. DCIT ITA NO. 544/KOL/13 DATED 4.12.2015 (KOLKATA TRIBUNAL) (III) MALTI GHANSHYAMBHAI PATODIA VS. ITO ITA NO. 3400/AHD/2015 (AHMEDABAD TRIBUNAL) (IV) PRATIK SURYAKANT SHAH VS. ITO [ 2017] 77 TAXMANN.COM 260 (AHMEDABAD TRIBUNAL) (V) PADDUCHARI JEEVAN PRASHANT VS. ITO ITA NO. 452/HYD/2015 (HYDERABAD TRIBUNAL) (VI) ANIL NAND KISHORE GOYAL VS.ACIT ITA NOS. 1256/PN/2012 (PUNE TRIBUNAL) (VII) CIT VS. JAMNA DEVI AGRAWAL [2012] 20 TAXMANN.COM 529 (BOM HC) 5.9. THE LD AR SUBMITTED THAT ALL THE OBSERVATIONS, CONCLUSIONS AND FINDINGS OF THE LOWER AUTHORITIES ARE BASED ON SUSPICION, SURMISES AND HEARSAY. IT IS A TRITE LAW THAT THE SUSPICION HOWSOEVER STRONG CANNOT PARTAKE THE CHARACTER OF LEGAL EVIDENCE. REFERENCE WAS MADE TO THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF LALCHAND BHAGAT AMBICA RAM VS. CIT (1959) 37 ITR 288 (SC). THE LD AR SUBMITTED THAT THE ENTIRE CASE OF THE REVENUE HINGES UPON THE PRESUMPTION THAT THE ASSESSEE HAS PLOUGHED BACK HIS OWN UNACCOUNTED MONEY IN THE FORM OF BOGUS LTCG. HOWEVER, THIS PRESUMPTION OR SUSPICION HOW STRONG IT MAY APPEAR TO BE TRUE, BUT NEEDS TO BE CORROBORATED BY SOME EVIDENCE TO ESTABLISH A LINK THAT THE ASSESSEE HAD BROUGHT BACK HIS UNACCOUNTED INCOME IN THE FORM OF LTCG. THE LD AR REFERRED TO THE JUDGEMENT OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF GTC INDUSTRIES LTD. VS. ACIT [2017] 164 ITD 1 (MUMBAI-TRIB.)(SB) THE TRIBUNAL OBSERVED AS UNDER: 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 HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 12 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 . 5.10. THE LD AR SUBMITTED THAT THERE IS NO DIRECT EVIDENCE AGAINST THE ASSESSEE BROUGHT ON RECORD BY LD AO TO HOLD THAT THE ASSESSEE INTRODUCED ITS OWN UNACCOUNTED MONEY BY WAY OF BOGUS LTCG. THE DIRECT EVIDENCE AS ALLEGED BY THE LD AO TO BE THE SEBIS ORDERS IS NO EVIDENCE AGAINST THE ASSESSEE FOR THE REASONS STATED EARLIER. THE LD AR SUBMITTED THAT ALTHOUGH VARIOUS INVESTIGATIONS WERE CARRIED OUT BY DIFFERENT AGENCIES, THERE IS NO EVIDENCE AGAINST THE ASSESSEE TO HOLD THAT THE ASSESSEE WAS A BENEFICIARY TO THE MODUS OPERANDI ADOPTED BY DIFFERENT ENTITIES / BROKERS / ENTRY OPERATORS. THE LD AR SUBMITTED THAT, IN VIEW OF THE AFORESAID JUDGEMENT OF SPECIAL BENCH OF HONBLE MUMBAI TRIBUNAL, VARIOUS JUDGEMENTS RELIED ON BY THE LD AO AGAINST THE ASSESSEE ARE IRRELEVANT IN AS MUCH AS THE SAID JUDGEMENTS ARE BASED ON CONCLUSIONS DRAWN ON THE BASIS OF CIRCUMSTANTIAL EVIDENCES ONLY WITHOUT ANY MATERIAL EVIDENCE ON RECORD. 5.11. THE LD AR VEHEMENTLY SUBMITTED THAT THE ASSESSEE HAS FURNISHED ALL EVIDENCES IN SUPPORT OF THE CLAIM OF THE ASSESSEE THAT IT EARNED LTCG ON TRANSACTIONS OF HIS INVESTMENT IN SHARES. THE PURCHASE OF SHARES HAD BEEN ACCEPTED BY THE LD AO IN THE YEAR OF ITS ACQUISITION AND THEREAFTER UNTIL THE SAME WERE SOLD. THE OFF MARKET TRANSACTION FOR PURCHASE OF SHARES OF CPAL IS NOT ILLEGAL AS WAS HELD BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DOLARRAI HEMANI VS. ITO IN ITA NO. 19/KOL/2014 DATED 2.12.2016. THE TRANSACTIONS WERE ALL THROUGH ACCOUNT PAYEE CHEQUES AND REFLECTED IN THE BOOKS OF ACCOUNTS. THE PURCHASE OF SHARES AND THE SALE OF SHARES WERE ALSO REFLECTED IN DEMAT ACCOUNT STATEMENTS. THE SALE OF SHARES SUFFERED STT, BROKERAGE ETC. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT CANNOT BE HELD THAT THE TRANSACTIONS WERE BOGUS. THE LD AR REFERRED TO THE FOLLOWING JUDGEMENTS OF JURISDICTIONAL HIGH COURT:- HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 13 (I) M/S CLASSIC GROWERS LTD. VS. CIT [ITA NO. 129 OF 2012] (CAL HC) IN THIS CASE THE LD AO FOUND THAT THE FORMAL EVIDENCES PRODUCED BY THE ASSESSEE TO SUPPORT HUGE LOSSES CLAIMED IN THE TRANSACTIONS OF PURCHASE AND SALE OF SHARES WERE STAGE MANAGED. THE HONBLE 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 HIGH COURT HELD THAT THE TRANSACTIONS WERE AT THE PREVAILING PRICE AND THEREFORE THE SUSPICION OF THE LD AO WAS MISPLACED AND NOT SUBSTANTIATED. (II) CIT V. LAKSHMANGARH ESTATE & TRADING CO. LIMITED [2013] 40 TAXMANN.COM 439 (CAL) IN THIS CASE THE HONBLE CALCUTTA HIGH COURT HELD THAT ON THE BASIS OF A SUSPICION HOWSOEVER STRONG IT IS NOT POSSIBLE TO RECORD ANY FINDING OF FACT. AS A MATTER OF FACT SUSPICION CAN NEVER TAKE THE PLACE OF PROOF. IT WAS FURTHER HELD THAT IN ABSENCE OF ANY EVIDENCE ON RECORD, IT IS DIFFICULT IF NOT IMPOSSIBLE, TO HOLD THAT THE TRANSACTIONS OF BUYING OR SELLING OF SHARES WERE COLOURABLE TRANSACTIONS OR WERE RESORTED TO WITH ULTERIOR MOTIVE. (III) CIT V. SHREYASHI GANGULI [ITA NO. 196 OF 2012] (CAL HC) IN THIS CASE THE HONBLE CALCUTTA HIGH COURT HELD THAT THE ASSESSING OFFICER DOUBTED THE TRANSACTIONS SINCE THE SELLING BROKER WAS SUBJECTED TO SEBIS ACTION. HOWEVER THE TRANSACTIONS WERE AS PER NORMS AND SUFFERED STT, BROKERAGE, SERVICE TAX, AND CESS. THERE IS NO IOTA OF EVIDENCE OVER THE TRANSACTIONS AS IT WERE REFLECTED IN DEMAT ACCOUNT. THE APPEAL FILED BY THE REVENUE WAS DISMISSED. (IV) CIT V. RUNGTA PROPERTIES PRIVATE LIMITED [ITA NO. 105 OF 2016] (CAL HC) IN THIS CASE THE HONBLE CALCUTTA HIGH COURT AFFIRMED THE DECISION OF THIS TRIBUNAL , WHEREIN, THE TRIBUNAL ALLOWED THE APPEAL OF THE ASSESSEE WHERE THE LD AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE IN RESPECT OF HIS TRANSACTIONS IN ALLEGED PENNY STOCKS. THE TRIBUNAL FOUND THAT THE LD AO DISALLOWED THE LOSS ON TRADING OF PENNY STOCK ON THE BASIS OF SOME INFORMATION RECEIVED BY HIM. HOWEVER, IT WAS ALSO FOUND THAT THE LD AO DID NOT DOUBT THE GENUINENESS OF THE DOCUMENTS SUBMITTED BY THE ASSESSEE. THE TRIBUNAL HELD THAT THE LD AOS CONCLUSIONS ARE MERELY BASED ON THE INFORMATION RECEIVED BY HIM. THE APPEAL FILED BY THE REVENUE WAS DISMISSED. HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 14 (V) CIT V. ANDAMAN TIMBERS INDUSTRIES LIMITED [ITA NO. 721 OF 2008] (CAL HC) IN THIS CASE THE HONBLE CALCUTTA HIGH COURT AFFIRMED THE DECISION OF THIS TRIBUNAL WHEREIN THE LOSS SUFFERED BY THE ASSESSEE WAS ALLOWED SINCE THE LD AO FAILED TO BRING ON RECORD ANY EVIDENCE TO SUGGEST THAT THE SALE OF SHARES BY THE ASSESSEE WERE NOT GENUINE. (VI) CIT V. BHAGWATI PRASAD AGARWAL [2009- TMI-34738 (CAL HC) IN ITA NO. 22 OF 2009 DATED 29.4.2009] IN THIS CASE THE ASSESSEE CLAIMED EXEMPTION OF INCOME FROM LONG TERM CAPITAL GAINS. HOWEVER, THE LD AO, BASED ON THE INFORMATION RECEIVED BY HIM FROM CALCUTTA STOCK EXCHANGE FOUND THAT THE TRANSACTIONS WERE NOT RECORDED THEREAT. HE THEREFORE HELD THAT THE TRANSACTIONS WERE BOGUS. THE HONBLE JURISDICTIONAL HIGH COURT, AFFIRMED THE DECISION OF THE TRIBUNAL WHEREIN IT WAS FOUND THAT THE CHAIN OF TRANSACTIONS ENTERED INTO BY THE ASSESSEE HAVE BEEN PROVED, ACCOUNTED FOR, DOCUMENTED AND SUPPORTED BY EVIDENCE. IT WAS ALSO FOUND THAT THE ASSESSEE PRODUCED THE CONTRACT NOTES, DETAILS OF DEMAT ACCOUNTS AND PRODUCED DOCUMENTS SHOWING ALL PAYMENTS WERE RECEIVED BY THE ASSESSEE THROUGH BANKS. ON THESE FACTS, THE APPEAL OF THE REVENUE WAS SUMMARILY DISMISSED BY HIGH COURT. 5.12. THE LD AR SUBMITTED BEFORE US THAT WHERE THE PURCHASE AND SALE TRANSACTIONS ARE SUPPORTED AND EVIDENCED BY BILLS, CONTRACT NOTES, DEMAT STATEMENTS AND BANK STATEMENTS ETC., THE TRANSACTIONS OF PURCHASE OF SHARES WERE ACCEPTED BY THE LD AO IN EARLIER YEARS, THE SAME COULD NOT BE TREATED AS BOGUS SIMPLY ON THE BASIS OF SOME REPORTS OF THE INVESTIGATION WING AND/OR THE ORDERS OF SEBI AND/OR THE STATEMENTS OF THIRD PARTIES. IN SUPPORT OF THE AFORESAID SUBMISSIONS, THE LD AR, IN ADDITION TO THE AFORESAID JUDGEMENTS, HAS REFERRED TO AND RELIED ON THE FOLLOWING CASES:- (I) BAIJNATH AGARWAL VS. ACIT [2010] 40 SOT 475 (AGRA (TM) (II) ITO VS. BIBI RANI BANSAL [2011] 44 SOT 500 (AGRA) (TM) (III) ITO VS. ASHOK KUMAR BANSAL ITA NO. 289/AGRA/2009 (AGRA ITAT) (IV) ACIT VS. AMITA AGARWAL & OTHERS ITA NOS. 247/(KOL)/ OF 2011 (KOL ITAT) (V) RITA DEVI & OTHERS VS. DCIT IT(SS))A NOS. 22-26/KOL/2P11 (KOL ITAT) (VI) SURYA PRAKASH TOSHNIWAL VS. ITO ITA NO. 1213/KOL/2016 (KOL ITAT) (VII) SUNITA JAIN VS. ITO ITA NO. 201 & 502/AHD/2016 (AHMEDABAD ITAT) (VIII) MS. FARRAH MARKER VS. ITO ITA NO. 3801/MUM/2011 (MUMBAI ITAT) HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 15 (IX) ANIL NANDKISHORE GOYAL VS. ACIT ITA NOS. 1256/PN/2012 (PUNE ITAT) (X) CIT VS. SUDEEP GOENKA [2013] 29 TAXMANN.COM 402 (ALLAHABAD HC) (XI) CIT VS. UDIT NARAIN AGARWAL [2013] 29 TAXMANN.COM 76 (ALLAHABAD HC) (XII) CIT VS. JAMNADEVI AGARWAL [2012] 20 TAXMANN.COM 529 (BOMBAY HC) (XIII) CIT VS. HIMANI M. VAKIL [2014] 41 TAXMANN.COM 425 (GUJARAT HC) (XIV) CIT VS. MAHESHCHANDRA G. VAKIL [2013] 40 TAXMANN.COM 326 (GUJARAT HC) (XV) CIT VS. SUMITRA DEVI [2014] 49 TAXMANN.COM 37 (RAJASTHAN HC) (XVI) GANESHMULL BIJAY SINGH BAID HUF VS. DCIT ITA NOS. 544/KOL/2013 (KOLKATA ITAT) (XVII) MEENA DEVI GUPTA & OTHERS VS. ACIT ITA NOS. 4512 & 4513/AHD/2007 (AHMEDABAD ITAT) 5.13. THE LD AR FURTHER SUBMITTED BEFORE US THAT ONCE THE ASSESSEE HAS FURNISHED ALL EVIDENCES IN SUPPORT OF THE GENUINENESS OF THE TRANSACTIONS, THE ONUS TO DISPROVE THE SAME IS ON REVENUE. HE REFERRED TO THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF KRISHNANAND AGNIHOTRI VS. THE STATE OF MADHYA PRADESH [1977] 1 SCC 816 (SC). IN THIS CASE THE HONBLE APEX COURT HELD THAT THE BURDEN OF SHOWING THAT A PARTICULAR TRANSACTION IS BENAMI AND THE APPELLANT OWNER IS NOT THE REAL OWNER ALWAYS RESTS ON THE PERSON ASSERTING IT TO BE SO AND THE BURDEN HAS TO BE STRICTLY DISCHARGED BY ADDUCING EVIDENCE OF A DEFINITE CHARACTER WHICH WOULD DIRECTLY PROVE THE FACT OF BENAMI OR ESTABLISH CIRCUMSTANCES UNERRINGLY AND REASONABLY RAISING INFERENCE OF THAT FACT. THE HONBLE APEX COURT FURTHER HELD THAT IT IS NOT ENOUGH TO SHOW CIRCUMSTANCES WHICH MIGHT CREATE SUSPICION BECAUSE THE COURT CANNOT DECIDE ON THE BASIS OF SUSPICION. IT HAS TO ACT ON LEGAL GROUNDS ESTABLISHED BY EVIDENCE. THE LD AR SUBMITTED THAT SIMILAR VIEW HAS BEEN TAKEN IN THE FOLLOWING JUDGEMENTS WHILE DECIDING THE ISSUE RELATING TO EXEMPTION CLAIMED BY THE ASSESSEE ON LTCG ON ALLEGED PENNY SOCKS. (I) ITO VS. ASHOK KUMAR BANSAL ITA NO. 289/AGR/2009 (AGRA ITAT) (II) ACIT VS. J. C. AGARWAL HUF ITYA NO. 32/AGR/2007 (AGRA ITAT) 5.14. THE LD AR FURTHER SUBMITTED THAT THE LD AO WAS NOT JUSTIFIED IN TAKING AN ADVERSE VIEW AGAINST THE ASSESSEE ON THE GROUND OF ABNORMAL PRICE RISE OF THE SHARES AND PRICE RIGGING. IT WAS SUBMITTED THAT THERE IS NO ALLEGATION IN HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 16 ORDERS OF SEBI AND/OR THE ENQUIRY REPORT OF THE INVESTIGATION WING TO THE EFFECT THAT THE ASSESSEE AND/OR HIS BROKER WAS A PARTY TO THE PRICE RIGGING OR MANIPULATION OF PRICE IN BSE. THE LD AR REFERRED TO THE FOLLOWING JUDGEMENTS IN SUPPORT OF THIS CONTENTION WHEREIN UNDER SIMILAR FACTS OF THE CASE IT WAS HELD THAT THE LD AO WAS NOT JUSTIFIED IN REFUSING TO ALLOW THE BENEFIT UNDER SECTION 10(38) OF THE ACT AND TO ASSESS THE SALE PROCEEDS OF SHARES AS UNDISCLOSED INCOME OF THE ASSESSEE UNDER SECTION 68 OF THE ACT :- (I) ITO VS. ASHOK KUMAR BANSAL ITA NO. 289/AGR/2009 (AGRA ITAT) (II) ACIT VS. AMITA AGARWAL & OTHERS - ITA NOS. 247/(KOL)/ OF 2011 (KOL ITAT) (III) LALIT MOHAN JALAN (HUF) VS. ACIT ITA NO. 693/KOL/2009 (KOL ITAT) (IV) MUKESH R. MAROLIA VS. ADDL. CIT [2006] 6 SOT 247 (MUM) 5.15. THE LD AR ALSO SUBMITTED THAT THE LD AO WAS NOT JUSTIFIED IN DISALLOWING THE ASSESSEES CLAIM OF EXEMPTION UNDER SECTION 10(38) OF THE ACT BY CONCLUDING THAT THE TRANSACTIONS OF THE ASSESSEE RESULTING IN LTCG ON SALE OF SHARES OF KAFL WERE BOGUS RELYING ON THE STATEMENTS OF VARIOUS PERSONS RECORDED BY INVESTIGATION WING WHEREIN THESE PERSONS ACCEPTED TO HAVE PROVIDED ACCOMMODATION ENTRIES OF VARIOUS NATURES INCLUDING LTCG TO DIFFERENT PERSONS. THE LD AR SUBMITTED THAT IN THE STATEMENT OF THIRD PARTIES, THE NAME OF THE ASSESSEE WAS NOT IMPLICATED. EVEN OTHERWISE, NO ADVERSE INFERENCE COULD BE TAKEN AGAINST THE ASSESSEE ON THE BASIS OF UNTESTED STATEMENTS WITHOUT ALLOWING OPPORTUNITY OF CROSS-EXAMINATION. THE LD AR REFERRED TO AND RELIED ON THE FOLLOWING JUDGEMENTS IN SUPPORT OF THE AFORESAID SUBMISSIONS:- (I) ANDMAN TIMBER INDUSTRIES VS. CCE [2015] 62 TAXMANN.COM 3 (SC) (II) ITO VS. ASHOK KUMAR BANSAL ITA NO. 289/AGR/2009 (AGRA ITAT) (III) ACIT VS. AMITA AGARWAL & OTHERS ITA NO. 247/(KOL) OF 2011 (KOL ITAT) (IV) ITO VS. BIJAYA GANGULY - ITA NOS. 624 & 625/KOL/2011 (KOL ITAT) (V) GANESHMULL BIJAY SINGH BAID HUF VS. DCIT ITA NOS. 544/KOL/2013 (KOLKATA ITAT) (VI) RITA DEVI & OTHERS VS. DCIT IT(SS))A NOS. 22-26/KOL/2P11 (KOL ITAT) (VII) MALTI GHANSHYAMBHAI PATADIA VS. ITO - ITA NO.3400/AHD/2015 (AHMEDABAD ITAT) (VIII) PRATIK SURYAKANT SHAH VS. ITO [2017] 77 TAXMANN.COM 260 (AHMEDABAD ITAT) HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 17 (IX) SUNITA JAIN VS. ITO - ITA NO. 201 & 502/AHD/2016 (AHMEDABAD ITAT) (X) ATUL KUMAR KHANDELWAL VS. DCIT ITA NO. 874/DEL/2016 (DELHI ITAT) (XI) FARAH MARKER VS. ITO ITA NO. 3801/MUM/2011 (MUMBAI ITAT) 5.16. THE LD AR ALSO SUBMITTED THAT THE LD AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 68 OF THE ACT TO HOLD THAT THE SALE PROCEEDS OF SHARES OF KAFL RECEIVED BY THE ASSESSEE FROM M/S ASHIKA STOCK BROKING LTD. WAS NOT SATISFACTORILY EXPLAINED BY THE ASSESSEE. THERE IS NO EVIDENCE ON RECORD TO DISBELIEVE THAT THE ASSESSEE SOLD SHARES OF KAFL THROUGH M/S ASHIKA STOCK BROKING LTD., A REGISTERED SHARE AND STOCK BROKER WITH BSE. THE ASSESSEE PRODUCED ALL EVIDENCES TO EXPLAIN THE SOURCE OF THE AMOUNTS RECEIVED BY THE ASSESSEE FROM M/S ASHIKA STOCK BROKING LTD. THE LD AO WAS NOT JUSTIFIED IN ASSESSING THE SALE PROCEEDS OF SHARES OF KAFL AS UNEXPLAINED CASH CREDIT UNDER SECTION 68 OF THE ACT. 5.17. THE LD AR SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE BASIS OF INCONTROVERTIBLE EVIDENCES PRODUCED BY THE ASSESSEE, THE LD AO WAS NOT JUSTIFIED IN CONCLUDING THAT THE ASSESSEES TRANSACTIONS RELATING TO LTCG ON SALE OF SHARES OF KAFL WERE BOGUS. THE LD CIT(A) WAS ALSO NOT JUSTIFIED IN DISMISSING THE APPEAL WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE EVIDENCES PRODUCED BY THE ASSESSEE IN SUPPORT OF HIS CASE. VARIOUS JUDGEMENTS REFERRED TO BY THE ASSESSEE IN SUPPORT OF ASSESSEES CLAIM OF EXEMPTION OF LTCG ON SALE OF SHARES OF KAFL WAS NOT DISTINGUISHED ON FACTS AND/OR ON LAW BY THE LD CIT(A) . ON THE OTHER HAND, HE AGREED WITH THE LD AO, WHO RELYING ON SURROUNDING CIRCUMSTANCES HELD THAT THE ASSESSEES TRANSACTIONS OF LTCG WERE BOGUS IGNORING ALL LEGAL EVIDENCES FURNISHED BY THE ASSESSEE IN SUPPORT OF THE GENUINENESS OF THE TRANSACTIONS RESULTING IN LTCG. THE LD AR PRAYED THAT THE ORDER OF THE LD CIT(A) BE SET ASIDE AND THE EXEMPTION UNDER SECTION 10(38) OF THE ACT BE ALLOWED TO THE ASSESSEE. 6. WE HAVE HEARD BOTH THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND LOT OF FORCE IN THE ARGUMENTS OF THE LD AR THAT THE LD AO WAS NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE ON THE BASIS OF THEORY OF SURROUNDING CIRCUMSTANCES, HUMAN CONDUCT, AND PREPONDERANCE OF PROBABILITY WITHOUT BRINGING ON RECORD ANY LEGAL EVIDENCE AGAINST THE ASSESSEE. WE RELY ON THE JUDGEMENT OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF GTC INDUSTRIES LTD. (SUPRA) FOR THIS PROPOSITION. THE VARIOUS FACETS OF THE ARGUMENTS OF THE LD AR SUPRA, WITH REGARD TO IMPLEADING THE ASSESSEE FOR DRAWING ADVERSE INFERENCES WHICH REMAIN UNPROVED BASED ON THE EVIDENCES HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 18 AVAILABLE ON RECORD, ARE NOT REITERATED FOR THE SAKE OF BREVITY. THE PRINCIPLES LAID DOWN IN VARIOUS CASE LAWS RELIED UPON BY THE LD AR ARE ALSO NOT REITERATED FOR THE SAKE OF BREVITY. WE FIND THAT THE AMALGAMATION OF CPAL WITH KAFL HAS BEEN APPROVED BY THE ORDER OF HONBLE HIGH COURT. THE LD AO OUGHT NOT TO HAVE QUESTIONED THE VALIDITY OF THE AMALGAMATION SCHEME APPROVED BY THE HONBLE HIGH COURT IN MAY 2013 MERELY BASED ON A STATEMENT GIVEN BY A THIRD PARTY WHICH HAS NOT BEEN SUBJECT TO CROSS EXAMINATION. MOREOVER, IT IS ALSO PERTINENT TO NOTE THAT THE ASSESSEE AND / OR THE STOCK BROKER ASHITA STOCK BROKING LTD NAME IS NEITHER MENTIONED IN THE SAID STATEMENT AS A PERSON WHO HAD ALLEGEDLY DEALT WITH SUSPICIOUS TRANSACTIONS NOR THEY HAD BEEN THE BENEFICIARIES OF THE TRANSACTIONS OF SHARES OF KAFL. HENCE WE HOLD THAT THERE IS ABSOLUTELY NO ADVERSE MATERIAL TO IMPLICATE THE ASSESSEE TO THE ENTIRE GAMUT OF UNWARRANTED ALLEGATIONS LEVELED BY THE LD AO AGAINST THE ASSESSEE, WHICH IN OUR CONSIDERED OPINION, HAS NO LEGS TO STAND IN THE EYES OF LAW. WE FIND THAT THE LD DR COULD NOT CONTROVERT THE ARGUMENTS OF THE LD AR WITH CONTRARY MATERIAL EVIDENCES ON RECORD AND MERELY RELIED ON THE ORDERS OF THE LOWER AUTHORITIES APART FROM PLACING THE COPY OF SEBIS INTERIM ORDER SUPRA. WE FIND THAT THE SEBIS ORDERS RELIED ON BY THE LD AO AND REFERRED TO HIM AS DIRECT EVIDENCE AGAINST THE ASSESSEE DID NOT CONTAIN THE NAME OF THE ASSESSEE AND/OR THE NAME OF ASHIKA STOCK BROKING LTD. THROUGH WHOM THE ASSESSEE SOLD THE SHARES OF KAFL AS A BENEFICIARY TO THE ALLEGED ACCOMMODATION ENTRIES PROVIDED BY THE RELATED ENTITIES / PROMOTERS / BROKERS / ENTRY OPERATORS. IN THE INSTANT CASE, THE SHARES OF CPAL WERE PURCHASED BY THE ASSESSEE WAY BACK ON 20.12.2011 AND PURSUANT TO MERGER OF CPAL WITH KAFL, THE ASSESSEE WAS ALLOTTED EQUAL NUMBER OF SHARES IN KAFL, WHICH WAS SOLD BY THE ASSESSEE BY EXITING AT THE MOST OPPORTUNE MOMENT BY MAKING GOOD PROFITS IN ORDER TO HAVE A GOOD RETURN ON HIS INVESTMENT. WE FIND THAT THE ASSESSEE AND / OR THE BROKER ASHITA STOCK BROKING LTD WAS NOT THE PRIMARY ALLOTTEES OF SHARES EITHER IN CPAL OR IN KAFL AS COULD BE EVIDENT FROM THE SEBIS ORDER. WE FIND THAT THE SEBI ORDER DID MENTION THE LIST OF 246 BENEFICIARIES OF PERSONS TRADING IN SHARES OF KAFL, WHEREIN, THE ASSESSEE AND / OR ASHITA STOCK BROKING LTDS NAME IS NOT REFLECTED AT ALL. HENCE THE ALLEGATION THAT THE ASSESSEE AND / OR ASHITA STOCK BROKING LTD GETTING INVOLVED IN PRICE RIGGING OF KAFL SHARES FAILS. WE ALSO FIND THAT EVEN THE SEBIS ORDER HEAVILY RELIED UPON BY THE LD AO CLEARLY STATES THAT THE COMPANY KAFL HAD PERFORMED VERY WELL DURING THE YEAR UNDER APPEAL AND THE P/E RATIO HAD INCREASED SUBSTANTIALLY. THUS WE HOLD THAT THE SAID ORDERS OF SEBI IS NO EVIDENCE AGAINST THE ASSESSEE, MUCH LESS TO SPEAK OF DIRECT EVIDENCE. THE ENQUIRY BY THE INVESTIGATION WING AND/OR THE STATEMENTS OF SEVERAL PERSONS RECORDED BY THE INVESTIGATION WING IN CONNECTION WITH THE ALLEGED BOGUS TRANSACTIONS IN THE SHARES OF KAFL ALSO DID NOT IMPLICATE THE ASSESSEE AND/OR HIS BROKER. IT IS ALSO A MATTER OF RECORD THAT THE ASSESSEE FURNISHED ALL EVIDENCES IN THE FORM OF BILLS, CONTRACT NOTES, DEMAT STATEMENTS HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 19 AND THE BANK ACCOUNTS TO PROVE THE GENUINENESS OF THE TRANSACTIONS RELATING TO PURCHASE AND SALE OF SHARES RESULTING IN LTCG. THESE EVIDENCES WERE NEITHER FOUND BY THE LD AO TO BE FALSE OR FABRICATED. THE FACTS OF THE CASE AND THE EVIDENCES IN SUPPORT OF THE ASSESSEES CASE CLEARLY SUPPORT THE CLAIM OF THE ASSESSEE THAT THE TRANSACTIONS OF THE ASSESSEE WERE BONAFIDE AND GENUINE AND THEREFORE THE LD AO WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES CLAIM OF EXEMPTION UNDER SECTION 10(38) OF THE ACT. WE ALSO FIND THAT THE VARIOUS CASE LAWS OF HONBLE JURISDICTIONAL HIGH COURT RELIED UPON BY THE LD AR AND FINDINGS GIVEN THEREON WOULD APPLY TO THE FACTS OF THE INSTANT CASE. THE LD DR WAS NOT ABLE TO FURNISH ANY CONTRARY CASES TO THIS EFFECT. HENCE WE HOLD THAT THE LD AO WAS NOT JUSTIFIED IN ASSESSING THE SALE PROCEEDS OF SHARES OF KAFL AS UNDISCLOSED INCOME OF THE ASSESSEE U/S 68 OF THE ACT. WE ACCORDINGLY HOLD THAT THE REFRAMED QUESTION NO. 1 RAISED HEREINABOVE IS DECIDED IN THE NEGATIVE AND IN FAVOUR OF THE ASSESSEE. 5.1. WE FIND THAT THE DECISION RENDERED HEREINABOVE APPLY MUTATIS MUTANDIS TO THE FACTS OF THE INSTANT CASE ALSO AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE LD AO TO GRANT EXEMPTION U/S 10(38) OF THE ACT IN RESPECT OF SALE OF SHARES IN THE SUM OF RS 18,88,141/- AS CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 03.04.2019. SD/- SD/- [A. T. VARKEY] [M. BALAGANESH] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :03.04.2019 [RS, SR.PS] HARI RAM AGARWAL I.T.A. NO.2363/KOL/2018 ASSESSMENT YEAR 2014-15 20 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT HARI RAM AGARWAL, 219-C, OLD CHINA BAZAR STREET, 1 ST FLOOR, ROOM NO.B-6, KOL-1. 2. REVENUE ITO, WARD-22(4), KOLKATA. 3. CIT(A)- KOLKATA. 4. CIT , KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, KOLKATA.