Alpa Udaykumar Shah, Bhavnagar, V. ITO, Ward-1(2), Bhavnagar

ITA 391/AHD/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3178 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 18-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Unexplained cash credit; Business income; Principle of natural justice; Opportunity of cross examination; Earning of tax free income; Question of law; Cost of acquisition; Accommodation entries; Penny stocks; Set aside
• Section: 68; 143(3); 13

Judgement Text

, ‘C’ । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMEBR & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMEBR आयकर अपील सं./I.T.A. No. 391/Ahd/2018 ( Assess ment Ye ar : 2014-15) Al pa U day k u mar Sh ah 20 1, Si dd hc ha kr a F lat s, Bl oo d Ban k R oad , Kri sh na na ga r, B hav nag ar - 36 40 01 / V s . Th e In co me T ax O ffi ce r W ar d 1( 2) Aa yk a r Bh av an , Na ku bau g, B ha vn a gar यी ल सं./ ीआ आर सं./P A N / G IR N o . : B F LP S 7 5 0 6 A (अपील Appellant) . . ( य / Respondent) अपील र स /Appellant by : Sh ri Da rs ha n Ga nd hi, Ad vo cat e य क र स / Respondent by : Shri V. K. Singh, Sr. D.R. स क र D a t e o f H e a r i n g 08/06/2022 !"# क र /D a t e o f P r o n o u n c e m e n t 26/08/2022 ORDER PER WASEEM AHMED, AM: The appeal has been preferred by the assessee against the order of the Commissioner of Income Tax (Appeals)-6, Ahmedabad (‘CIT(A)’ in short) dated 29.12.2017 arising in the assessment order dated 27.12.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY. 2014-15. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 2 - 2. The assessee has raised following grounds of appeal: “1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) has erred in upholding the action of the Learned/Assessing Officer in formulating an addition of Rs. 1,15,49,320/- by treating Long Term Capital Gain claimed exempt u/s. 10(38) of the Income tax act, 1961 as unexplained cash credit u/s.68 of the Income tax Act, 1961 and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Act and the Rules made thereunder. 2. On the facts and in the circumstances of the case and in law, once the appellant has duly discharged the primary onus in terms of Section 68 of the Income Tax Act, 1961 and both the lower authorities failed to bring-out any contrary / adverse evidences there against, addition made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals) is required to be deleted.” 3. The assessee is an individual and claimed to be working as sub-broker and also drawing salary. The assessee also declared exempted capital gain under section 10(38) of the Act for Rs. 1,15,49,320/- on account of sale of shares of M/s Compfort Fincap Ltd. 3.1 The AO found that the company M/s Comfort Fincap Ltd was previously known as Parasnath Textile Limited and changed its name w.e.f. 4 th June 2011. The assessee purchased 55000 share of M/s Comfort Fincap Ltd as on 27 th June 2011 in preferential allotment @ 18 per share. Subsequently, the share of M/s Comfort Fincap Ltd. got listed at BSE in direct listing norm w.e.f. 25 th March 2013 at a price of Rs. 387 per share which was very high considering the financial strength and the fact that the company was not involved in any major business activity and was showing nominal income. The assessee also in a statement recorded under section 131(1) of the Act stated that she is not knowing the fundamentals of the company M/s Comfort Fincap Ltd and their director despite the fact that she has purchased shares in private placement. Therefore, the AO show caused the assessee proposing to treat the impugned long term capital gain as bogus and represents the unexplained cash credit under section 68 of the Act. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 3 - 3.2 In response to the show cause notice, the assessee submitted that she has been dealing in investment in shares and securities of different companies since many years and also acting as sub-broker for Kunverji Finstock Private Limited Ahmedabad. She, in the normal course, invested in the shares of M/s Comfort Fincap Ltd in the month of June 2011 in offline transaction which was supported by the share application form and KYC document. Likewise, the payment was made through banking channel. The shares were dematerialized with M/s Kunverji Finstock Private Limited and kept in demat account till the same were transferred in the year under consideration through BSE platform during the month of October 2013 to February 2014 at different price which was supported by demat account, the contract note, STT and payment received in bank through ECS. Therefore, as per the provision of section 10(38) of the Act, the assessee is eligible for exemption of long term capital gain. 3.3 The allegation that the company M/s Comfort Fincap Ltd was not engaged in major business activity and change of its name of the company suggests that the company was not doing good is devoid of merit. As the M/s Comfort Fincap Ltd formerly known as Parasnath Textile Ltd (PTL) was incorporated as on 12-11-1982 and also got registered with RBI dated 15-09- 1998 as NBFC. In the year 2010 PTL acquired by Lahuraka Sales & Services Limited which prompted in change in the name of the company w.e.f. 04-06- 2011. Further on perusal of financial statement of the company, it can be seen that the company has shown income form operation regularly which is in crores. The next allegation, that the share were purchased offline, is again of no adverse inference as there is no prohibition to purchase shares in off market and that does not mean that the transaction is not real. 3.4 The rise in market price of the share especially on stock exchange is not governed by the financial fundamental of the company. As such, the same is affected by several other factors. Further, the listing of shares at stock exchange and their transaction at exchange is strictly monitored by the stock exchange authority as well by the SEBI. Therefore no adverse inference can be ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 4 - drawn for rise in price of share which is allegedly not supported by the financial of the company. Similarly, no adverse inference can be drawn for the fact that price of share sharply increased in the year under consideration and sharply decreased in subsequent year as the stock market is free market where investor does not have any control over the price as the same is governed by market equilibrium. Further, the book value of share of the company for the related parties was of Rs. 220 per share in March 2013 which increased to 246 in March 2014 which can be verified from the annual report of company available at BSE. The shares of the company on exchange were regularly traded. Thus, it is established that the company was in some concrete business and not a paper or bogus company. 3.5 However, the AO disagreed with the submission of the assessee and held the assessee failed to produce the KYC document filed at the time of purchase of shares along with share application form. The company at the time of investment was relatively unknown, still the assesse made investment at Rs. 9.9 lakh without any basis which suggest the scheme of pre-arrangement. It is true that the price of shares at stock market is governed by several different factors but there is some consistency and basis whereas in the case of impugned company within the period of a year, the price of the share sharply increased as high as Rs. 448 per share and thereafter started falling and reached to Rs. 14 per share and after that no price movement noted. The DDIT(Inv.) carried out countrywide search and survey at different entry operator, stock broker and others. In the process several stock broker has accepted that they have provided bogus long term capital gain in scrip of M/s Comfort Fincap Ltd to the beneficiaries. The CEO of the company and key person of the comfort group Shri Anil Aggarwal also accepted the same. The SEBI vide order dated 19-12- 2014 and 02-06-2016 also restricted the M/s Comfort Fincap Ltd and M/s Comfort Securities Ltd from access to the market in any manner. 3.6 Based on the above, the AO concluded that like thousands of the beneficiaries of modus operandi of penny stock, the assessee is also one of the ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 5 - beneficiary. Therefore the amount credited in the bank of account of the assesse needs to be taxed under section 68 of the Act. Further the burden of proof with regard to certain income not taxable lies on the assessee and the assessee failed to prove the same. The AO in conclusion also considered the concept surrounding circumstantial evidences in the light of judgment of Hon’ble Supreme court in case of Sumati Dayal vs CIT (244 ITR 801) and Durga Prasad More (82 ITR 540). 3.7 Thus the AO in view of the above treated the long term capital gain of Rs. 1,15,49,320/-claimed by the assessee as bogus and added to the total income of the assessee as unexplained cash credit under section 68 of the Act. 4. Aggrieved assessee preferred an appeal to the learned CIT(A) and besides reiterating its submission made before the AO contended that the purchase of share in the year of acquisition has been accepted by the Revenue. Therefore, the sale of the same should also be accepted. Likewise, the entry operators or stock broker who provided accommodation entry in the scrip of the impugned company nowhere in their statement stated that they have provided accommodation entry to the assessee on hand. Further their statements were not provided for rebuttal and cross examination. 5. The learned CIT(A) after considering the facts in totality confirmed the order of the AO by observing as under: “It is a settled position of taw that section 68 of the Act puts onus of proof on the taxpayer. If an amount has been credited in the books of the appellant, the onus is on the taxpayer to prove the nature and source of the same to the satisfaction of the AO, Section 68 reads as follows : 6.8 Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year: ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 6 - Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium of any such amount by whatever name called any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited: and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. (emphasis added). Thus the is on the taxpayer to explain to the satisfaction of the AO the nature and source of any sum credited in his/her books, In this case, the AO on information in his possession had reason to believe that the transaction of shares was bogus., hence the onus was on the appellant to rebut this presumption which she has failed to do miserably. Further there is no substance in the contention of the appellant that statement of Anil Agarwal, who had accepted before Department authorities that he had provided accommodation entries for LTCG in the scrip of Comfort Fincap, was not provided to her. The appellant had 55,000 shares of Comfort Fincap and Anii Agarwal is the main behind Comfort Fincap. The appellant could have produced Anil Agarwal before the AO to deny the allegations of. rigging In this share. The appellant did not do so. Thus the appellant failed to discharge the onus on her to prove the presumption of AO wrong. Thus there is no substance in various contentions of the appellant. Further, there are several other peculiarly aspects/facts in respect of transaction by the appellant of this scrip which cast a huge shadow of doubt over the genuineness of this transaction. Some of these facts/aspects are detailed below : (i) The appellant is a resident of Bhavnagar, Gujarat, From here the appellant invests in a Mumbai based company., In the normal course this would not raise any suspicion. But here it is a totally non-descript company with hardly any business activity and any significant performance. So it raises suspicion as to why would the appellant invest a huge amount in such a company. (ii) The timing of the transaction is perfect. The scrip is purchased on 15,03,2011 and sold in October,13 to March, 14 just outside of twelve (12) months to make the appellant eligible to claim the profit on this transaction as exempt u/s 10(38} of the Act. Also when the share is bought, it is not listed on stock exchange. The scrip is listed only in March,2013. (iii) During the period of holding of share by the appellant, the price of the share rises very high. So much so that it reaches Rs.448/- per share on 2,05,2013. Once the shares have been sold, the price starts falling and reaches the price of Rs.14/- per share in F.Y. 2014-15. After this there is practically no movement in the share price. Ail this is mentioned by the AO in the assessment order. It is clear that both the rise and fall in share price are sudden and abnormal. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 7 - (iv) Financials of the company as detailed by the AO in Para 3 of the assessment order were not such that It would attract any investor to invest in the company. In previous years ending from March 20.11 to March 2014, the company had turnover of 2.6 crores, 39.50 crores, 9.99 crores and 2,80 crores respectively. Thus the company had minuscule business activity, In previous years ending from March 2011 to March 2014, the company had profit of 0.01 crores, 0.59 crores, 0.99 crores and 0.62 crores respectively. Thus the company had either negligible profit showing that the company was not having a substantial business activity. It defies logic as to why a person would invest in such a company with such poor financial. This is more so since as per appellant's own submission she has been a regular investor. Also such poor financials do not warrant any spectacular rise in share price especially in the absence of any corporate announcements regarding big deals etc. (v) The financial of the company as detailed above do not warrant price of Rs,367/- on opening for trading when the company is listed on the stock-exchange. (vi) Key person of Comfort Fincap admitted during search conducted by the Investigation Wing of the Income Tax Department, Mumbai that they provided accommodation entry for LTCG in the scrip of Comfort Securities. (vii) Vide order dated 12/19/2014 and 2/06/2016, SEBI had restrained Comfort Fincap Ltd. and Comfort Securities Ltd. from accessing the securities market and buying and selling of securities. All the above aspects/facts mentioned above lead to the conclusion that transaction in question was rigged in order to garner huge LTCG and claim the same as exempt, Hon'bie Supreme Court in Sumati Dayal v, Commissioner of Income-tax [1995] 80 TAXMAN 89 (SC) held as follows ; "4. it is no doubt true that in all cases in which a receipt is sough! to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee Parimisetti Seetharamemma’s case (supra) at p. 536. But, in view of section 68 of the Act., where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the natue and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of any income nature. While considering the explanation of the assessee the department cannot, however, act unreasonably – Sreelekha Banerjee’s case (supra) at p. 120. 12. The matter has to be considered in the light of human probabilities.... An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appoint as disclosed in her sworn stament as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 8 - amounts are income of the appellant from other sources is not based on evidence." (Emphasis added) Thus as laid down by the hon'ble Apex Court the matter has to be considered in the light of human probabilities and after considering surrounding circumstances. In the present case, preponderance; of probabilities casts serious doubts on the contention of the appellant and points towards the transaction being bogus. Hon'ble Bombay High Court, Nagpur Bench in Income Tax Appeal No. 18/2017 in the case of Sanjay Bimalchand Jain L/H Shantidevi Bimlchand Jain vs Pr.CIT-I, Nagpur &. Another has confirmed addition on account of LTCG on penny stock shares, Hon'bte Court has held as follows ; "The assessee had on the advice of an income tax Consultant purchased shares of two penny stock Kolkata companies i.e., 8000 shares at the rate of Rs.5,50 per on OS.08.2003 and 4000 shares at the rate of Rs.4/~ per share On - 05.08.2003 from Syncom Marketing Pvt Ltd. and of Skyzoom Distributors Pvt. Ltd. the payments were made by the assessee In cash for acquisition of shares of both the companies. The address of both the companies was interestingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broke" was incidently the address of the two companies, Both the companies intimated the assessee on 07,04,2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of R3,486,55 per share on 07,06.2005 and 800 shares on 20.06.7005 at the rate of Rs.485,65. The shares were sold through another broker, viz, Ashish Stock Broking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India, The assessing officer did not accept the case of the assessee that she was entitled to exemption under Section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of" two penny stock shares for Rs.60,000/. the merger of the companies with a new company and the sale of the shares for Rs.11,58,930/- fell within the ambit of adventure in the nature of trade and the assessee had profited by Rs. 13,98,930/-. The assessing officer, therefore, brought the aforesaid amount to tax under the head 'business income'. Being aggrieved by the order of the assessing officer;, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The appeal filed by the assessee was dismissed and so was the subsequent appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) before the income Tax Appellate Tribunal. On hearing the learned counsel for the assessee and on a perusal of the orders of the income tax authorities, it appears that there is no scope for interference with the said orders in this appeal. By referring to the aforesaid facts, which are narrated in the earlier part of this order, the authorities found that the assessee had made investment in two unknown companies of which the details were not known to her. It was held that the transaction of sale and purchase of shares of two penny stock companies, the merge" of the two companies with another company, viz. Khoobsurat Limited did not qualify an investment and rather it was an adventure in the nature of trade. It was held by all the authorities that the motive of the investment made by the assessee was not to derive income but to earn profit. Both the brokers, i.e. the broker through whom the assessee purchased the shares and the broker through whom the shares were ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 9 - sold, were located at Kolkata and the assessee did not have an inkling as to what was going on in the whole transaction except paying a sum of Rs.65,000/- in cash for the purchase of shares of the two penny stock companies. The authorities found that though the shares were purchased by the assessee at Rs.5.50 Ps. Per share and Rs.4/- per share from the two companies in the year 2003, the assessee was able to sell the shares just within a years time at Rs.486.55 Ps and Rs.485.65 Ps per share. The broker through whom the shares were sold by the assessee did not respond to the assessing officer's letter seeking the names, addresses and the bank accounts of the persons that had purchased the shares sold by the assessee. The authorities have recorded a clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs.5/- had jumped to Rs.485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs.5/- of a little known company would jump from Rs.5/- to Rs.485/-. The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported in (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (SC) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT(A) Versus Smt.Datta M. Shah) and relied on by the learned counsel for the assessee are distinguishable on facts and cannot be applied to the case in hand. Since no substantial question of law arises in this appeal, the appeal is dismissed with no order as to costs. Facts in the present case are identical to the facts of the above case. Hence ratio of decision in the above case is squarely applicable to the present case. Further, hon'ble ITAT, Mumbai in CIT vs Shamim M, Bharwani m ITA No. 4906/Mum/2011(A.Y.2006-07) in order dated 27.03.2015 has held identical transactions as bogus and confirmed action of the AO in treating these as unexplained and adding the same u/s 68 of the Act. Ratio of the above judgment is fully applicable to the present case. Further, hon'ble Guwahati High Court in CIT vs. Sanghamitra Bharati (361 UR 481) has held similar transactions to be bogus and sham. Case laws relied on by the appellant are not applicable to the present case as the same are distinguished on facts. In view of discussion above and relying on the above cited judgments, I uphold the action of the AO In holding the transaction in shares of Comfort Fincap Ltd. as bogus and adding the amount of Rs. 1,l5,,49,320/-to the income of the appellant u/s 68 of the Act, Accordingly, addition of Rs., I,l5f49,320/-is upheld, This ground of appeal is dismissed.” 6. Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 10 - 6.1 The learned AR before filed a paper running from pages 1 to 141 and contended that the assessee was never supplied the investigation report or any other document suggesting that the script of impugned was manipulated. There was no action by the SEBI against the impugned company. According to the ld. AR, the script of the impugned company was never delisted from the stock exchange and remained active all over. The learned AR also reiterated the contentions raised before the lower authorities. 6.2 On the other hand, the learned DR contended that shares were purchased off market which were de-materialized later before sale of shares. According to the learned DR, there is no human probability for rise in the share price of non-working company. The learned DR vehemently supported the order of the Authorities below by reiterating his findings contained in their respective orders. 7. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the long term capital gain declared by the assessee on sale of shares of M/s Comfort Fincap Ltd for ₹ 1,15,49,320/- was treated as bogus and manipulated, leading to the addition by the AO under section 68 of the Act. The view of the AO was based on certain factors which have been elaborated in the preceding paragraph which has been also confirmed by the learned CIT(A). 7.1 The 1 st observation of the AO for holding the impugned capital gain as bogus was that the at the time of investment by the assessee the company, was not known in public domain and share were purchased in offline. In this regard firstly we note that the offline purchase of share is not prohibited under the statute. Secondly, if some investment in the shares of a company is made, which at the relevant time was not known in public domain or in private placement does not mean that the investment is not genuine or pre-arranged unless some adverse materials are available on record. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 11 - 7.2 It was also alleged that the price of the share of M/s Comfort Fincap Ltd. was increased manifolds in a short period of time which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having no financial base/business activity/profitability certainly gives rise to the doubt about such increase in the price. However, in the given case, the impugned company was engaged in the business activity and likewise, it was regularly showing income from operation and also declaring dividend and having registered in RBI as NBFC. Further, in our considered view, the sharp rise in the price of scrip cannot be a sole criteria for reaching to the conclusion that the price were rigged up to generate the long-term capital gain which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides reasons to investigate the matter in detail and the same cannot take the place of the evidence. But in the case on hand, there was no enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of share price of M/s Comfort Fincap Ltd. either by the assessee or his broker. Similarly, there was no complaint filed by any of the party either to the SEBI or the stock exchange about the assessee or brokers impleading that they were involved in the activity of rigging up the price of the shares. Similarly, the AO has not conducted an enquiry from the SEBI or BSE about the assessee whether he was engaged in the frivolous activities as alleged. The AO alleged that the SEBI has prohibited the impugned company to enter into transaction at stock market. However, we note that the SEBI has not taken any action against the scrip of the impugned company as the action was taken against the director promoter and the company from accessing to share market. 7.3 Further, the price of a share at stock exchange cannot be linked to the financial strength of the company, as such the same is governed by several market driven factors. The assessee is also a regular investor and have made investment in the scrip of other companies. We also note that the assessee has acquired 55000 shares of impugned company whereas the shares were ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 12 - transferred only 34400 in numbers during the period of October 2013 to February 2014 and remaining shares are still held by the assessee. We also note the price of the impugned share also reached as high as Rs. 448 per share whereas the highest price at which, the assessee transferred was of Rs. 395 per share and lowest was of Rs. 187 per share. Thus in our considered view had the assessee indulged in pre-arrange transaction for taking accommodation entries then he should have transferred the entire holding and that too at the highest possible price. 7.4 The AO alleged that the CEO of Comfort Fin Securities and key person of the comfort group in the statement recorded before the DDIT Kolakata admitted to have provided accommodation entry in the scrip of M/s Comfort Fincap Ltd. Similar admission was also made by the other stock broker during the search and survey proceeding conducted by the DDIT Kolkata in the matter of penny stock. However their statements were not provided to the assessee for the rebuttal and cross examination. It was also not brought on record that any of the person whose statement was recorded have taken the name of the assessee or his broker. We also note that there was no allegation against the broker through whom the assessee has purchased and sold the impugned script. What has been adopted by the AO for making the addition was the modus of operandi as highlighted by the investigation wing of Kolkata. To our understanding, the mere modus of operandi cannot the basis of making the addition or treating the capital gain as bogus until and unless it is supported by other corroborative material documents. 7.5 On further analyzing the facts of the present case, we note that the AO on one hand has alleged that the entire transaction was bogus but on the other hand the AO himself has allowed the cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales go hand in hand. In simple words, sale is not possible without having the purchases. Thus, once purchases has been admitted as genuine, then corresponding sales cannot be doubted ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 13 - until and unless some adverse materials are brought on record. As such, we note that the AO in the present case has taken contradictory stand. On one hand, the AO is treating the entire transaction as sham transaction and on the other hand he’s allowing the benefit of the cost of acquisition for the shares while determining the bogus long-term capital gain. 7.6 The alleged scam might have taken place on generating LTCG to avoid the payment of tax. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this arrangement. The chain of events and the live link of the assessee’s action that he was involved in such rigging up of share price should be established based on cogent materials. The allegation as discussed above implies that there was cash exchanged for taking exempted income by way of long term capital gain by way of cheque through banking channels. This allegation that cash had changed hands, has not been brought on record by the Revenue and there is also no such whisper in the order of the AO. There was no information brought on record suggesting that there was exchange of cash against the long-term capital gain shown by the assessee. Likewise we also note that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary documentary evidence in support of the identity, genuineness of transaction and creditworthiness of the parties. Therefore the same cannot be made subject to tax under the provisions of section 68 of the Act. 7.7 We also note that there was no dispute raised by the Revenue with respect to the following facts: 1. Purchase consideration of share was made through cheque 2. Share was duly dematerialized in demat account 3. Shares were sold through stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payment were received through ECS through demat account ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 14 - 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyers do not know the assessee. 6. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer. 7. The assessee has no nexus or any relation with company, its director or entry operator. 8. The assessee may have got only incidental benefit of price rise. 9. The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee. 7.8 From the above, conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices but it is not so in the case on hand. 7.9 In our view, the income generated by the assessee cannot be held bogus only on the basis of the modus operandi, generalisation, and preponderance of human probabilities. In order to hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In absence of such finding, it is not justifiable to link the fact or the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are with regard to the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. 7.10 Now the controversy also arises whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 15 - enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. The Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometime we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good-faith. 7.11 In holding so we draw support and guidance from the judgment of Hon’ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under: 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income-tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under sections ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 16 - 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. 7.12 Respectfully, following the judgment of Hon’ble Delhi High Court (Supra), we hold that in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long term capital gain earned on sale of share of M/s Comfort Fincap Ltd. is concern. 7.13 We also note that this Tribunal in the case of Parasben Kasturchand Kochar Mehta Lodha & Co. Chartered Accountant vs. ITO bearing ITA No. 549/Ahd/2008 involving identical facts and circumstances has held as under: ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 17 - “7. We have gone through the relevant record and impugned order and heard both the parties. Assessee submitted that he is a customer of ICICI Bank and having demat account of ICICI Securities Ltd. and he has purchased shares through ICICI Securities Ltd. and money has been paid through banking channel. Copies of bank statement and Demat account have been submitted before the lower authorities. 8. Ld. A.R. also drawn our attention towards the statement of Edelweiss Broking Ltd. through the said company shares were sold and also shown us copy of the Contract Note and all these details were furnished before the lower authorities. The assessee has earned long term capital gain from the sale of companies share i.e. Alpha Graphic India Ltd. and Blazon Marbles. 9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10.Ld. A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. “ 7.14 At this juncture we also feel pertinent to refer the order of coordinate bench of Indore in case of Shivnarayan Sharma & Ors bearing ITA Nos. 889/Ind/2018, 474,206,60,987/Ind/2019, where in identical fact and circumstances, it was held as under: “16. Since we are adjudicating the above stated common issue on the basis of above assessee namely Shri Shivnarayan Sharma, we note that the assessee purchased 6000 equity shares of Conart Traders Ltd on 22.10.2011 at a cost of Rs.1,50,000/- . There is no restriction under the law to purchase equity shares on off line mode. Vide order dated 22.3.2013 of the Hon’ble Mumbai High Court M/s Conart Traders Limited was merged with M/s SAL and in lieu there of 6000 shares of M/s SAL were received by the assessee in its demat account. After holding the equity shares for more than 12 months since purchased on 22.10.2011, assessee sold the shares of M/s SAL during the period April 2014 to June 2014 through a registered broker and all the transactions of sale of shares took place on the recognised stock exchange. Sale consideration was received in the bank account attached with the Demat account. The detail of the persons purchasing the shares is not provided on the portal of SEBI and all the transactions of purchase and sale took place on the portal through ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 18 - registered brokers under the control of SEBI. M/s SAL has not been striked off as a shell company. Trading of shares of M/s SAL was permitted by SEBI. Prime facie, all the conditions provided u/s 10(38) of the Act seems to have been fulfilled by the assessee. 17. As regards the second issue raised is that assessee was not provided opportunity of cross examination, we observe that Ld. A.O has referred to some investigation carried out by the Department in the case of some brokers and other assessee(s) located at Kolkata and other places and there is a reference of the company M/s SAL. However it is not disputed that name of the assessee is not appearing in such report nor any evidence was found by the Ld. A.O which could indicate that assessee was also a part or connected to the alleged racket of providing accommodation entry of bogus LTCG nor any proof of any agreement between the assessee and other persons mentioned in the report has been found. So the basis of addition is primarily on the statement of third party as well as the information gathered from other sources. Perusal of the records shows that the assessee has not been provided any access to such report nor any opportunity was provided to cross examine those persons who accepted to have provided accommodation entries for the bogus LTCG, to the assessee. 18. We observe that all the above stated facts and the issue of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF) as they have sold the equity shares held in Demat account and transactions performed on a recognised stock exchange through registered broker at the price appearing on the exchange portal and at the point of time of sale of equity shares, companies were not marked as shell companies by SEBI and nor the trading of these scrips were suspended. The assessee also deserves to succeed on the legal ground as no opportunity was awarded to cross examination the third person which were allegedly found to be providing accommodation entries and therefore no addition was called for in the hands of the assessee without providing opportunity of cross examination in view of the ratio laid down by Hon'ble Apex Court in the case of Andaman Timber Industries vs. CCE 281 CTR 241 (SC) that “not allowing the assessee to cross examine the witnesses by the adjudicating authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected”. ITA No. 391/Ahd/2018 [Alpa Udaykumar Shah Vs. ITO] A.Y. 2014-15 - 19 - 24. We accordingly in view of our above discussions, facts and circumstances of the case and respectfully following judicial precedents and the decisions of Co- ordinate benches squarely applicable on the instant cases, are of the considered view that in the case of the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Manish Govind Agrawal (HUF), the claim of exempt income u/s 10(38) of the Act of Long Term Capital Gain from sale of equity shares deserves to be allowed and no addition is called for the estimated brokerage expenses made in the hands of the assessee(s). Thus finding of Ld. CIT(A) is set aside and the Grounds raised by the assessee(s) in ITA Nos.889/Ind/2018, 474/Ind/2019, 206/Ind/2019, 60/Ind/2019, 61/Ind/2019 and 987/Ind/2019 are allowed.” 7.15 In view of the above discussion we hold that the capital gain earned by the assessee cannot be held as bogus merely on the basis of some report unearthed in case of third party/parties unless cogent material is brought against particular assessee on record. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Hence the grounds of assessee’s appeal are allowed. 8. In the result, the appeal of the assessee is allowed. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 26/08/2022 True Copy S.K.SINHA ेश ! " #े" / Copy of Order Forwarded to:- $. र / Revenue 2. आ दक / Assessee '. सं(ं)* आयकर आय + / Concerned CIT 4. आयकर आय + - अपील / CIT (A) .. / 0 1ीय 2 2 )*3 आयकर अपील य अ)*कर#3 अ45द ( द / DR, ITAT, Ahmedabad 6. 1 78 9 ल / Guard file. By order/आद श स 3 उप/स4 यक पं ीक र आयकर अपील य अ)*कर#3 अ45द ( द । This Order pronounced in Open Court on 26/08/2022