Appeal details
Counselvise Citation
[2022] 104 COUNSELVISE.COM (IT) 4865 (ITAT-LUCKNOW)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax (Search & Seizure) Appeal
Pronouncement Date
04-04-2022
Appeal Filed By
Assessee
Order Result
PartlyAllowed
Bench Allotted
B
Assessment Year
2015-2016
Appeal Filed On
19-06-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH ‘B’, LUCKNOW BEFORE SHRI A.D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER IT(SS) No.410/Lkw/2019 Assessment Years: 2015-16 Smt. Mridula Agarwal, X-1/135, Krishna Puram, Kanpur - 208007 PAN: ACBPA5048D Vs. DCIT, Central Circle-II, Kanpur (Appellant) (Respondent) IT(SS) No.412/Lkw/2019 Assessment Years: 2015-16 Manoj Kumar Agarwal, X-1/135, Krishna Puram, Kanpur - 208007 PAN: ACBPA5048D Vs. DCIT, Central Circle-II, Kanpur (Appellant) (Respondent) O R D E R PER T.S. KAPOOR, A.M. These two appeals have been filed by the assessees against separate orders of ld. CIT(A) both dated 23.3.2019. The grounds of appeals taken by the assessees in both the appeals are similar and therefore these appeals were heard together and a consolidated order is being passed. For the sake of completeness the gronds of appeal in ITA No. 410/Lkw/2019 are reproduced below: Appellant by Shri Pradeep Kapoor, CA Respondent by Smt. Sheela Chopra, CIT DR Date of hearing 03/03/2022 Date of pronouncement 05/04/2022 I.T.A. No.410 & 412/Lkw/2019 2 “1. BECAUSE the Learned CIT(A) was wrong in law & on facts in confirming the assessment order passed by AO u/s 153A of the Act as the same was not in consonance with the settled position of law vis-a-vis search cases. 2. BECAUSE the learned CIT(A) has erred in law and on facts in upholding the assessment ignoring the settled position of law that provisions of section 153A, in cases where proceedings are not pending could not be applied in absence of any incriminating material. 3. BECAUSE the reliance on 'reports of investigation wing’ etc. did not constitute 'material' relevant for the purpose of assessment in this case, as the 'appellant' had never been confronted with the same in right perspective and as such the addition made on the basis of such an ex-parte information and reports etc. is wholly vitiated. 4. BECAUSE the computation of income was not even relevant for the purpose of assessment and the same is vitiated, as during the course of search (even in pursuance of joint warrant of Authorization), no incriminating material was found which could impinge upon the genuineness of the unsecured loan & genuineness of capital gain as shown in the return of Income. 5. BECAUSE the learned CIT(A) has erred in law and on facts in confirming the addition made by AO in the asstt order in respect of disallowance of Long Term Capital gain claimed u/s 10(38) of the Act & added to the income u/s68/69 as under- S. No. Name of company Amount of LTCG as shown in the return of income & claimed exemption u/s 10(38) Amount added u/s 68/ 69 of the Act Commission on LTCG u/s 69 of the Act Addition in the asstt order 1. Sulabh Engineers & Services Ltd. 58729259/- 58729259/ 2936462/- 61665721/- Without appreciating the supporting documentary evidences & explanation of the appellant placed on record with regards to the genuineness of Capital Gain & also the fact that the provisions of section 68 were not applicable as the assessee appellant had not maintained any personal set of books of A/cs relating to transactions in shares. 6. BECAUSE Overall addition for sums aggregating Rs. 61665721/- is based on whims , surmises and conjectures and by relying on the case laws , which were distinguishable on facts and the same did not deserve to be sustained. I.T.A. No.410 & 412/Lkw/2019 3 7. BECAUSE the learned CIT (A) has erred in law and on facts in holding that the Assessing Officer had tried his best to provide cross examination of concerned persons whereas virtually required efforts were not made by the AO in enforcing the presence of such persons for their cross examination and even no penal action and/ or any coercive measure as provided under the Act was initiated against such persons. 8. BECAUSE in the absence of opportunity of cross examination of the persons giving statement of culpable nature, as had been sought by the appellant, the assessment stood wholly vitiated and consequently the addition made deserved to be deleted as held by the Apex Court in umpteen number of cases. 9. BECAUSE various adverse observations and allegations made by the lower authorities are contrary to the facts, material & evidences available on record. 10. BECAUSE in relation to the Grounds of Appeal, the appellant relies upon the averments made in the facts of the case. 11. BECAUSE the order of the CIT (A) is against the principle of natural justice erroneous and not tenable in law and on facts. 12. Because the appellant craves leave to add, amend, delete modify any of the grounds of appeal till the final date of hearing and disposal of appeal.” 2. At the outset, the ld. AR submitted that these are the cases where the assessee had claimed long term capital gain as exempt u/s. 10(38) of the Act and authorities below have rejected their claim. While rejecting the claim the Revenue relied on an investigation report of department which concluded that prices of certain scripts were being manipulated to generate artificial capital gains. The department held that the present assessees has also arranged long term capital gains on the script of Sulabh Engineers & Services Ltd. which was part of 84 penny stocks identified by the department in it’s investigation report.. It was submitted that now these cases are covered in favour of the assessees by various orders of the Lucknow Bench of the Tribunal where under similar facts and circumstances and on various scripts including scrips dealt by the assessees, the bench has allowed relief to the assessees. Reliance in this respect was placed on the following case laws :- I.T.A. No.410 & 412/Lkw/2019 4 1. Shri Jai Prakash Sharma Vs. DCIT, Central Circle-II, Kanpur in ITA No. 544/Lkw/2019. 2. Uma Shanker Dhandhania vs. ITO(1)5, Kanpur in ITA No. 475 & 681/Lkw/2019. 3. Smt. Madhu Agarwalla vs. ACIT in ITA No. 511/Lkw/2018. 4. Shri Achal Gupta vs. ITO-3(1), Kanpur in ITA No.501/Lkw/2019. 3. It was further submitted that even various other benches of the Tribunal has taken a similar view in similar cases and reliance in this respect was placed on the following case laws: 1. Shri Deepak Kumar Agarwal vs. ACIT, CC-3(1), Kolkata in ITA No. 125 & 126/Kol/2018. 2. Dipesh Ramesh Vardhan vs. DCIT in ITA No. 7648/Mum/2019. 3. Smt. Suman Kothari vs. ITO, Ward-36(2), Kolkata in ITA No. 2467/Kol/2017. 4. Asish Kumar Ghosh vs. DCIT, Circle 1(1), Kolkata in ITA No. 1164/Kol/2019. 5. Vasudha Jain vs. ITO, Wd-36(4), Kolkata in ITA No.1018/Kol/2018. 3.1 Further reliance was placed on an order of Hon'ble Delhi High Court in the case of Smt. Krishna Devi & others Wherein under similar facts and circumstances the Delhi Bench of Tribunal had allowed relief to the assessees and the Hon'ble Delhi High Court had dismissed the appeals filed by the Revenue. It was submitted that Hon'ble Delhi High Court has categorically held that evidences filed by the assessee cannot be ignored and they rejected the theory of presumptions and relied on the evidences. It was further submitted that in the case law of Smt. Krishna Devi and others the script involved was though not that which is in the present cases but the script involved in that case was also listed by the Directorate of I.T.A. No.410 & 412/Lkw/2019 5 Investigation as penny stock. It was submitted that in fact 84 scripts were identified as penny stocks and the script involved in the present cases alongwith the script involved in the case of Krishna Devi & Others was part of those 84 scripts. Therefore it was submitted that the case law of Hon'ble Delhi High Court is directly applicable to the assessees. The ld. AR further placed his reliance on a judgment of Hon'ble Gujarat High Court in the case of Pr. CIT v. Parasben Kasturichand Kochar (2021) 130 taxman.com 176 (Guj) wherein under similar facts and circumstances the Hon'ble Gujarat High Court had dismissed the appeal of Revenue. The ld.AR submitted that SLP filed by Revene in this case has also been dismissed by Hon'ble Supreme Court vide order dated 02.08.2021 a copy of which was referred to be placed in P.B. pages 50 to 52 of the paper book. It was prayed that following the judicial precedents the appeals filed by the assessee may be allowed. It was submitted that the only reason for not accepting the claim of the assessees is the investigation report and the Revenue has nowhere disbelieved the documentary evidences which were duly filed before the Assessing Officer and in this respect our attention was invited to various pages of paper books. 4. The ld. CIT, DR though heavily placed her reliance on the orders of the authorities below but fairly agreed that the issue are covered in favour of the assessee by various orders of the Tribunal by various benches. 5. We have heard the rival parties and have gone through the material placed on record. We find that assessees during the year under consideration sold certain shares of the script Sulabh Engineers and Services Ltd. through recognized stock exchange through screen based trading system and also through authorized stock brokers and filed before Assessing Officer various evidences of having sold these shares through these authorized brokers. I.T.A. No.410 & 412/Lkw/2019 6 6. The copies of these documents in ITA No. 410/Lkw/2019 as filed before Assessing Officer are placed in Paper Book as detailed below: 1. Details of long term capital gain on sale of 291028 shares of Sulabh Engg. & Services Ltd. pg. 26. 2. Copy of detail of purchase P.B. Pg. 22. 3. Copy of notice for sub division of shares P.B. Pg.25. 4. Copy of assessee’s account in the books of share broker SPFL Securities Ltd. (P.B.Pgs. 27-29) 5. Copies of bills in respect of sale of shares sold through broker (Paper Book Pgs. 30-63) 6. Copy of D-MAT account of the assessee with Prabhat Finance Services Ltd. (P.B. Pgs. 64-65). 7. Copy of Bank account statement with Union Bank of India placed in P.B. Pgs. 174-178, wherein the sale proceeds of shares of Sulabh Engineers P. Ltd. were credited. 6.1 Similar documents were filed in the case of Manoj Kumar Agarwal which is involved in ITA No. 412 and the details of paper book pages where such documents are placed is as below: 1. List of sale of shares (P.B. pg.48) 2. Copies of assessee’s account in the books of share broker Prabhat Finance Services Ltd. (P.B. pg.49 to 52). 3. Copies of bills in respect of such sales issued by Prabhat Finance Services Ltd. (P.B. pgs.53-100). 4. Copy of D-MAT account of assessee with Prabhat Financal Services Ltd. (P.B. pgs.101-102). 5. Copy of bank statement wherein proceeds of such shares was credited P.B. Pgs. 229-240A. 7. The above documents clearly demonstrate that assessees had sold shares through recognized stock exchanges and through authorized stock I.T.A. No.410 & 412/Lkw/2019 7 brokers on which necessary security transaction tax and service tax has been paid. The transactions of sale are though real time screen based trading and payments for sale of shares has been received by the assessees through banking channels. 8. Though the above shares were sold through authorized stock brokers on recognized stock exchange but the same were not purchased through the brokers in the case of Mridula Agarwal. In that case, the assessee had purchased 35000 equity shares from Success Vayapar Ltd. on 16.4.2012 for Rs.700000, a copy of ledger account of Success Vayapar Ltd. is placed in P.B. pg. 22. The payment for the purchase of the above shares was made through Union Bank of India from the account of the assessee a copy of Bank account is placed in P.B. pgs.23 and 24 where the amount of Rs.7.00 lacs has been debited to the account of assessee. The said 35000 equity shares of Rs.10 were sub divided in to equity shares of Rs.1/- each. Copy of letter by BSE regarding sub division of shares is placed in P.B. pg.25. Such shares were received in the DEMAT account of the assessee with Prabhat Financial Services Ltd. which has been credited in the DEMAT account of the assessee on 20.07.2012 such copy of DEMAT account is placed in P.B. page 64 to 65. 9. In the case of Shri Manoj Kumar Agarwal, the assessee did not directly purchase the shares but he got gift of 700000 shares from his father Maha Veer Prasad Agarwal a copy of gift deed is placed in P.B. pgs. 23-24. The allotment of such shares was directly made by company to Shri Maha Veer Prasad Agarwal father of the assessee and copy of allotment letter is placed in P.B. pg.28. The payment for the above shares was made by the father of assessee from his bank account in Bank of Baroda a copy of such bank account is placed in P.B. pgs. 29 to 45. The relevant entries are appearing in P.B. pg.34. Such shares were credited in the DEMAT account of I.T.A. No.410 & 412/Lkw/2019 8 assessee with Prabhat Financial Services Ltd. a copy of such DEMAT account statement is placed in P.B. pages 101 to 102. 9.1 These documentary evidences for purchase and sale of shares has not been disputed by the department and neither any adverse findings has been made on such evidences. The only reason for rejecting the claim of the assessees is the investigation report of department and certain adverse statements of the some persons. The assessees had requested to Assessing Officer for making available complete statements of such persons and also wanted to cross examine the witnesses of Revenue. A copy of request letter to Assessing Officer is placed in P.B. pgs.177 & 111 respectively. The Assessing Officer in turn requested the assessees to produce the witnesses which is not in accordance with law as the Revenue was responsible for making available it’s witnesses before assessees for their cross examination. The issue of cross examination was also not considered properly by ld. CIT(A). Therefore there is a violation of principles of natural justice also. 10. Various benches of the Tribunal under similar facts and circumstances has decided similar issues in favour of the assessees which has been relied on by the assessees. The Lucknow Bench of the Tribunal also under similar circumstances in various cases has decided similar issues in favour of the assessee in various cases. In group appeals in ITA No. 544-552 and 555/Lkw/2019 wherein the Tribunal vide a consolidated order dated 3.6.2021 has allowed relief to the assessees in same script of Sulabh Engineers & Services Ltd. The above appeals has been allowed by the Tribunal after following its own orders in ITA No. 475 & 681/Lkw/2019 in the case of Uma Shanker Dhandhania wherein vide order dated 16/02/2021 it held as under: “8. We have heard the rival parties and have gone through the material placed on record. We find that there is no dispute between the parties regarding the evidences which the assessee had produced before the authorities below for claiming that assessee indeed was allotted one lac shares @ Rs.20/- each and which were sold partly during AY 2014-15 and I.T.A. No.410 & 412/Lkw/2019 9 partly during AY 2015-16. There is also no dispute regarding contract notes issued by the brokers and proceeds paid by them through banking channels. The only dispute between the parties is that Assessing Officer on the basis of a report from investigation wing of the Department has held the capital gain to be bogus and has held the amount of capital gain as assessee’s own money being unaccounted money converted into accounted money by managing the capital gains. The assessee, on the other hand, produced before the authorities below evidences for allotment of shares and for making payment to the company directly through banking channels. Copy of allotment letter from the company is placed at paper book pg.1 whereby the company had acknowledged the receipt of Rs.20.00 lacs and had allotted one lac shares to the assessee. The payment to the company was made from the bank account of the assessee, a copy of which is placed in paper book Pg. 2 to 8. A part of the shares were sold by India Infoline Ltd. in the two years and the contract notes issued by India Infoline are placed in paper book Pgs. 9 to 14 and 11 to 15 in the two years respectively. Copy of Demat Account of the assessee where the shares allotted by company were credited and from where the shares were sold is placed at paper book pgs. 33 to 40 and 24 to 31 respectively in the two years. The copy of bank account wherein the proceeds were credited is placed at pgs. 2 to 8 and 2 to 10 respectively for both years. From the contract notes issued by the broker India Infoline Ltd. we find that assessee had paid service tax and STT and shares were sold through screen based transactions wherein the exact time and order numbers are mentioned. The copy of Demat statement of assessee shows credit of ten lac shares and on sale of 1,11,700 during the AY 2014-15 the balance is reflected at 8,88,300 shares as on 31/03/2014 (PB-26) and on sale of 30,000 shares during AY 2015-16, balance shares are reflected at 8,58,300 as on 31/03/2015 (PB-27). These balance shares of 8,58,300 are reflected in the Demat statements upto 31/03/2019. From the Demat statement, we further observe that assessee was holding certain other scrips also. The assessee, therefore, had filed sufficient evidences to prove the genuineness of the transactions but authorities below has rejected the claim of the assessee on the basis of an investigation report of the Department whereby the scrip was held to be penny stock which was being used for providing bogus long term gains. We find that the Kolkata Tribunal in ITA 2467/Kol/2017, vide order dated 10.5.2018 has considered a similar issue of the same scrip M/s Sulabh Engineers and Services Ltd. and has allowed relief to the assessee by holding as under: “7. We have heard both the parties and perused the material available on record. We note that the assessee has submitted before us the statement showing purchases and sale of long term capital gain on sale of equity shares (PB-1). The assessee submitted allotment advice for 75,000 shares of M/s Sulabh Engineers and Services Ltd. (PB-2). The assessee submitted the bank detail for payment (vide PB-3 to 5). The assessee submitted before us NSDL statement showing preferential allotment of I.T.A. No.410 & 412/Lkw/2019 10 75000 shares of M/s Sulabh Engineering and Services Ltd. We note that the assessee also submitted extract of resolution passed and screenshot of money control showing splitting of face value from Rs.10 to Rs. 1 of M/s Sulabh Engineering and Services Ltd. (PB-11 to 13). The assessee submitted the NSDL statement showing allotment of 7,50,000 shares of M/s Sulabh Engineers and Services Ltd. at fair value of Rs. 1 (PB-14 to 17). The balance sheet and profit & loss account along with investment schedule showing 7,50,000 shares of M/s Sulabh Engineers and Services Ltd. for assessment year 2013-14 (PB-18 to 23) were also submitted. The assessee also submitted the sale bill along with contract note from broker for sale of 1,25,000 shares of M/s Sulabh Engineers and Services Ltd. (PB-23 to 46). The broker’s statement showing payment made for the sale has also been submitted by the assessee,(vide PB-47 to 59). The bank statement reflecting receipt of sale consideration for sale of 1,25,000 shares of M/s Sulabh Engineers and services ltd is placed in paper book vide,(PB-60 to 63). The Profit & loss account and computation of income for assessment year 2014-15 (PB-64 to 69) were also placed in the paper book. With help of these plethora documents and evidences, the ld Counsel claimed that long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year, is genuine. 8. We note that the assessee has earned long term capital gain on sale of equity shares of Sulabh Engineering and Services Ltd. of Rs. 1,12,13,010/- during the current financial year. During assessment proceedings details and evidences in support of purchase and sale of shares as asked for have been submitted before the learned Assessing Officer from time to time. However, the ld. Assessing Officer has treated the transaction in equity shares of M/s Sulabh Engineering and Services Ltd. as bogus and added Rs. 1,12,13,010/- being Long Term Capital Gain on sale of such equity shares only on the basis of his suspicion without bringing any adverse material on record in support of his contention in spite of the fact that the sale transactions have been done through recognized exchange through the authorized broker and all relevant supporting documents have been submitted before the learned Assessing Officer. Further, learned Assessing Officer has also added Rs. 56,065/- on account of undisclosed commission payment @ 0.5% of the Long Term Capital Gain that had been assumed to be incurred to arrange bogus Long Term Capital Gain amounting to Rs. 1,12,13,010/-. We note that the scripts / equity shares of M/s Sulabh Engineering and Services Ltd. has been dealt with by the SMC Bench of this Tribunal in the case of Vasudha Jain, in ITA No.1018/Kol/2018, for A.Y. 2015-16, order dated 15.02.2019, I.T.A. No.410 & 412/Lkw/2019 11 wherein the SMC Bench of this Tribunal held that addition has been made by AO mainly on the basis of ‘suspicion’ and ‘probability’. No price rigging established by AO. The ld AO as well as ld CIT(A), were guided by the report of the Investigation Wing, which is general in nature and no specific findings for the assessee, and hence based on these facts the SMC Bench deleted the addition, observing the following. “13. The ld AR also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgement of Hon’ble Supreme Court in the case of Krishnan and Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon’ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon’ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (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) 14. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee, the Companies dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE. The ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act :- (i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) I.T.A. No.410 & 412/Lkw/2019 12 (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) 15. We note that the ld. D.R. had heavily relied upon the decision of the Hon’ble Bombay High Court in the case of Bimal Chand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit. 16. It is clear from the above that the facts of the case of the assessee are similar with the facts in the cases wherein the co- ordinate bench of the Tribunal has deleted the addition and allowed the claim of LTCG on such sale of shares Therefore, respectfully following the same ratio, I am inclined to set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital as bogus and order to allow the claim of LTCG on sale of share of M/s. SESL and delete the consequential addition.” 9. As the issue is squarely covered in favour of the assessee by the decision of the SMC bench of ITAT Kolkata, and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the SMC Bench in the case of Vasudha Jain (supra), we find no reason to interfere in the said order of the SMC Bench of this Tribunal and the same is hereby upheld. Therefore, we delete the addition of Rs.1,12,13,010/- and we also delete the consequential addition on account of unexplained expenditure towards commission at Rs.56,065/-. 10. In the result, appeal of the assessee is allowed.” 9. Similarly the Chennai Bench of ITAT in ITA 384 vide order dated 18.06.2019 in the case of same scrip of M/s Sulabh Engineering Ltd. has allowed relief to the assessee. Similar is the position of SMC bench Kolkata, whereby in ITA No. 2378 vide order dated 07.08.2019, the Tribunal allowed relief to the assessee. Again SMC Kolkata Bench in ITA 1018 vide order I.T.A. No.410 & 412/Lkw/2019 13 dated 15.02.2019 allowed relief to the assessee on the same scrip and similar is the position of B bench of Kolkata wherein vide order dated 10.05.2019 in ITA Nos. 125 and 126 the same scrip of Sulab Engineering and Services Ltd. was considered and relief was granted to the assessee. 9.1 We further find that in a recent judgment by the Hon'ble Delhi High Court vide order dated 15.01.2021 in an appeal filed by Revenue against the order of Tribunal the Hon'ble Court in a consolidated order in three appeals dismissed the appeals of the Revenue. In I.T.A. No.125, on the basis of same investigation report, the Assessing Officer and CIT(A) had not allowed claim of the assessee of long term capital gain on the scrip M/s Gold Line International Finvest Ltd. In I.T.A. No. 130 and 131 similar claim was made on scrip of M/s Eastern Bio Organic Food Processing Ltd. and on scrip of Rander Corporation Ltd. The authorities below had not allowed claim of the assessee on the basis of same investigation report on the basis of which claim of the assessee has been rejected. These scrips are mentioned at Sl. No. 24, 19 and 49 in the list of penny stocks prepared by investigation team. The Tribunal however allowed relief to the assessee by separate orders which were confirmed by Hon'ble Delhi High Court. The relevant findings of Hon'ble court are reproduced below: “3. The present appeals under Section 260A of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] are directed against the common order dated 6th August, 2019 [hereinafter referred to as the ‘Impugned Order’] passed in ITA No. 1069/DEL/2019 (for AY 2014-15), 2772/DEL/2019 (for AY 2015- 16) and other appeals for the same AYs, by the Income Tax Appellate Tribunal [hereinafter referred to as the ‘ITAT’]. However, the Impugned Order records the factual position only in respect of ITA No. 1069/DEL/2019. 4. The Revenue urges identical questions of law in all the afore- noted appeals with the only difference being the figures relating to the additions made under Section 68 read with Section 115BBE of the Act. Accordingly, the same are being decided by way of this common order. 5. It is not in dispute, as noted in the Impugned Order, that the factual background in all the three appeals is quite similar. However, for the sake of convenience, the facts in respect of ITA 125/2020 are being noted and discussed elaborately. Briefly stated, the Respondent-Assessee is an individual who has derived income from interest on loan, FDR, NSC and bank interest under the head of ‘income from other sources’ in respect of A.Y. 2015- 16. She filed her return of income, declaring total income of Rs. 13,96,116/-. After claiming deduction of Rs. 1,60,000/- under Chapter VI-A, the total taxable income of Respondent was declared to be Rs. 12,36,120/-. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny. During the scrutiny proceedings, the AO noticed that for I.T.A. No.410 & 412/Lkw/2019 14 the relevant year under consideration, the Respondent had claimed exempted income of Rs. 96,75,939/- as receipts from Long Term Capital Gain [hereinafter referred to as ‘LTCG’] under Section 10(38) of the Act. He inter alia concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060/-, making an addition of Rs. 96,75,939/- under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited. The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted vide the Impugned Order, relevant portion whereof reads as under: “21. A perusal of the assessment order clearly shows that the Assessing officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings. 22. xx xx xx 23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and affirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry. 24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales I.T.A. No.410 & 412/Lkw/2019 15 transactions took place in the month of March, 2014. The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find any place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Qrganic food Processing Ltd – a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of the fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI. 26. There is no dispute that the statements which were relied by the Assessing Officer were not recorded by the Assessing Officer in the assessment proceedings but they were pre-existing statements recorded by the Investigation Wing and the same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void. xx xx xx 30. Considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act as mentioned elsewhere, such discharge of onus is purely a question of fact and I.T.A. No.410 & 412/Lkw/2019 16 therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand.” 6. Aggrieved by the aforesaid findings, the Revenue has filed the instant appeals contending that, notwithstanding the tax effect in the appeals falling below the threshold prescribed under Circular No. 23 dated 6 th September, 2019, the appeals are maintainable in view of the Office Memorandum dated 16th September, 2019 issued by the CBDT, which clarifies that the monetary limits prescribed in the aforementioned circular shall not apply where an assessee is claiming bogus LTCG through penny stocks, and the appeals be heard on merits. 7. Mr. Zoheb Hossain, learned senior standing counsel for the revenue (Appellant herein), contends that the learned ITAT has completely erred in law in deleting the addition, and thus the Impugned Order suffers from perversity. He submits that there are certain germane factual errors, inasmuch as the learned ITAT has wrongly recorded that there was no independent enquiry conducted by the AO, when in fact the AO had issued notices to the companies in question under Section 133(6) of the Act. He points out that the observations recorded in para 25 of the Impugned Order are factually incorrect, and in conflict with para 4 of the order of the CIT(A) dated 24th December, 2018 which reads as follows: “4. Even the broker through whom the shares were dematerialized and sold i.e. SMC Global Securities Ltd. was also a part of the scam. This is a Delhi based broker whose regional office was also surveyed. The sub brokers were also surveyed and also statements recorded which confirmed the payment of cash commission by the beneficiaries for being part of the syndicate.” 8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and I.T.A. No.410 & 412/Lkw/2019 17 after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453. 9. Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips. 10. We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter. 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a preplanned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration 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 I.T.A. No.410 & 412/Lkw/2019 18 under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the I.T.A. No.410 & 412/Lkw/2019 19 AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the present appeals are dismissed.” 10. In the above noted judgment, the Hon'ble court has held that startling spike in the share price and other factors may be enough to show circumstances that might create suspicion but the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The Hon'ble court further distinguished the judgment in the case of Suman Podar which was in favour of Revenue. The Hon'ble court further held that case of Sumati Dayal u/s CIT was also not applicable to the assessee. The Hon'ble court further held that reliance placed by the Assessing Officer on the investigation report of Investigation Wing 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. 11. In view of above facts and circumstances and in view of judicial precedents, Ground Nos. 3 and 4 are allowed in ITA No. 475/Lkw/2019 and Ground No. 1, 2, 5 & 6 were not argued, therefore, same are dismissed as not pressed. In view of above, appeal in ITA no. 475/Lkw/2019 is partly allowed. 12. As regards, appeal in ITA No. 681/Lkw/2019, Ground Nos. 5 and 6 are allowed. Ground Nos. 1 to 4 and ground No. 7 to 8 were not argued, therefore, these grounds are dismissed as not pressed. As regards ground No. 9 and 10, the Assessing Officer had made additions u/s 69C as deemed commission on the arrangement of capital gains. Since we have allowed I.T.A. No.410 & 412/Lkw/2019 20 relief to the assessee on ground No. 5 & 6, therefore, these grounds are also allowed. 13. As regards grounds 11 to 13 regarding deposit in bank, the assessee has filed additional evidences which could not be filed because of mistake of counsel and illness of assessee therefore, we deem it appropriate to remit this issue back to the office of the Assessing Officer who, after affording reasonable opportunity of being heard to the assessee, will pass appropriate orders. In view of the above, ground No. 11 to 13 are allowed forstatistical purposes. 14. In view of above, appeal in ITA No. 681 is also partly allowed and partly allowed for statistical purposes.” 11. While allowing relief to the assessee the Tribunal has relied on various other case laws including the judgment of Hon'ble Delhi High Court in the case of Smt. Krishna Devi and Others where Hon'ble High Court has elaborately dealt with the contentions of Revenue. 12. We further find that Hon'ble Gujarat High Court in the case of Principal Commissioner of Income Tax vs. Parasben Kasturichand Kochar (Supra) dated 17.09.2021 in ITA No.204 has dismissed an appeal filed by the Revenue wherein under similar facts and circumstances the Assessing Officer and ld. CIT(A) had made the additions for script Mohan Poly Fiber Ltd. and which was deleted by the Tribunal and was confirmed by the Hon'ble High Court of Gujarat. The findings of Hon'ble Gujarat High Court are reproduced below: “This appeal under section 260A of the Income-tax Act, 1961 (for short 'the Act 1961") is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench dated 20-2- 2020 in the ITA No. 549/Ahd/2018 for the A.Y. 2014-15. The Revenue has proposed the following question of law for the consideration of this Court:— "Whether the Appellate Tribunal was right in law and on facts in deleting the addition of Rs. 9,70,468/- made on account of LTCG claimed as exempt u/s. 10(38) of the Act without appreciating the fact that the transaction was pre-arranged as well as sham and was carried out through penny scripts companies/paper companies?" I.T.A. No.410 & 412/Lkw/2019 21 2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:— "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. Learned 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, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Ltd. v. 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 learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee." 3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income-tax authorities and the Tribunal also took notice of the fact that some of the shares also remained in the account of the appellant. 4. We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under section 260- A of the Act, 1961. 5. In the result, this appeal fails and is hereby dismissed.” 12.1 We further find that the SLP filed by the Revenue has also been dismissed by Hon'ble Supreme Court vide order dated 02.08.2021. I.T.A. No.410 & 412/Lkw/2019 22 13. In view of these facts and circumstances and in view of the judicial precedents we allow relief to the assessees on merits and direct the Assessing Officer to allow the claim of capital gain u/s. 10(38) of the Act. Since we have deleted the additions on account of denial of long term capital gain we also delete the assumed commission which the authorities below has assumed to have been paid by the assessees for arrangement of such gains. 14. In view of the above facts and circumstances Ground No.5 and 6 of the appeals are allowed. Since we have allowed appeals on merits rest of the grounds has not been adjudicated and hence are dismissed as infructuous. 15. In nutshell, the appeals filed by assessees are partly allowed. (Order pronounced in the open court on 05/04/2022) Sd/- Sd/- (A.D.JAIN) ( T. S. KAPOOR ) Vice President Accountant Member Dated: 05/04/2022 Aks Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. The CIT(A) 5. D.R., I.T.A.T., Lucknow Asstt. Registrar
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