MAHIPAL KOTHARI,BONGAIGAON V. ASSISTANT COMMSSIONER OF INCOME TAX, CIRCLE-BONGAIGAON, GONGAIGAON

ITA 332/GTY/2019

AI Insights

The case involves multiple appeals by different assessees against the orders of the Commissioner of Income Tax (Appeals), Guwahati, which had confirmed additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The additions were related to the sale proceeds of equity shares, which were treated as unexplained. The assessees argued that they had fulfilled all conditions for claiming exemption under section 10(38) of the Act, including holding the shares for more than a year and selling them through a recognized stock exchange after paying the Security Transaction Tax (STT). The Tribunal examined the facts, the documentary evidence provided by the assessees, and relevant judicial precedents, ultimately deciding in favor of the assessees.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 23869 (ITAT-GUWAHATI)
• Duration Of Justice: 5 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-08-2024
• Assessment Year: 2015-2016
• Appeal Filed On: 19-07-2019
• Other Referred Cases: Kavita Chokhani Vs. DCIT, PCIT Vs. Swati Bajaj, DCIT vs. Bajrang Lal Bamalwa & Ors., PCIT vs. Krishna Devi, PCIT vs. Indravadan Jain HUF
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY JHA
• Assessee Lawyers: MIRAJ D. SHAH; FILING AN APPLICATION ALLOTMENT OF EQUITY
• Keywords: Set aside; Capital asset; Reassessment proceedings; Question of law; Unexplained cash credit; Capital Gains; Search and seizure; Accommodation entries; Assessment record; Scheme of amalgamation; Benefit of exemption; Penny stocks; Bogus
• Section: 147; 148; 143(3); 153A; 68; 131; 133(6); 13; 20

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL GAUHATI BENCH VIRTUAL HEARING AT KOLKATA BEFORE DR. MANISH BORAD, ACCOUNTANT MEMBER & SHRI MANOMOHAN DAS, JUDICIAL MEMBER I.T.A. Nos. 332 /GTY/2019 Assessment Years: 2015-16 Mahipal Kothari Vs. ACIT, Circle-Bongaigaon C/o N. C. Kothari, Bongaigaon Assam-783380 (PAN: ACLPK7444H) (Appellant) (Respondent) & I.T.A. Nos. 333 /GTY/2019 Assessment Years: 2015-16 Mahipal Kothari & Sons Vs. ACIT, Circle-Bongaigaon C/o N. C. Kothari, Bongaigaon Assam-783380 (PAN: AABHM3906Q) (Appellant) (Respondent) & I.T.A. Nos. 346 /GTY/2019 Assessment Years: 2015-16 Biswanath Choudhury & Sons Vs. DCIT, Circle-3,Guwahati Bishnupur Main road, City Complex, Kalapahar, Guwahati-781016 (PAN: AADHB4968F) (Appellant) (Respondent &&&&&& & Assessee by : Shri Miraj D. Shah, AR Revenue by : Shri Sanjay Jha, JCIT सुनवाई की तारीख/Date of Hearing : 14.08.2024 घोषणा की तारीख/Date of Pronouncement : 18.10.2024 आदेश/O R D E R PER DR. MANISH BORAD, ACCOUNTANT MEMBER: Page | 2 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 All the captioned appeals filed by the assessee for A.Y. 2015-16 are directed against the separate orders passed by the Ld. Commissioner of Income Tax (Appeals), Guwahati-2, Guwahati (hereinafter referred to as the ‘ld. CIT(A)’) evenly dated 31.05.2019. 2. As the issues raised in all these appeals are common and they relate to the addition made u/s. 68 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) treating the sale consideration from sale of equity shares as unexplained and denying the benefit of exemption u/s. 10(38) of the Act. We have heard all these appeals together and are being disposed of by this common order. 3. Since the Ld. Counsel for the assessee is common for allthese appeals, he at the outset, with regard to ITA Nos. 332 & 333/GTY/2019 referring to the details furnished in the paper book stated that equity shares of GCM Securities Ltd. purchased by the assessee by filing an application for allotment of equity shares to the company and thereafter, having received the equity shares in the Demat Account and that after holding them for the previous exceeding twelve moths part of holdings have been sold through on-line portal controlled by Security & Exchange Board of India and that the condition for claiming benefit of sec. 10(38) of the Act stands fulfilled. As regards, the assessee M/s. Biswanath Choudhdury & Sons, ITA No. 346/GTY/2019, he submitted that the assessee purchased 20000 equity shares of Swift I T Infrastructure & Services Ltd. (SITISL) on 21.04.2012 for a purchase consideration of Rs. 2 lakh. These shares were dematerialized with Anmol Share Broking Ltd., Bengalore on20.02.2013. Thereafter, assessee receives 20000 equity shares of Prag-shilpa IT Infrastructure & Services Ltd. in lieu of 20000 Page | 3 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 equity shares of Swift SITISL under the scheme of amalgamation announced by Hon’ble High Court of Mumbai vide order dated 03.05.2013. The shares of Prag-shilpa IT Infrastructure & Services Ltd. were finally sold during the FY 2014-15 on recognized Stock Exchange of SEBI after duly paying the Security Transaction Tax and the delivery of shares was given through demat account. 3.1. Referring to the above facts, he submitted that since all the assessees have carried out the alleged transaction of purchase of equity shares of the listed company, the payments made through banking channel, shares held in demat account for more than a year and sold on the SEBI through various stock brokers and sale consideration received through stock exchange after making due payment of STT, therefore, since all the conditions for claiming the benefit of section 10(38) of the Act stand fulfilled, Ld. CIT(A) erred in confirming the action of the AO making addition u/s. 68 of the Act for the sale consideration received from sale of equity shares of the alleged listed companies. He further submitted that the case of the assessee is squarely covered by the decision of this Tribunal in the case of Kavita Chokhani Vs. DCIT in ITA No. 376/GTY/2019 & Ors. dated 14.06.2024 wherein, similar issue in almost identical facts have been examined and decided in favour of the assessee. 4. On the other hand, Ld. DR vehemently argued supporting the order of the lower authorities and also making reference to the decision of Hon’ble High Court at Kolkata in the case of PCIT Vs. Swati Bajaj reported in 446 ITR 56. 5. We have heard rival contentions and perused the material placed before us. Common issue raised by all the three assessees Page | 4 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 is that Ld. CIT(A) erred in denying the benefit of sec. 10(38) of the Act to the assessee alleging the long term capital gain as bogus and confirming the action of the AO of making addition u/s. 68 of the Act for the sale consideration received against sale of equity shares of the listed companies. So far as the assessee namely, Mahipal Kothari and Mahipal Kothari & Sons through their appeal bearing ITA No. 332/GTY/2019 and 333/GTY/2019 for AY 2015- 16, we note that they have shown long term capital gain of Rs.31,38,487/- and Rs.34,24,663/- from sale of equity shares of GCM Securities Ltd. The facts placed before us indicate that there was public issue announced by GCM Securities Ltd.. Assessee applied for the allotment of equity shares and his application was accepted and 6000 equity shares each were allotted to both the assessees. Ld. AO denied the claim in the scrutiny proceedings holding them to be not genuine and made the addition u/s. 68 of the Act in the sale proceed received from sale of equity shares of GCM Securities Ltd. So far as the assessee namely, Biswanath Chowdhury & Sons is concerned, we notice that the assessee sold 20000 equity shares of Prag-Shilpa IT Infrastructure & Services Pvt. Ltd. receiving the sale consideration of Rs.1,02,79,652.13 and after claiming the deduction for purchase consideration of Rs. 2 lakh and other incidental expenses, long term capital gain u/s.10(38) of the Act was shown in the return at Rs.1,00,89,961/-. We notice that the shares sold by the assessee were received by him in lieu of the 20000 equity shares of Swift IT Infrastructure & Services Pvt. Ltd. held by him in the past and these were purchased in FY 2012-13 after making due payment through banking channel almost after two years and four months of the purchase of the equity shares they have been finally sold during the year through the registered broker namely Anmol Share Page | 5 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 Broking Pvt. Ltd. Bengalore. All the assessee before us have placed documentary evidence to prove that they have fulfilled the condition prescribed u/s. 10(38) of the Act by way of holding the equity shares for more than twelve months, sold the equity shares through recognized stock exchange by duly making payment of STT and the shares having held in the Demat account for more than twelve months and at that point of time when assessee entered into the transaction there was no restriction on trading/selling of alleged equity shares. Before us, Ld. DR has only relied on the observations of the AO but has not brought any concrete evidence to prove that the assessees in the instant case were directly involved in the alleged scheme of procuring bogus long term capital gain. Ld. DR has also failed to prove that at the time the assessee in appeal before us, carried out the alleged transaction on sale of equity shares, there was any restriction on sale of such shares. It is also evident from records that the alleged sale consideration has been received by the respective assessees through the recognized stock exchange and there is no mechanism through which the seller can identify the purchaser because the transactions are carried out through registered stock brokers. Under the similar state of facts and circumstances, Ld. counsel for the assessee has referred and relied on the decision of this Tribunal in the case of Kavita Chokhani & ors. (supra) and perusal of the order indicates that the issue raised therein is similar and this Tribunal after placing reliance on certain judicial precedence has given relief to the assessee observing as follows: “10. We have heard rival contentions and perused the material placed before us. The common issue in all these appeals relates to the genuineness of the claim of exempt income in the form of long term capital gain u/s 10(38) of the Act earned from purchase and sale of equity shares of M/s. KAFL and appellant wise claim is mentioned below:- Page | 6 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 Search and Seizure operation conducted on 17/09/2015 Assessment Year ITA No. Assessee Long term capital gain claimed as exempt u/s 10(38) of the Act Name of scrip 2015-16 376/GTY/2019 Kavita Chokhani 1,63,36,440/- Kailash Auto Finance Ltd. 2015-16 62/GTY/2020 Vishnu Chokhani and Sons 1,34,18,162/- -do- 2015-16 422/GTY/2019 Brahmadutt Chokhani and Sons 62,32,603/- -do- 2014-15 421/GTY/2019 -do- 1,03,95,250/- -do- 2015-16 380/GTY/2019 Brahmadutt Chokhani 1,63,84,187/- -do- 2015-16 379/GTY/2019 Vishnu Kant Chokhani 1,36,88,550/- -do- 2015-16 378/GTY/2019 Kamla Devi Chokhani 40,20,537/- -do- 2014-15 377/GTY/2019 -do- 1,21,94,484/- -do- 11. We observe that the ld. AO has referred to certain transactions observed by investigation wing of the Income tax Department and SEBI reports wherein bogus long term capital gain is arranged by the beneficiaries with the help of entry operators, company owners and other paper/shell entities. The assessee has also been subjected to search and except reference to the statement recorded during the course of search, no other incriminating material was found by the search team which could prove that the assessee has entered into the transactions of arranging bogus long term capital gain. The reference to the report of investigation wing is the sole basis with the ld. AO. No independent enquiry has been conducted by the ld. AO about the alleged transactions i.e., neither any information has been called for from the directors of alleged penny stock company whose shares have been purchased and sold, nor any adverse information has been received from the broker who has sold the equity shares on the recognised stock exchange platform. Addition by the ld. Assessing Officer is purely on the theory of preponderance of probability of arranging such long term capital gain. Section 10(38) of the Act deals with the income arising from transfer of long term capital gain being equity shares in a company or selling of equity oriented funds and the gain from transfer of such long term capital asset is exempt from tax if the transactions are entered into on or after the date on which Chapter VI of the Finance (2) Act, 2004, come into force and such transactions is chargeable to STT under the chapter. Recognised stock exchange shall have the meaning assigned to it vide explanation (ii) to Section 43(5)(A) of the Act i.e., \"recognised stock exchange\" means a recognised stock exchange as referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and which fulfils such conditions as may be prescribed and notified by the Central Government for this purpose. As far as the long term capital asset is concerned if the equity shares are held for more than 12 months, they fall under the category of long term capital gain. In the instant case, the assessee(s) purchased equity shares either through registered broker in virtual mode or open market and thereafter, got them converted into D-mat form and after holding them for more than 12 months has sold the equity shares on the recognised stock exchange. It is not in dispute that the STT has been paid and the sale transactions has been duly supported by the contract note and the sale consideration have been received through Page | 7 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 banking channel via registered broker. We also notice that equity shares have been sold on the portal and the buyer is not known to the assessee and the system has been devised by the SEBI in such a way so as to facilitate carrying out such transactions of purchase and sale of equity shares and other units of mutual funds wherein on the screen the seller is appearing only through its code and not its name and the buyer is also available that too through its code. It is purely a demand and supply transaction where the price can be moving up and down based on the demand and supply of the particular scrip. 12. Now, so far as the conditions prescribed u/s 10(38) of the Act is concerned the same has been duly complied to as the equity shares were held by the assessee for more than 12 months and sold after due payment of STT and the consideration has been received through banking channels. Now, the case of the revenue is that all the transactions i.e., starting from the purchase till sale are all managed affairs and there is role of various persons to carry out such transactions. For coming to this conclusion, the ld. Assessing Officer has not made any independent enquiry and has just taken the report of the investigation wing. It is an admitted fact that in the share market, thousands of companies are traded and the procedure of purchase and sale of equity shares works from the software and other systems devised by the recognised stock exchanged which in this case is SEBI. We do not deny that there may be come cases where certain transactions are managed and some persons may arrange some accommodation entries but all those are fully backed up by the detailed investigation and the persons are identified who have carried out such transactions. But that is not the case before us as nothing adverse specifically against the assessee(S) has been brought by Revenue except the statement. Revenue has also not proved that assessee is part of such alleged accommodation entry group or it has any connection with such entry operators. We, therefore, after going through the facts of the case are of the considered view that since the necessary conditions for claiming exemptions u/s 10(38) of the Act have been fulfilled by the assessee, the alleged claim made u/s 10(38) of the Act i.e., exemption of long term capital gain from sale of equity shares of the listed company, deserves to be allowed. 13. Now, coming to the judicial jurisprudence, plethora of judgment have been quoted from both the sides of which some are in favour of the assessee and others in favoring the revenue. However, where there is no judgment of the Hon’ble Jurisdictional High Court on a particular issue and when there are two different views of the other Hon’ble High Courts on the very same issue, then as held by the Hon’ble Apex Court in the case of The Commissioner of Income-Tax vs M/s. Vegetables Products Ltd. (supra), the view which is more favourable to the assessee has to be followed. We observe that recently this Tribunal in the case of DCIT vs. Bajrang Lal Bamalwa & Ors. (supra) while dealing with the similar issue of long term capital gain from sale of alleged penny stock company, namely, Twenty First Century India Ltd., has held in favour of the assessee placing reliance on the judgment of the Hon’ble Delhi High Court in the case of PCIT vs. Krishna Devi [2021] 126 taxmann.com 80 (Delhi) and the relevant finding of this Tribunal is reproduced below:- “43. We have duly considered the rival contentions and gone through the record carefully. Ideally when we explore the scope of section 153A and addition is not sustainable on legal ground, then, the inquiry on factual aspect is not required to be made. In case, a specific ground is being raised in an appeal or C.O. that has to be adjudicated. Earlier this approach was being taken on the ground that Higher Appellate Authority may concur or not with the view of the ITAT on the legal ground and in that situation, adjudication of the issue on merit would be required. But now the Hon'ble Supreme Court has silenced the Page | 8 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 controversy in the case of PCIT -vs.- Abhisar Buildwell Pvt. Limited and there is no scope of disagreement on the scope of section 153A in further appeal unless Hon'ble Supreme Court took a different view later on. 44. A perusal of the written submissions filed by the ld. Counsel for the assessee on merit is concerned, the issue is whether capital gain earned by the assessee is to be treated as a genuine or not It is such a subject which would always remained in a grey area inspite of availability of a large number of decisions by the Hon'ble High Court as well as by the Tribunal. The assessees in response to the show-cause notice have submitted detailed evidences, as noticed by us in the earlier part of the order. They have submitted computation of income, balance-sheet, computation of long-term capital gain, copies of bank statements, etc. We have notice d in the earlier part of this order while taking note of written submissions of ld. Counsel for the assessee comprised in the paragraph no. 1.13 on pages 6 to 8 of the submission. According to the assessee, a perusal of the above would indicate that the assessee has fulfilled all the conditions for claiming this claim as a genuine. The Department did not choose to scrutinise the returns of all the respondents but in different assessment years, same transaction has been scrutinised by the Department that facts we have noticed in the earlier part of the order. The ld. Counsel for the assessee has drew our attention on those details on page no. 32 of his submissions, which read as under:- (i) Assessment Order dt. 11.11.2014 passed u/s 143(3) in the case of Sri Bajrang Lal Bamalwafor A.Y. 2012-13 (corresponding order passed u/s 153A in respect of the very same year has also been impugned in the present set of appeals) wherein the erstwhile A.O., after inspection of relevant documents and conscious application of mind vis-à-vis the impugned issue had found the impugned share transactions in TFCIL to be perfectly genuine and allowed the Assessee's claim of exemption u/s 10(38) of the Act. The relevant holdings of the A.O are excerpted hereunder: \"4......The assessee also claimed exemption u/s 10(38) of the Income Tax Act 1961 for Long Term Capital Gains on sale of shares. The A/R filed details of the same which were examined, verified and recorded. Thus, the increase of capital has been explained.\" Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 102 to 109of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. 2012-13. Copy of the above assessment order is enclosed at pages 59-65 of PB-17 (ii) Assessment Order dated 31.03.2013 passed u/s 143(3) in the case of Sri Bajrang Lal Bamalwa for A.Y. 2010-11, wherein identical exemption of Rs. 1,41,14,446.89 claimed by the Assessee u/s 10(38) on LTCG arising on the sale of the same scrip i.e., TFCIL was allowed by the A.O after detailed inspection of the documents filed by the Assessee viz. copies of contract notes, purchase and sales bills etc. and the reply received from the Calcutta Stock Exchange in response to notice issued u/s 133(6) etc. duly confirming the sales of the impugned shares. Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 69 to 84 of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) 2012-13. Copy of the above assessment order is enclosed at pages 66-72 of PB-17 Page | 9 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 (iii) Assessment Order dated 31.03.2013 passed u/s 143(3) in the case of Sri HansrajBamalwa for A.Y. 2010-11 wherein similar exemption claimed on the LTCG arising on sale of shares of TFCIL was allowed duly by the Ld. A.O after an in-depth inspection and analysis of supporting documents furnished by the Assessee and enquiry conducted by him. Detailed assessment records including details of enquiries conducted by the Ld. A.O and copy of assessment order u/s 143(3) in the above case have been reproduced by the Ld. CIT(A) at pages 85 to 101of the appellate order passed in the case of Sri Bajrang Lal Bamalwa for A.Y. 2012-13. Copy of the above assessment order is enclosed at pages 73-79 of PB-17 (iv) Assessment Order dated 24.12.2018 passed u/s 147 r.w.s 143(3) in the case of Smt. MeenakshiBamalwa(also one of the Assessees herein) for A.Y. 2011-12. In the said case, reassessment proceedings were initiated by the A.O on the basis of the same purported materials/information as in the case of the Assessees herein viz. the purported information received from the DDIT(Inv), Kolkata relating to the alleged racket of availing bogus LTCG, the statements of promoters, brokers, directors etc. recorded by the Investigation Wing u/s 131 etc. The A.O after considering the purported information and evidences in his possession and the detailed documentary evidences furnished by the assessee therein, found the LTCG of Rs. 1,54,21,323/- claimed by the said assessee on the sale of TFCIL (i.e., the same scrip as in the present case) to be perfectly genuine and accordingly, completed the assessment u/s 147 at the returned figure. Copy of the above assessment order u/s 147 is enclosed at pages 80-86 of PB-17 (v)Assessment Order dated 24.12.2018 passed u/s 147 r.w.s 143(3) in the case of Smt. Bhagwati Devi Bamalwa(also one of the Assessees herein) for A.Y. 2011-12 wherein similar to the case of Smt. MeenakshiBamalwa, supra, the reassessment proceedings were initiated on identical information as in the case of the Assessees herein. The A.O passed similar order u/s 147 duly allowing the exemption claimed by the assessee therein u/s 10(38) on LTCG of Rs. 1,52,02,169/- arising on the ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) sale of shares of TFCIL. Copy of the above assessment order u/s 147 is enclosed at pages 87-91 of PB-17 45. A perusal of these assessment orders would indicate that in five scrutiny cases of the sale of shares, i.e. TFCIL, gain earned by the assessee was accepted as a genuine by the Department itself. Out of these five cases, two are in the re-assessment under section 147 and these assessment orders have been framed after more than one year of the search. Therefore, Department was not doubting the genuineness of the transactions. It is also observed that apart from Hon'ble Calcutta High Court in the case of Swati Bajaj, the other Hon'ble High Courts have accepted the claim of these alleged bogus long-term capital gains and ld. Counsel for the assessee drew our attention towards the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs. Smt. PushpaMalpani (2012) 20 taxmann.com 597 (Raj HC) , Hon'ble Delhi High Court in the case of PCIT -vs.- Krishna Devi (supra). In that case, the jump in share price of investment made by the assessee in Goldline was 4849.2%. The ld. Counsel for the assessee has also drew our attention on the tabulated details submitted in his submission and pointed out how certain companies have performed so well and the change was 449% to 312%, whereas certain companies has performed very badly. Therefore, we have made analysis of these break-up in the light of the large number of decisions, namely 21 in number compiled in the written submission. We are of the view Page | 10 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 that the Department ITA Nos. 51 to 66/GAU/2023 & CO Nos. 6 to 21/GAU/2023 (in ITA Nos. 51 to 66/GAU/2023) was not possessing any details, which authorize it to doubt the claim made by the assessee. Therefore, even otherwise on merit also, no addition is sustainable. 46. In the result, all the appeals of the Revenue are dismissed and that of the Cross Objections of the assessees are allowed.” 14. We also note that in another case i.e., M/s. Seema Holding Pvt. Ltd. (suupra), though the matter related to claim of bogus loss, however, reference has been made to various judgments including that of the Hon’ble Bombay High Court in the case of PCIT vs. Indravadan Jain HUF (supra) and distinguishing the same from the judgment of the Hon’ble Calcutta High Court in the case of PCIT v. Swati Bajaj and Ors (supra) and the relevant portion of this decision reads as under:- “18. We have heard rival contentions and perused the material available on record. It is also undisputed that these shares were purchased from the stock exchange platform through registered broker and the payment was made through cheque and similarly the sale was also effected through registered broker on stock exchange platform and payment was made through banking channel. The assessee has furnished before the AO all the requisite evidences in form of contract notes, details of payment and copy of D-mat a/c etc. to prove these transactions. We have also perused and analyzed the decisions passed by the Hon’ble Bombay High Court in the case of PCIT v. Indravadan Jain, HUF (supra) and Hon’ble Orissa High Court in the case of PCIT vs. Dipansu Mohapatra (supra), wherein the issue has been decided in favour of the assessee. Hon’ble Bombay High Court while deciding the case has held that unless the complicity of the assessee in manipulating the shares is proved, the assessee could not be held responsible for the wrong done by the brokers or persons and thus granted relief to the assessee. The Hon’ble Orissa High Court has held that where transactions are well documented and payments are routed through banking channels, the transactions of sale and purchases of shares cannot be doubted and thus held in favour of the assessee. 19. We have also carefully analyzed the judgment of the Hon’ble Calcutta High Court in the case of Swati Bajaj (supra) wherein the issue has been decided against the assessee by holding that the price of the shares were rigged and manipulated by a group of individuals and stock brokers in order to yield undue benefit in the form of bogus accommodation entries through manipulation of shares in the stock exchange and, therefore, decided the issue against the assessee. 19.1. In our opinion, where there are two constructions of the provisions of the Act are possible or available, then the construction which is favourable to the assessee has to be adopted as held in the judgment of the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. We have also perused the decision passed by the Hon’ble Apex Court in the case of Pr. CIT Vs Smt Renu Aggarwal (Supra) , the SLP filed by the revenue was dismissed by observing and as under: wherein the issue was decided affirming the decision of the Hon’ble Allahabad High Court. The Hon’ble High court has dismissed the appeal of the department that no question of law arose from the order of the tribunal affirming the order of ld. CIT(A) allowing the relief to the assessee. The ld. CIT(A) allowed the relief to the assessee on the ground that there was no adverse comment from the stock exchange or the company whose shares were involved in the Page | 11 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 transactions and the AO quoted the facts pertaining to completely unrelated persons whose statements were recorded and assessee’s name did not appear in those statements.” 15. Similar type of issue was also raised before the Co-ordinate Bench of ITAT Delhi in the case of Shri Rajesh Kumar Gupta (supra), wherein the Tribunal has held in favour of the assessee observing as follows:- 12. We have given thoughtful consideration to the orders of the authorities below. The undisputed fact is that 6000 shares were allotted to the assessee who has applied in the IPO of the company Esteem Bio Food Processing ltd. On allotment, shares were credited in the demat account of the assessee and the payments have been made through regular banking channel. Purchase of shares was subject to security transaction tax. 13. On 05.06.2014, the assessee sold the shares and received sale consideration in his bank account on 11.06.2014. Sale transaction was also subject to security transaction tax. We find that the Assessing Officer has proceeded by heavily relying upon the investigation report of the Investigation Wing, Kolkata regarding list of companies engaged in providing accommodation entries in the garb of bogus long term capital gains, modus operandi being penny stock trading through recognized stock exchanges. We find that the assessee has furnished all details but the same were rubbished by the Assessing Officer. 14. 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 evidence or source, but has merely relied upon the statement by the Investigation Wing as well as information received from the Investigation Wing, Kolkata. 15. The report of the Investigation Wing, Kolkata is much after the date of transaction when the assessee has already sold scrip. It is true that the shares of Esteem Bio Organic Food Processing Ltd were suspended from trading in stock exchange but that was from 29.06.2015, which is the date of order of the SEBI. The shares were purchased by the assessee on 05.02.2013 and sold on 05.06.2014 and these transactions have taken place much before the report of the Investigation Wing and also the order of the SEBI. 16. On identical set of facts as mentioned elsewhere, this co- ordinate bench in the case of Karuna Garg ITA No. 1069/DEL/2019 and Ors have considered the same shares i.e. Esteem Bio Organic Food Processing Ltd and deleted the addition which was affirmed by the Hon'ble High Court of Delhi in ITA No. 125/2020 and Ors dated 15.01.2021. The relevant observations/findings of the Hon'ble High Court read as under: \"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, Page | 12 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 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 ITA 125/2020 and connected matters ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained. 12. Mr. Hossain's submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar 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 ITA 125/2020 and connected matters 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. 17. On finding parity of facts, respectfully following the same, we direct the Assessing Officer to allow the exemption u/s 10(38) of the Act in respect of LTCGs and further direct the Assessing Officer to delete the hypothetical addition of Rs. 1,40,655/-. 18. In the result the appeal of the assessee in ITA No. 5120/DEL/2019 is allowed.” 15.1. The Hon’ble Delhi High Court in the case of PCIT vs. Smt. Krishna Devi [2021] 126 taxmann.com 80 (Delhi), under almost identical and similar facts has held in favour of the assessee observing as under:- Page | 13 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 “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 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 Page | 14 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.” 16. The Hon'ble Bombay High Court in the case of PCIT vs. Indravadan Jain HUF reported in (2023) 156 taxmann.com 605 order dated 12/07/2023, under identical circumstances, has held as under:- “2. It was the case of Revenue before the ITAT that the CIT[A] was wrong in deleting the addition made by the Assessing Officer (A.O.) in respect of long term capital gain treated by A.O. as unexplained cash credit under Section 68 of the Act. 3. Respondent had shown sale proceeds of shares in scrip Ramkrishna Fincap Ltd. (RFL) as long term capital gain and claimed exemption under the Act. Respondent had claimed to have purchased this scrip at Rs.3.12/- per share in the year 2003 and sold the same in the year 2005 for Rs.155.04/- per share. It was A.O.’s case that investigation has revealed that the scrip was a penny stock and the capital gain declared was held to be accommodation entries. A broker Basant Periwal & Co. (the said broker) through whom these transactions have been effected had appeared and it was evident that the broker had indulged in price manipulation through synchronized and cross deal in scrip of RFL. SEBI had also passed an order regarding irregularities and synchronized trades carried out in the scrip of RFL by the said broker. In view thereof, respondent’s case was re-opened under Section 148 of the Act. 4. The A.O. did not accept respondent’s claim of long term capital gain and added the same in respondent’s income under Section 68 of the Act. While allowing the appeal filed by respondent, the CIT[A] deleted the addition made under Section 68 of the Act. The CIT[A] has observed that the A.O. himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The CIT[A] also did not find anything Page | 15 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The CIT[A] came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent’s bank account has been debited. The shares were also transferred into respondent’s Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes cum bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent’s bank account. In view thereof, the CIT[A] found there was no reason to add the capital gains as unexplained cash credit under Section 68 of the Act. The tribunal while dismissing the appeals filed by the Revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The ITAT therefore, in our view, rightly concluded that there was no merit in the appeal. 5. We also find no infirmity in the order passed by the ITAT and no substantial questions of law as proposed in the appeal arises.” 17. Respectfully following the decisions referred hereinabove and considering the facts that alleged claim of long term capital gain u/s 10(38) of the Act has been held to be bogus by the ld. Assessing Officer merely on the basis of the report of the investigation wing without bringing any material on record by way of carrying out any independent enquiry and further on our finding that the assessee has carried out the transactions giving rise to long term capital u/s 10(38) of the Act within the parameters provided u/s 10(38) of the Act and has duly fulfilled the conditions thereof, are inclined to hold that the claim of the assessee u/s 10(38) of the Act deserves to be allowed. Accordingly, the finding of the ld. CIT(A) is set aside and the effective grounds raised by the assessee are allowed. 18. Since, we have allowed the claim of the assessee arising out of long term capital gain u/s 10(38) of the Act in I.T.A. No. 376/GTY/2019; Assessment Year: 2015-16; Kavita Chokhani, as stated supra, the decision applies mutatis mutandis to the rest of the appeals of other assessee(s) wherein common issue of genuineness of claim of long term capital gain u/s 10(38) of the Act is in challenge, bearing I.T.A. No. 377/GTY/2019; Assessment Year: 2014-15; Kamla Devi Chokhani, I.T.A. No. 378/GTY/2019; Assessment Year: 2015-16; Kamla Devi Chokhani, I.T.A. No. 379/GTY/2019; Assessment Year: 2015-16; Vishnu Kant Chokhani, I.T.A. No. 380/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani, I.T.A. No. 62/GTY/2020; Assessment Year: 2015-16; Vishnu Chokhani and Sons, I.T.A. No. 421/GTY/2019; Assessment Year: 2014-15; Brahmadutt Chokhani and Sons and I.T.A. No. 422/GTY/2019; Assessment Year: 2015-16; Brahmadutt Chokhani and Sons, and the same are also allowed.” 6. On examining the facts in the instant case and in the light of the above decision, we find that the same is squarely applicable on the facts of the case and, therefore, as the assessees have duly Page | 16 ITA Nos. 332,333/Gty/2019 & ITA No. 346/Gty.2019 A.Y. 2015-16 fulfilled the condition u/s.10(38) of the Act and also explained the nature and source of the alleged sum received in the form of sale consideration from sale of equity shares of listed companies through recognized stock exchange, we reverse the finding of the Ld. CIT(A) and allow the effective grounds of appeal raised by the assessee(s) for AYs 2015-16. 7. In the result, all the appeals of the assessee in ITA Nos. 332, 333 & 346/GTY/2019 are allowed. Order is pronounced in the open court on18th October, 2024 S Sd/- (MANOMOHAN DAS) Sd/- (DR. MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 18th OCTOBER, 2024 *jd, Sr.Ps आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent 3. संबंिधत आयकर आयुƅ / Concerned Pr. CIT 4. आयकर आयुƅ ) अपील ( / The CIT(A)- 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , कोलकाता/DR,ITAT, Kolkata, 6. गाडŊ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata "