Income Tax Appellate Tribunal – Kolkata
M/S. Sanjay Kumar Patwari (Huf), … vs Acit, Circle – 32, , Kolkata on 8 May, 2019IN THE INCOME TAX APPELLATE TRIBUNAL “C”, BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA Nos.2268,2269&2270/Kol/2018 (िनधा रणवष / Assessment Years: 2012-13, 2013-14 & 2015-16) Shri Sanjay Kumar Patwari Vs. ACIT, Circle-32, Kolkata (HUF) Flat No. 6A, 6 t h Floor, Ban yan Tree, 3A, Rowdan Street, Kolkata-700017 थायीले खासं ./जीआइआरसं ./PAN/GIR No. : AASHS 7307 E (Appellant) .. (Respondent) आवेदक क ओर से/By Assessee Shri A.K. Tulsiyan, FCA & Mrs. Shikha Agrawal, FCA राज व क ओर से/By Revenue Dr. P.K. Srihari, CIT-DR & Shri Robin Choudhury, Addl. CIT- DR सन ु वाई क तार ख/Date of Hearing 23-04-2019 आयकरअपीलसं./ITA No.205/Kol/2018 (िनधा रणवष / Assessment Year: 2014-15)
Shri Sanj ib Kumar Pat wari(HUF) Vs. ACIT, Circle-36, Kolkata 1, Orbit Grastin Place, 3rd
Floor, Kolkata-700001 थायीले खासं ./जीआइआरसं ./PAN/GIR No. : AAPHS 3236 R (Appellant) .. (Respondent) आवेदक क ओर से/By Assessee Shri A.K. Tulsiyan, FCA & Mrs. Shikha Agrawal, FCA राज व क ओर से/By Revenue Dr. P.K. Srihari, CIT-DR & Shri Robin Choudhury, Addl. CIT- DR सन ु वाई क तार ख/Date of Hearing 29-04-2019 घोषणा क तार ख/Date of 08-05-2019 Pronouncement Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 आदे श / O R D E R
Per Dr. Arjun Lal Saini, AM: The captioned four appeal(s) filed by the two assessees, pertaining to
assessment years2012-13, 2013-14, 2014-15& 2015-16 respectively, are directed
against separate orders passed by the Commissioner of Income Tax(Appeals)-9,
Kolkata dated 28/09/2018 in former assessee’s case and the CIT(A)-10, Kolkata’s
order dated 13/11/2017 as latter assessee’s case respectively, which in turn arise
out of separate assessment orders passed by the Assessing Officer under section
147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). 2. Since, the issues involved in all the four appeal(s) is common and identical;
therefore, these appeals are being disposed of by this consolidated order for the
sake of convenience and brevity. The grounds as well as the facts narrated in
I.T.A. No. 2270/Kol/2018, for assessment year 2015-16, have been taken into
consideration for deciding the above appeals en masse. 3. Grounds of appeal raised by the assessee as per “lead” case in I.T.A. No.
2270/Kol/2018, for assessment year 2015-16, are as follows: “1.a) That the Ld. CIT(A) erred in confirming the disallowance of Rs. 7,12,89,467/-made by the AO on account of deduction of LTCG claimed by the assesseeu/sl0(38) of the Act and made the alleged addition as unexplained cash credit u/s 68 based on the wild allegation. In the course of assessment as well as appellate proceedings, all the relevant supportive evidences were produced to prove the genuineness of the transaction i.e. Contract note, Bill and vouchers, Demat a/c statement etc. The said transaction was done through the Registered Stock Exchange Broker only and payment was made through proper banking channel. Therefore, the addition made by the Ld. AO and confirmed by the Ld. CIT(A) is unjustified and needs to be deleted. 1b) That the Ld. CIT(A) erred in not allowing the deduction claimed u/sl0(38), as LTCG on sale of shares Kailash Auto Finance Ltd. The transaction in those shares was earlier restrained by the SEBI. Thereafter, the SEBI revoked his earlier interim order and held that the company and the assessee as well not involved in price manipulation. As such, LTCG on sale of shares of Kailash Auto Finance Ltd can under no circumstances be doubted. Thus, the LTCG claimed u/s 10(38) should be allowed and addition made on wrong facts deserve to be deleted. 2) That the Ld. CIT(A) erred in confirming the alleged addition merely relied upon the statement of few unrelated persons and also based on the information received from Invg, Wing of I.T. Dept. The said statement was Pa g e | 2 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 taken behind back of the company and did not provided any opportunity to cross examination to them. Thus, it is completely denial of natural justice. The impugned addition so made merely relying upon the information received and alleged statements recorded is unjustified and deserve to be deleted. Therefore, the disallowance of commission made by the Ld. AO and confirmed by the Ld. CIT(A) is unjustified and needs to be deleted. 4) That the petitioner craves leave to add, alter, amend or withdraw any ground and grounds of appeal before or at the time of hearing. 4. The brief facts qua the issue are that the assessee filed its return of income on
31.08.2015, declaring total income at Rs.22,39,320/-. The assessee’s case was
selected for scrutiny under section 143(2) of the Act, by the Department, on the
ground of suspicious share transaction in penny stock. In the return of income, the
assessee has claimed exempt income u/s 10(38) of the Act for long term capital
gain on sale of shares of M/s Kailash Auto Finance Ltd. The details of which are
given below: Sale value of 7,34,000 shares Rs. 2,35,57,282 Less: purchase value Rs. 7,34,000 Rs. 2,28,23,282 ENIS EDUTECH (Thyrocare) Sale Value of 1,47,000 Shares Rs. 58,37,526 Less: purchase value Rs. 2,35,200 Rs. 56,02,326 LIFELINE DRUGS Sale Value of 1,76,000 shares Rs. 4,39,13,859 Less: purchase value Rs. 10,50,000 Rs. 4,28,63,859
Total long term capital gain on sale of shares is Rs. 7,12,89,467/- (Rs. 2,28,23,282 + Rs.
56,02,326 + Rs. 4,28,63,859). The Assessing Officer noted that the said long term capital gain of Rs. 7,12,89,467/-
was shown by the assessee, as received in the return of income. The assessee
during the course of assessment proceedings has furnished purchase bill of shares,
bank statement, DP statement and some broker notes to strengthen his claim for
long term capital gain. However, the Assessing Officer noted that there were direct
evidences to show that the long term capital gain shown was not natural but was Pa g e | 3 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
arranged one. Therefore, with this background an investigation was carried out by
the investigation wing of the Department. The findings of the Directorate of
Investigation Wing of Kolkata are as follows: “4.1. The Directorate of Investigation, Kolkata carried out a country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG) which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre- determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statuary period after which LTCG is exempt u/s 10(38) of the Income tax Act,1961. In the meantime the operators rig the price of the stock and gradually rise its price many times, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed through a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares. 4.2. Further, it may be mentioned here that the price of the shares of the penny stock companies are rigged and are raised through circular trading. This is managed by the “Operator” of the scrip. An “Operator” is a person who is managing the overall affairs of the scheme and he is the one who contacts the entities who wish to take entry of bogus LTCG / STCG in their books and arranges the same through the scrips of penny stock companies. The Operator manages many paper/bogus companies and uses them to do circular transactions to rig the price of the shares. The shares of these penny stock companies, although listed on exchange, are always closely held and are controlled by the promoter of the Penny Stock Company and the Operator who is arranging for the bogus LTCG/Loss. This is due to the fact that the general public is not interested in these shares as these companies have no credentials and this helps the operator to keep a control on the price movement of the shares. 4.3. If the beneficiary say, ‘B’ bought 10,000 shares of company “P” @ Rs. of 1/- per share and sold it @ Rs. 1000/- per share, he would make on paper capital gain of Rs, 49,90,000/-. In his bank account there would be a cheque deposit of Rs 50,00,000/- paid by the paper company that buys the shares. The receipt is prima facie exempt from tax under section 10(38) of the Income Tax Act, 1961. The Directorate of Investigation, Kolkata investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a large number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trial of transactions was also examined and, in a large number of transactions trial right from cash deposit account to the beneficiaries account was unearthed. As a result of investigation individuals who have been taken such entry of bogus LTCG amounting to several crores have been identified. The result of the investigation in brief as under: Pa g e | 4 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 i) Individuals throughout the country identified who have taken such bogus entries ofLTCG amounting to several crores from 2010 to 2014. ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI. iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily surrendered by such assessees. iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs.40 crores have voluntarily surrendered it for taxation without any further enquiry. v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption. 4.4. The Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and that of the stock exchange has taken appropriate action in case of the suspect scrips. These actions include passing interim direction, suspending the trade, reducing the price bank etc.” 5. Thereafter, the Assessing Officer concentrated on circumstantial/direct
evidences against the claim of long term capital gain of the assessee. The
Assessing Officer in order to keep the order short, restricted his discussion in
assessment order, only to scrip, namely, Kailash Auto Finance Ltd. and noted that
the same would be applicable for other two shares also. The Assessing Officer after an exhaustive discussion and elaborating factual
matrix noted that the claim of long term capital gain u/s 10(38) shall be denied to
the assessee individual, and shall be assessed as unexplained cash credit u/s 68 of
the Act. The ld. Assessing Officer examined the direct circumstantial evidences
and came to the conclusion that the assessee was merely taking accommodation
entries for the purpose of such bogus long term capital gain made by the assessee.
The ld. Assessing Officer has very carefully analyzed the information received
from the Investigation Wing, and has recorded the noteworthy features of the
company whose shares were purchased/sold by the assessee. The economic
parameters of the said company over the impugned period has also been brought
on record, in the analysis. The rise and fall of the prices as recorded had been Pa g e | 5 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
brought out by the ld. Assessing Officer to be artificial and not commensurate
with the normal market, as the company had no business at all. The ld. Assessing
Officer has also brought forth information that the Regulatory Authority, SEBI has
also after investigating such abnormal price increases of certain stock, investigated
the matter and suspended trading in certain scrips. It is very clear that the prices of
these scrips fell sharply after offloading of these scrips by pre-arranged and
manipulated transactions. The entire transactions were carried out on the Stock
Exchange to give it a colour of real transactions. 6. During the assessment proceedings the assessee submitted the
papers/documents which were filed before the Registrar of companies, where the
name of the assessee had reflected as a shareholder. The assessee furnished before
the AO, the bank statement, contract notes and delivery instructions to the broker
by way of proof that all these transactions were genuine. However, assessing
officer rejected all the evidences and held that all evidences were pre-planned,
therefore, he issued a show cause notice to the assessee and asked the assessee to
prove the bona-fide of his claim. However, in response to the show cause notice issued by the Assessing Officer,
the assessee submitted the following reply, which is reproduced below: “sub: Reply to show cause PAN: AASHS 7307 E Sir, In reference to your letter no. ACIT/Cir-32/Kol/2017-18/AASHS7307E/1423 dated 14.12.17 we would like to state as under: As regards to your contention that the LTCG earned by us in scrip’s of Kailash Auto and Lifeline Drugs and others are not natural but is arranged one, we shall like to highlight the fact that any assessee claiming a transaction of purchase and sale of shares to fall under LTCG has to pass four tests viz i) Assessee should had purchased the shares,’ ii) Shares to be held for at least 365 days by the assessees, iii) Assessee should have sold the shares and iv) Finally STT should have been paid on the sale of the shares. Let us them one by one. i. Assessee should had purchased the shares. In the matter of Kailash Auto In the instant case we would like to mention that we had never purchased the shares of Kailash Auto from the market but we were holding the shares of ltd. Pa g e | 6 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 company which had undergone a scheme of arrangement of merger by which the scrip bought by the assessee got merged into a listed company i.e. Kailash Auto. Further we would like to highlight that the entire process of Merger of the Private Limited Companies with the listed companies has been already supervised and approved by the Hon’ble Allahabad High Court, Hon’ble Allahabad High court had vetted the entire share swap model and price exchange ratio and we don’t belief that the ld. A.O. wants to challenge the process and supervision of the Hon’ble Allahabad High Court. In the matter of Lifeline Drugs In the instant case we had purchase the shares from the company directly and same had been allotted to us by the corporate action enacted by the company with the due approval ofSEBI. Here also we doubt that the AO wants to challenge the process and supervision of the SEBI. ii. Shares have to be held for at least 165 days by the Assessee In the matter ofKailash Auto In the instant case the assessee has purchased shares in the Financial Year 12-13 and sold the shares in the Financial Year 14-15. In this case the assessee had held the shares for at least 545 days which is much more than 365 days. If we at all think that the assessee was involved in so called LTCG organised racket then he would had very well could had sold the shares after the 366th day and not after so many days. In the matter of Life Line Pharma In the instant case the assessee has purchased shares in the Financial Year 12-13 and sold the shares in the Financial Year 14-15. In this case the assessee had held the shares for at least 484 days which is much more than 365 days. If we at all think that the assessee was involved in so called LTCG organised racket then he would had very well could had sold the shares after the 366th day and not after so many days. iii. Assessee should have sold the shares In the instant case, the assessee has sold shares at the floor price of the Stock Exchange Contract Notes relevant the sale transaction have been furnished at the time of assessment proceedings. Further we would like to bring some fact to light that during the course of our hearing at SEBI office out of various shares sold by us it was observed by the Whole time member of SEBI that out of various shares so sold by Patwari family large number such shares which were being purchased by various FII’s v.i.z. Blackrock Advisors, LLC A/C, The Master Trust Bank of Japan, Blackrock Real Asset Equity Trust, College Retirement Equities Fund, Emerging Markets Plus Series of Blackrock Quantitative Partners LLP, Ishares Core Emerging Markets Mauritius Co, Ishares India Mauritius Company, Ishares India se Mauritius Company, Merrill Lynch India Equities Fund (Mauritius) Ltd, Merrill Lynch Series Fund Inc M L Fundamental Growth Strategyduring the year FY 14-15. Further in the above context we would like to mention that after seeing the above Facts and other submission given by the assessee the Hon’ble WholeTime Member of SEBI has observed that “there are no adverse findings against ….with respect to their role in the manipulation of the scrip of Kailash Autocopy of the order attached for ready reference.
Pa g e | 7 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 We don’t presume that the AO had doubt on my assessee that they may had made arrangements with the above FII’s for manipulation in the price and sold the shares to them thereafter.
iv. STT should had been paid on the sale on the shares The fact that the STT has been paid can be easily verified from the sale contract notes already submitted to your office.
v. As to your contention that the Directorate of Investigation, Kolkata has carried out country wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gains (LTCG] In context to the same we shall like to mention that a survey on 21.01.2016 in this connection was conducted at our premises but neither any incriminating papers were found at our, premises nor at any other premises nor any adverse statement of any brokers / operators were recorded on the said date of the surveyor post survey. Hence further proving that we didn’t had any type of direct or indirect involvement in the said “organized racket of generating bogus entries of Long Term Capital Gains”

As regards to your statement “The Report of the Investigation Wing, Kolkata clearly indicates that the name of the scrip that you have purchased / sold as amongst the one which has been artificially manipulated” we would like to state as under:

In the matter of M/s Kailash Auto As said earlier that we had received the shares of Kailash auto by virtue of Hon’ble High Court Order and the prices shares of Kailash Auto Finance Limited as on the date of approval of merger was Rs.26.25 (09.05.13).Assessee has sold the shares of Kailash Auto Finance Limited at an average of Rs. 34.40 i.e. at a gain of Rs. 8.15/- per share (31.04% gain), which we don’t belief that is such an huge price rise which can give rise to any doubts.

In the matter of M/s lifeline Drug In the instant case of lifeline pharma price of the shares has increased from Rs. 6/- to Rs. 250/- (approx.), as on the date of sale. AO feels that this is unusual but let me site similar case; similar movement can be seen in the shares of Avenue Super Mart (DMART). On 24.03.15 DMART (Now Avenue Super Mart) issued 1,06,38,000 shares were issued at Rs.34/-. On Private Placement and on the same date on 24.03.15 DMART (Now Avenue Super Mart) issued 41,51,800 shares were issued at Rs. 27/- on ESOP. Within 2 years thereafter on 21.03.17 the company got its shares listed with that day’s closing price at Rs. 641.60 whooping 19 times above the last allotment and 64 times above the Face value. Whereas in our case the price had only increased by 41 times as compared from Face Value. As on today i.e. 21.12.17 closing basis its price has increased to Rs.1150/- (approx.) i.e. increase by 33 times over allotted price and 115 times over the face value.

As to your observation on para no. 5.2 regarding financials and comparative price of Kailash Auto we shall like to state that such movement can also be observed in other shares also and this movement does not make the shares dubious:

Pa g e | 8 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
There are lots of companies which have defeated the general trend of increase
in their share price in spite of the negative or low profitability. Similar
date’sare available for all years for various companies details of such two
companies with current data’s are reproduced below:
Source: money control November 24,2017 From the above table it may be clearly seen that prices of Rain Industries
have increased more than six times whereas its profits have fallen in the
relevant period by 2 per cent. In another case i.e. Thirumalai Chemicals even
if the profits have increased by 1.32 times but the prices of the same have
increased by almost 10 times.

We shall also like to draw your attention to another financial parameter Price
to Earnings Ratio (PE) in case of Rain Industries the PE of industry average
is 29.44 times were as PE of Rain Industries is 351.68 times i.e. 11.94 times
more than the industry average.

Whereas the performance of so alleged bogus LTCG scrip’s in the relevant
financial year has been as under:
From the above table it can be seen that in the current financial year there
has been decreased in the price of the shares in comparison to the increase in
profit during the relevant year.

In case we compare the same with the increase of price of share w.r.t the
profits earned in the year in which we had purchased and sold the shares then
the figures shall be somewhat as under:
From the above table it can be clearly seen that the price of the shares had
increased only 42.26 times were as the profit have increased by 161.36 times.
The price increase has been minuscule as compared to the price profit ratio.

Pa g e | 9 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 As to your observation on para no.5.3 regarding we would like to bring the latest judgment of SEBI vis-à-vis order no. SEBI/WTM/MPB/EFD-DRA- 1/31/2017, dated 21/09/2017 by Coram: MadhabiPuri Buch, Whole Time Member, wherein it is clearly visible from (Note no. 6 of page no. 15) of the pronounced order that the above assessee is not involved in price manipulation of the scrip of Kailash Auto, I have also enclosed the above mentioned order for your reference.

As to your observation on para no. 5.4 as to unrealist return on investments, we would like to state that the reply is covered vide our reply to para no. 5.2 As to your observation on para no. 5.5 we would like to state that we never had any business or personal connection with Shri Sunil Dokanta and would like to have opportunity to cross-examine the said person.”

7. However, after going through the submissions of the assessee as noted above,
the Assessing Officer held that the assessee has introduced / credited capital of Rs.
7,12,89,467/- during the year in his books, the source of which he had explained as
proceeds from these share sale transactions. Since the explanation offered by the
assessee in respect of the source of this capital introduced being share sale
transactions has been held to be not satisfactory in view of the elaborate discussion
made above, therefore section 68 is squarely applicable to the assessee, therefore,
the amount of Rs.7,12,89,467/- introduced / credited by the assessee out of these
purported share sale receipts during the financial year 2014-15 in his capital
account as his income being unexplained cash credit u/s 68 of the Income Tax Act.
This way, the Assessing Officer made the addition u/s 68 of the Act to the tune of
Rs. 7,12,89,467/-.

8. Aggrieved by the order of the Assessing Officer, the assessee carried the matter
in appeal before the ld. CIT(A) who has confirmed the addition made by assessing
officer. The ld. CIT(A) has simply reiterated the findings of the Assessing Officer
and confirmed the order of the Assessing Officer.

9. Aggrieved by the order of theld CIT(A), the assessee is in appeal before us.

10. The ld. Counsel for the assessee submitted before us that the assessee claimed
exemption of long term capital gain of Rs.7,12,89,467/- u/s 10(38) of the Act,
since the share purchased / sold were listed shares and were purchased and sold
through stock broker in Stock exchange and STT was deducted at the time of sale.

Pa g e | 1 0 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
The ld. Counsel for the assessee submitted before us, the details of the long term
capital gain of Rs.7,12,89,467/- earned during the financial year on account of sale
of shares through a recognized stock brokers, in a recognized stock exchange and
claimed as exempt u/s 10(38) of the Act. Further,the ld. Counsel submitted that all
the relevant details and documents asked by the Assessing Officer were submitted
against the notice u/s 142(1) of the Act, during the assessment proceedings.
During the assessment proceedings, the assessee submitted the following details
and documents in support of his claim of exemption of long term capital gain u/s
10(38) of the Act:

i) The details of long term capital gains.

ii) Copy of contract notes for the shares sold during the year.

iii)Copy of bank statement stating that all the payments have been received
through banking channels.

Apart from this, the ld. Counsel for the assessee also submitted the important and
salient features of the long term capital gain transaction entered into by the
assessee, which are given below:

(i). The assessee is a regular investor in shares and securities as evident from past
assessment records.

(ii). The shares were purchased and sold through a Registered Broker named “Eureka Stock & Share Broking Services Ltd.” in the Stock Exchange.

(iii). The shares were purchased and sold based on the prevailing market
condition.

(iv).The purchase and sale of shares are supported by contract notes. The
payments were received through proper banking channel.

(v). The purchase and sale transactions were subjected to Security Transaction
Tax, Service Tax, Brokerage charges and Stamp duty.

(vi) The share purchase and sale transactions are reflected in the d-mat account.

(vii) The purchase of shares (Investments) was not disputed in earlier year, where
assessment is completed u/s. 143(3) of the Income Tax Act.

(viii) These facts are verifiable from the regular books of accounts.

Pa g e | 1 1 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
(ix) The transactions can also be verified from the Stock Exchange.

(x) Last but not the least that, SEBI has cleared them from the allegation of Market
Rigging. Hence, the genuineness of the transaction cannot be doubted.

The ld. Counsel therefore submitted before the Bench that the long term capital
gain booked by way of transaction in the above said scrips would not be
considered bogus and therefore addition made by the Assessing Officer should be
deleted.

11. On the other hand, the ld. DR for the Revenue submitted that the assessee has
generated bogus long term capital gain and therefore the order of the Assessing
Officer should be upheld. In order to prove his stand, the ld. DR for the revenue
submitted before the Bench the following authorities / precedents which we Pa g e | 1 2 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
redecided in favour of the revenue:
Pa g e | 1 3 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 Pa g e | 1 4 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 Therefore, ld DR for the Revenue submitted that assessee has generated bogus
long term capital gain and involved in providing accommodation entries therefore
the order of the ld CIT(A) should be upheld.

12. We have heard both the parties and perused the material available on record.
We note that the assessee is a regular investor in shares and has been investing in
shares since past several years. The said fact is evident from the details given
below:
Thus, from the above table, it is abundantly clear that the assessee is a regular
investor in shares and is having a substantial amount of investments. During the Pa g e | 1 5 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
year under consideration, the assessee has sold the impugned three scrips and
earned capital gains on the same which is claimed year after year consistently. The
details of long term capital gain earned by the assessee is given below:
We note that the assessee claimed exemption of LTCG of Rs.7,12,89,467/- u/s
10(38) of the Act, since the shares purchased and sold were listed shares and were
purchased and sold through stock broker in Stock Exchange and STT was
deducted at the time of sale. The details of purchase and sales transaction made by
the assessee is given below:
Pa g e | 1 6 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 Therefore, the details of LTCG of Rs. 7,12,89,467/- earned during the financial
year on account of sale of shares through a registered stock broker in a recognized
Stock Exchange and claimed as exempt u/s 10(38) of the Act is as under:
Pa g e | 1 7 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 Pa g e | 1 8 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 We note that the AO in his order has discussed about the interim order of SEBI,
where SEBI has restrained some persons including assesee from accessing the
securities market. However, SEBI in its final order did not give adverse
comment.The same was revoked by SEB1, vide its final order,
SEB1/WTM/MPB/EFD-DRA- 1/31/2017 dated 21.09.2017, (page nos. 69-84).
Assessee’s name is at S.N. 154 (at page no. 80) read with para 7 of Page no. 83.
The AO has made some other general allegations including the statement of an
alleged entry operator Sri Sunil Dokania at page no. 22 of the assessment order.
However, no copy of such statement was given to the assessee nor any opportunity
of cross examination of the party was allowed to the assessee. Further, the AO did
not brought any corroborative evidence on record to substantiate the contents of
the statement relied on.We note that not allowing the assessee to cross examine the
witness by the adjudicating authority though the statements of those witness were
made the basis of the impugned order is a serious flaw which makes the order
nullity. We note that same view expressed by the Hon`ble Calcutta High Court in
the case of Eastern Commercial Enterprises 210 ITR 103 (Cal), wherein it was
held that it is a trite law that cross examination is the sine qua non of due process
of taking evidence and no adverse inference can be drawn against the party unless
the party is put on notice of the case made out against him. Therefore, the addition
made by the assessing officer based on thestatement of an alleged entry operator
Sri Sunil Dokaniais not sustainable in law, as the assessing officer did not provide
an opportunity to the assessee to cross examine the statement of Sri Sunil Dokania.
Pa g e | 1 9 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
13. Now, coming to the merits of the assessee`s case, we note that ld Counsel for
the assessee submitted before us paper book which contain the documents and
evidences in support of the Purchase and sale of shares on which the long term
capital gain(LTCG) arose to the assessee. These all documents and evidences were
available before the ld CIT(A) as well as before the ld AO. The Assessee
submitted before us following documents and evidences in respect of Kailash Auto
Finance Ltd.

(1) KAILASH AUTO FINANCE LTD.

i) Copy of purchase bill dated 12.02.2012, reflecting the purchase of 3,20,000
shares of Careful Projects Advisory Ltd. from Trump Traders Pvt. Ltd. (Paper
Book Page No. 4) ii) Copy of purchase bill dated 09.10.2012 reflecting the purchase of 9,00,000
shares of Careful Projects Advisory Ltd. from Trump Traders Pvt. Ltd. (Paper
Book Page No. 5) iii) Copy of Bank Statement reflecting the debit transaction of the amount of Rs.
3,20,000/- paid for the purchase of shares by cheque no. 729958 on 10.02.2012
(Paper Book Page No. 9) iv) Copy of Bank Statement reflecting the debit transaction of the amount of Rs.
9,00,000/- paid for the purchase of shares by cheque no. 037633 on 09.10.2012
(Paper Book Page No. 8) v) Copy of statement of DEMAT account evidencing the debit of shares of Kailash
Auto Finance Ltd. on 07.04.2014, 09.04.2014, 10,04,2014, 11.04.2014,
15.04.2014, 16.04.2014 and so on; (Paper Book page no. 64- 65) vi) Copy of order approving the Scheme of Amalgamation passed by the Hon’ble
High Court in relation to merger of Kailash Auto Finance Ltd. and Careful
Projects Advisory Ltd. and Panchshul Marketing Ltd. (Paper Book page No. 85-
115).
Pa g e | 2 0 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
vii) Copy of Contract Notes evidencing the sale of shares of Kailash Auto Finance
Ltd.

viii) Copy of bank statement reflecting the transactions of sale of shares of Kailash
Auto Finance Ltd. (Paper Book page No. 59-61) ix) SEB1 by its interim order dated 29.03.2016 restrained 246 entities from
accessing the securities market and from dealing and buying & selling in
securities, directly or indirectly in any manner whatsoever till any further
directions (Page No. 69) and included Kailash Auto Finance Ltd. and assessee at
Serial No. 1 and Serial No. 156 (Page Nos. 70 & 74 respectively) .

x) The same was revoked by SEB1 vide its order SEB1/WTM/MPB/EFD-DRA-
1/31/2017 dated 21.09.2017 (page nos. 69-84). Assessee’s name is at S.N. 154 (at
page no. 80) read with para 7 of Page no. 83.

(2) LIFELINE DRUG & PHARMA LTD.

i) Copy of Allotment Advice dated 05.10.2012 reflecting the purchase of 20,000
shares of Lifeline Drugs & Pharma Ltd. (Paper Book Page No. 6) (Later, 20,000
shares of Rs. 10 each were split to 2,00,000 shares of Rs. 1 each) ii) Copy of Bank Statement reflecting the debit transaction of the amount of Rs.
12,00,000/- paid for the purchase of shares,by cheque no. 037632 on 01.10.2012
(Paper Book Page No. 8) iii) Copy of statement of DEMAT account evidencing the debit of shares of
Lifeline Drugs & Pharma Ltd. on 01.07.2014, 08.07.2014, 11.07.2014,
15.07.2014, 21.07.2014 and so on; (Paper Book Page No. 66-67) iv) Copy of Contract Notes evidencing the sale of shares of Lifeline Drugs &
Pharma Ltd.;

v) Copy of bank statement reflecting the transactions of sale of shares of Lifeline
Drugs & Pharma Ltd. (Paper Book page No. 59-61) (3) EINS EDUTCEHLTD. (Now Aplaya Creations Ltd.) Pa g e | 2 1 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
i)Copy of purchase bill dated 10.08.2013, reflecting the purchase of 50,000 shares
of EINS Edutech Ltd. from Neptune Financial Advisory Pvt. Ltd. (Paper Book
Page No.7);

ii) Copy of Bank Statement reflecting the debit transaction of the amount of Rs.
8,00,000/- paid for the purchase of shares by cheque no. 37644 on 01.08.2013
(Paper Book Page No. 10) iii) Copy of statement of DEMAT account evidencing the debit of shares of EINS
Edutech Ltd. on 01.12.2014, 02.12.2014, 06.12.2014, 11.12.2014 and so on;
(Paper Book Page No. 63) iv) Copy of Contract Notes evidencing the sale of shares of E1NS Edutech Ltd.;

v).Copy of bank statement reflecting the transactions of sale of shares of EINS
Edutech Ltd. (Paper Book page No. 59-61) .

Therefore, by submitting these plethora documents and evidences, the ld Counsel
for the assessee claimed that long term capital gain (LTCG) earned in respect of
the scrips, namely: Kailash Auto Finance Ltd., Lifeline Drug & Pharma Ltd, and Eins
Edutceh Ltd. (Now Aplaya Creations Ltd.) are genuine. We also note that the Securities
Exchange Board of India (SEBI) also declared these scrips and shares as genuine and the
interim order passed by the SEBI was revoked by SEB1 itself, vide its order
SEB1/WTM/MPB/EFD-DRA- 1/31/2017 dated 21.09.2017 (page nos. 69-84).
Assessee’s name is at S.N. 154 (at page no. 80) read with para 7 of Page no. 83.
Hence, we note that since these shares/scrips were traded on the platform of
recognized stock exchange and the Securities Exchange Board of India (SEBI) did not
give any adverse reporttherefore, long term capital gain arise or earned by the
assessee should be genuine and it should not be bogus by any stretch of
imagination. Moreover, the assessing officer did not doubt on the documents and
evidences as noted by us above. The assessing officer mainly made addition based
on suspicion, and probability. As we have noted that in the course of assessment
proceedings, all the relevant details and documents requisitioned by the ld.
Assessing Officer in notice u/s 142(1) was filed before him. The assessee has
submitted the details of LTCG, copy of contract notes, bank statements, allotment Pa g e | 2 2 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
advise, copy of bills, DEMAT account and other necessary details before AO and
the AO failed to bring any cogent evidence on record to show that these
documents and evidences were false and untrue.

14. We would like to mention some important salient features of the LTCG
transaction entered into by the assessee, which is given below:

(i) The assessee is a regular investor in shares and securities as evident from past
assessment records.

(ii) The shares were purchased and sold through a Registered Broker named “Eureka Stock & Share Broking Services Ltd.” in the Stock Exchange.

(iii) The shares were purchased and sold based on the prevailing market condition.

(iv) The purchase and sale of shares are supported by contract notes. The
payments were received through proper banking channel.

(v) The purchase and sale transactions were subjected to Security Transaction Tax,
Service Tax, Brokerage charges and Stamp duty.

(vi) The share purchase and sale transactions are reflected in the D-mat account.

(vii) The purchase of shares (Investments) was not disputed in earlier year, where
assessment is completed u/s. 143(3) of the Income Tax Act.

(viii) These facts are verifiable from the regular books of accounts.

(ix) The transactions can also be verified from the Stock Exchange.

(x) The SEBI has cleared these shares and scrips from the allegation of Market
Rigging.

Hence, the genuineness of the transaction cannot be doubted.

15. Now coming to the allegations made by the Assessing Officer for making the
addition. The Assessing Officer alleged in the assessment order that on the basis
of information received from the investigation wing, Kolkata, the claim of
LTCGu/s 10(38) by the assessee is bogus. In the assessment order, the ld.
Pa g e | 2 3 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
Assessing Officer has mentioned the story that the list of 84 scrips identified by
the investigation wing where price rigging have been found which includes the
name of the scrips in which the assessee has earned Long Term Capital Gain. The
Assessing Officer alleged that the transactions were pre-arranged to book such
gain in the hands of the pre-fixed beneficiaries. The above allegations are
generalized and not specific to the case of the assessee. The assessee was asked to
show cause, vide letter dated 14.12.2017, as to why the Long Term Capital Gain
booked by way of transaction in the aforesaid scrips would not be considered
bogus, and consequently, be added to his total income. The assessee duly replied
to the show cause notice vide his letter dated 22.12.2017 thereby giving all the
details and reasons as required by the AO to prove that the LTCG incurred by the
assessee on sale of above mentioned shares are genuine and cannot be considered
as bogus. However, the Ld. AO did not consider the submission of the assessee
and made the addition of LTCG in the hands of the assessee treating the same to
be unexplained. We note that it appears from the show cause notice that the Ld.
AO has relied on the following information for arriving at such conclusion:

(a) Information received from the office of DIT(Inv), Kol regarding entry of bogus
LTCG.

(b) Statement given by Sri Sunil Dokania, an alleged entry operator who was
involved in price rigging and providing Bogus LTCG through penny stocks.

So far first allegation of AO is concerned, we note that the assessee has purchased
the shares from the recognized stock exchange through his broker i.e. Eureka
Stock & Share Broking Services Ltd. on various dates. The assessee submitted
Contract Notes. This transaction is not through any preferential allotment or
offline sale. All the transactions are made through proper banking channels. The
shares were sold through registered share broker, M/s Eureka Stock & Share
Broking Services Ltd. In the course of assessment proceedings, the assessee has
submitted all the details and documents that were necessary for allowing the claim
of the assessee. In the assessment order u/s. 143(3), Ld. AO has stated that there
was inflow of some information from the Investigation wing alleging that the Pa g e | 2 4 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
assessee was involved in selling of so called “penny stock”. In this regard it was
submitted by the assessee before the assessing officer as follows:

i) The assessee is a regular investor in shares and securities as evident from past
assessment records.

ii) The shares were purchased and sold through a Registered Broker named “Eureka Stock & Share Broking Services Ltd.” in the Stock Exchange.

iii) The shares were purchased and sold based on the prevailing market condition.

iv) The purchase and sale of shares are supported by contract notes. The payments
were received through proper banking channel.

v) The purchase and sale transactions were subjected to Security Transaction Tax,
Service Tax, Brokerage charges and Stamp duty.

vi) The share purchase and sale transactions are reflected in the d-mat account.

vii) The purchase of shares (Investments) was not disputed in earlier year, where
assessment is completed u/s. 143(3) of the Income Tax Act.

viii) These facts are verifiable from the regular books of accounts.

ix) The transactions can also be verified from the Stock Exchange.

x) The interim order of SEBI about which the AO has discussed in his order, has
been reversed by the final order of SEBI dated 21.09.2017,where the SEBI has
cleared the assessee from the allegation of Market Rigging.

Therefore, so far first allegation of the assessing officer is concerned, the assessee
has proved beyond any doubt that assessee is a regular investor in shares and
securities. The shares were purchased and sold through a Registered Broker named “Eureka Stock & Share Broking Services Ltd.” in the Stock Exchange. The shares
were purchased and sold based on the prevailing market condition. The payments
were received through proper banking channel. The purchase and sale transactions
were subjected to Security Transaction Tax, Service Tax, Brokerage charges and
Stamp duty. The share purchase and sale transactions are reflected in the d-mat Pa g e | 2 5 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
account. The purchase of shares (Investments) was not disputed in earlier year,
where assessment is completed u/s. 143(3) of the Income Tax Act. These facts are
verifiable from the regular books of accounts. The transactions can also be
verified from the Stock Exchange. Therefore, we do not agree with the assessing
officer and hence the addition made by assessing officer needs to be deleted.

So far second allegation of the assessing officer is concerned, we note
thatassessing officer has relied on the statement given by Sri Sunil Dokania, an
alleged entry operator. We note that the AO has made general allegations about
the alleged entry operator, Sri Sunil Dokania, vide page no. 22 of the assessment
order. We note that no copy of such statement was given to the assessee nor any
opportunity of cross examination of the party was allowed to the assessee. Further,
the AO did not brought any corroborative evidence on record to substantiate the
contents of the statement relied on. We note that not allowing the assessee to cross
examine the witness by the adjudicating authority though the statements of those
witness were made the basis of the impugned order is a serious flaw which makes
the order nullity. We note that same view expressed by the Hon`ble Calcutta High
Court in the case of Eastern Commercial Enterprises 210 ITR 103 (Cal), wherein it
was held that it is a trite law that cross examination is the sine qua non of due
process of taking evidence and no adverse inference can be drawn against the
party unless the party is put on notice of the case made out against him.

We note that the fact that neither the statement relied on bythe authorities below
were provided to the assessee nor any cross examination was allowed to prove the
veracity of the statement. We note that the fact that in the statement of third party,
the name of the assessee was not implicated. Even otherwise, according to
Learned Counsel, no adverse inference could be drawn against the assessee on the
basis of untested statements without allowing opportunity of cross-examination.
For that we rely on the following judgements in support of the aforesaid view:-

(i) Andman Timber Industries vs. CCE – [2015] 62 taxmann.com 3 (SC) (ii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (iii) ACIT vs. Amita Agarwal & Others – ITA No. 247/(Kol) of 2011 (Kol ITAT) Pa g e | 2 6 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
(iv) ITO vs. Bijaya Ganguly- ITA Nos. 624 & 625/Kol/2011 (Kol ITAT) (v) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013
(Kolkata ITAT) (vi) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol-ITAT) (vii) Malti Ghanshyambhai Patadia vs. ITO – ITA No.3400/Ahd/2015Ahmedabad
ITAT) (viii) Pratik Suryakant Shah vs. ITO – [2017] 77 taxmann.com 260 (Ahmedabad
ITAT) Therefore, the addition made by the assessing officer based on thestatement of an
alleged entry operator Sri Sunil Dokaniais not sustainable in law, as the assessing
officer did not provide an opportunity to the assessee to cross examine the
statement of Sri Sunil Dokania. Coupled with this, the CBDT’s circular dated
10.03.2003 itself made it clear that such admissions or statements without
anytangible evidence found during search carry no significance.

16. We note that Securities Exchange Board of India (SEBI) is an authority which
regulates the listed companies. The SEBI controls listed companies and makes
rules and regulations and the listed companies are supposed to follow the rules,
regulations and directions given by SEBI. We note that SEB1 by its interim order
dated 29.03.2016 restrained 246 entities from accessing the securities market and
from dealing and buying & selling in securities, directly or indirectly in any
manner whatsoever till any further directions (Page No. 69) and included Kailash
Auto Finance Ltd. and assessee at Serial No. 1 and Serial No. 156 (Page Nos. 70
& 74 respectively) .

However, the same was revoked by SEB1 vide its order SEB1/WTM/MPB/EFD-
DRA- 1/31/2017 dated 21.09.2017 (page nos. 69-84). Assessee’s name is at S.N.
154 (at page no. 80) read with para 7 of Page no. 83. We note that the SEBI by its
order bearing reference no. SEBI/WTM/MPB/EFD- DRA-I/31/2017, dated
21.03.2017, has held as under:
Pa g e | 2 7 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 “6.Considering the fact that there are no adverse findings against the aforementioned
244 entities with respect to their role in the manipulation of the scrip of Kailash Auto, I
am of the considered view that the directions issued against them vide interim order
dated March 29, 2016 and confirmatory orders dated June 15, 2016, September 30,
2016, October 21, 2016, October 27, 2016 and July 13, 2017 are liable to be revoked.

In view of the foregoing, in exercise of the powers conferred upon us under Section 19 of
the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11(4) and
11B of the SEBI Act, hereby revoke the interim order dated March 29, 2016 and
confirmatory orders dated June 15, 2016, September 30,2016, October 21,2016, October
27,2016 and July 13, 2017 qua aforesaid 244 entities (paragraph 5 above) with
immediate effect.

The revocation of the directions issued vide the above mentioned orders (at paragraph
7) is only in respect of the entities mentioned at paragraph 5 of this order in the matter of
Kailash Auto. As regards remaining entities in the scrip of Kailash Auto, violations under
SEBI Act, PFUTP Regulations, etc., were observed and SEBI shall continue its
proceedings against them. Hence, the directions issued vide confirmatory order dated
June 15, 2016 against the remaining 2 entities shall continue. This revocation order is
without prejudice to any other action SEBI may initiate as per law.”

We note that in the above order of the SEBI, the name of the assessee is also
mentioned in the serial no. 154. Therefore, the SEBI itself has freed the assessee
from market rigging allegation and thus the assessee is proved to be a bona-fide
investor not involved in any malicious activities.Hence, considering the above, it
is abundantly clear that no doubt can be arisen about the shares being penny stock.

17. We note that the assessee had never entered into any transaction with Sri Sunil
Dokania against whom investigation wing had allegedly made inquiry. We also
note that in the extracts of the statement of Sri Sunil Dokania given in the Show
Cause notice, it is nowhere mentioned that the alleged person has provided any
entry to the assessee directly. The statement talks about the entries provided by
him to preferential allottees and the modus operandi adopted by him for providing
the bogus LTCG. The assessee being a genuine investor was unaware of the fact
that any such activity was undertaken in the scrips purchased by him. He was
nowhere, associated with the person alleged to provide the entries as alleged by
the AO. We also note that SEBI has given a clean chit to the company and has
freed it from the allegation of market rigging. Therefore, the allegation of the AO
itself becomes infructuous.Further, the assessee had also requested for an
opportunity to cross examine Sri Sunil Dokania, whose statement has been relied
on by the AO for making the addition. However, the Ld. AO did not provide any Pa g e | 2 8 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
opportunity for cross examine the so-called operators. It is well established law
that no adverse view can be taken against an assessee on the basis of statement
recorded by department of any person without providing copy of the statement to
the assessee and also without providing opportunity for cross examination of the
said person.

18. We note that Hon’ble Bombay High Court in the case of CIT vs. Lavanya Land
Pvt. Ltd. [2017] 83taxmann.com 161 (Bom) held that there was no evidence
whatsoever toallege that money changed hands between the assessee and the
broker or any other person including the alleged exit provider whatsoever to
convert unaccounted money for getting benefit of LTCG as alleged. In the said
case, theHon’ble High Court at Para 21 held that in absence of any material to
show thathuge cash was transferred from one side to another, addition cannot be
sustained.

19. We note that all the observations, conclusions and findings of the lower
authorities are based on suspicion, surmises and rumor. It is trite law that the
suspicion howsoever strong cannot partake the character of legal evidence.
Reference was made to the judgement of Hon’ble Supreme Court in the case of
Lalchand Bhagat Ambica Ram vs. CIT (1959) 37ITR 288 (SC, Umacharan Shaw
37 ITR 271 and Omar Salay Mohamed Sait 37ITR 151. We note that the entire
case of the revenue is based upon the presumption that the assessee has ploughed
back his own unaccounted money in the form of bogus LTCG. However, this
presumption or suspicion howsoever strong it may appear to be, but needs to be
corroborated by some evidence to establish a link that the assessee had brought
back his unaccounted income in theform of LTCG.

20. We note that since the purchase and sale transactions are supported and
evidenced by Bills, Contract Notes, Demat statements and bank statements etc.,
and when the transactions of purchase of shares were accepted by the ld AO in
earlier years, the same could not be treated as bogus simply on the basis of some
reports of the Investigation Wing and/or the orders of SEBI and/or the statements
of third parties. In support of the aforesaid submissions, the ldCounsel, in addition
to the aforesaid judgements, has referred to and relied on the following cases:-
Pa g e | 2 9 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 (i) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM)
(ii) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM)
(iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT)
(iv) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(v) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)
(vi) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT)
(vii) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)
(viii) Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)
(ix) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT)
(x) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC)
(xi) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC)
(xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC)
(xiii) CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC)
(xiv) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC)
(xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) GaneshmullBijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 21. The ldCounsel 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 Krishnanand Agnihotri vs. The State of Madhya
Pradesh [1977] 1 SCC 816 (SC). In this case the Hon’ble Apex Court held that the Pa g e | 3 0 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
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 – ITA No. 32/Agr/2007 (Agra ITAT) 22. Moreover it was submitted before us by ld Counsel 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 BSE/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) (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) 23. We note that the ld. D.R. for the Revenue had heavily relied upon the
decision of the Hon’ble Bombay High Court in the case of Bimalchand Jain in Tax
Appeal No. 18 of 2017. We note that in the case relied upon by the ld. D.R,we Pa g e | 3 1 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
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.
24. We note that when the transactionswere as per norms prescribed by SEBI and
concerned stock exchange and suffered STT,brokerage, service tax, and cess.
There is no iota of evidence over thetransactions as it were reflected in demat
account. AO did not doubt the genuineness of the documents submitted by
assessee. Theld AO failed to bring on record any evidence to suggestthat the sale
of shares by the Assessee were not genuine. The assessee produced the contract
notes, details of demat accounts and produced documents showing all payments
were received bythe assessee through banks. In these circumstances, the long term
capital gain (LTCG) earned by the assessee should not be treated as bogus, as held
by the jurisdictional Hon`ble Calcutta High court in various cases, as mentioned
below:

(i) . CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal- HC) Inthis case the Hon’ble Calcutta High Court held that the Assessing
Officerdoubted the transactions since the selling broker was subjected to
SEBI’saction. However, the transactions were as per norms and suffered STT,
brokerage, service tax, and cess. There is no iota of evidence over thetransactions
as it were reflected in demat account. The appeal filed by therevenue was
dismissed.

(ii) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal-
HC) Pa g e | 3 2 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
In this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal,
wherein, the tribunal allowed the appeal ofthe assessee where the ld AO did not
accept the explanation of the assesseein respect of his transactions in alleged
penny stocks. The Tribunal foundthat the ld AO disallowed the loss on trading of
penny stock on the basis ofsome information received by him. However, it was
also found that the ld AO did not doubt the genuineness of the documents
submitted by theassessee. The Tribunal held that the ld AO’s conclusions are
merely basedon the information received by him. The appeal filed by the revenue
wasdismissed.
(iii) CIT V. Andaman Timbers Industries Ltd [ITA No. 721of 2008] (Cal-HC) In this case the Hon’ble Calcutta High Court affirmedthe decision of this Tribunal
wherein the loss suffered by the Assessee wasallowed since the ld AO failed to
bring on record any evidence to suggestthat the sale of shares by the Assessee
were not genuine.

(iv) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal- HC) in ITA
No. 22 of 2009 dated 29.4.2009] In this case the Assesseeclaimed exemption of income from Long Term Capital
Gains. However, the ld AO, based on the information received by him from
Calcutta StockExchange found that the transactions were not recorded thereat. He
therefore held that the transactions were bogus. The Hon’ble JurisdictionalHigh
Court, affirmed the decision of the Tribunal wherein it was foundthat the claim of
transactions entered into by the assessee have beenproved, accounted for,
documented and supported by evidence. It was alsofound that the assessee
produced the contract notes, details of demat accounts and produced documents
showing all payments were received by the assessee through banks. On these facts,
the appeal of the revenue was summarily dismissed by High Court.

(v).The Hon’ble High Court of Calcutta in the case of ALPINE
INVESTMENTS ITA 620 of 2008, dated 26thAugust 2008, held as follows:

“It appears that the share loss and the whole transactions were supported by
contract notes, bills and were carried out through recognized stockbroker of the
Calcutta Stock Exchange and all the payments made to the stockbroker and all the Pa g e | 3 3 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
payments receivedfrom stockbroker through account payee instruments, which
were also filed in accordance with the assessment.

It appears from the facts and materials placed before the Tribunal and after
examining the same the Tribunal came to the conclusion and allowed the appeal
filed by the assessee. In doing so, the Tribunal held that the transaction fully
supported by the documentary evidences could not be brushed aside on suspicion
and surmises. However, it was held that the transactions of share are genuine.
Therefore, we do not find that there is any reason to hold that there is any
substantial question of law involved in this matter. Hence, the appeal being ITA
No.620 of 2008 is dismissed.”

(vi) The Hon’ble Calcutta High Court in the case of Principal Commissioner
Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA
No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by
observing as follows:-
“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled.

There is no law that the off market transactions should be informed to stock exchange. All the transactions are duly recorded in the accounts of both the parties and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO and PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand, the ld. DR relied in the order of the lower authorities.

4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence.”
(vii).M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal- HC) In this case the ld AO found that the formal evidences produced by the assessee to
support huge losses claimed in the transactions of purchase and sale of shares were
stage managed. The Hon’ble High Court held that the opinion of the AO that the
assessee generated a sizeable amount of loss out of prearranged transactions so as Pa g e | 3 4 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
to reduce the quantum of income liable for tax might have been the view expressed
by the ld AO but he miserably failed to substantiate that. The High Court held that
the transactions were at the prevailing price and therefore the suspicion of the AO
was misplaced and not substantiated.

(viii)CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40
taxmann.com 439 (Cal) – In this case the Hon’ble Calcutta High Court held that
on the basis of a suspicion howsoever strong it is not possible to record any finding
of fact. As a matter of fact suspicion can never take the place of proof. It was
further held that in absence of any evidence on record, it is difficult if not
impossible, to hold that the transactions of buying or selling of shares were
colourable transactions or were resorted to with ulterior motive.
We note that above mentioned judgments of Hon`ble Calcutta High Court, by and
large held that wherethe whole transactions were supported by contract notes, bills
and were carried out through recognized stockbroker of Stock Exchange and all
the payments made to the stockbroker and all the payments receivedfrom
stockbroker through account payee cheques, then in these facts and circumstances
addition made by assessing officer on account of bogus long term capital gain
should be deleted. We note that unless and until the order of Jurisdictional Hon`ble
High Court is reversed by Hon`ble Supreme Court, the same has to be given due
effect. Judicial discipline demands that once an order has been passed in the
assessee’s own case, by the Jurisdictional High court, the Tribunal is duty bound
to act in accordance with the same.

We note that in the case of Union of India v. Raghubir Singh (1989) 178 ITR
548 (SC), the Supreme Court heldthat the doctrine of binding precedent has
merit of promoting certainty and consistency in judicial decisions. As per the
doctrine of precedent, all lower Courts, Tribunals and authorities exercising
judicial or quasi-judicial functions are bound by the decisions of the High Court
within whose territorial jurisdiction these Courts, Tribunals &authorities functions.
Therefore, respectfully following the judgments of the Jurisdictional, Hon`ble
High Court of Calcutta, on similar and identical facts, the addition made by
assessing officer should be deleted.

Pa g e | 3 5 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
25. We note that when the transactions were as per norms prescribed by SEBI and
concerned stock exchange and suffered STT,brokerage, service tax, and cess.
There is no iota of evidence over thetransactions as it were reflected in demat
account. AO did not doubt the genuineness of the documents submitted by
assessee. Theld AO failed to bring on record any evidence to suggestthat the sale
of shares by the Assessee were not genuine. The assessee produced the contract
notes, details of demataccounts and produced documents showing all payments
were received bythe assessee through banks. In these circumstances, the long term
capital gain (LTCG) earned by the assessee should not be treated as bogus, as held
by the Coordinate Benches of ITAT Kolkata, in the following cases:

(i). Mr. Sanjiv Shroff,I.T.A. No. 1197/Kol/2018, Assessment Year: 2014-15,
order dated, 02.01.2019 “28. We note that since the purchase and sale transactions are supported and
evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when
the transactions of purchase of shares were accepted by the ld AO in earlier years, the
same could not be treated as bogus simply on the basis of some reports of the
Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In
support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements,
has referred to and relied on the following cases:-

(xx) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM) (xxi) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM) (xxii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT) (xxiii) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (xxiv) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (xxv) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT) (xxvi) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (xxvii)Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT) (xxviii) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT) (xxix) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC) (xxx) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC) (xxxi) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xxxii)CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC) (xxxiii) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) (xxxiv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xxxv) GaneshmullBijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xxxvi) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xxxvii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) Pa g e | 3 6 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 (xxxviii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT)
29. 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 Krishnanand 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.
(iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)
(iv) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT) 30. 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 :-
(v) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)
(vi) ACIT vs.Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(vii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT)
(viii) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum) 31. We note that the ld. D.R. had heavily relied upon the decision of the Hon’ble
Bombay High Court in the case of Bimalchand 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.

32.It is clear from the above that the facts of the case of the assessee are identical
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 sale of shares of M/s KAFL. We,
therefore, respectfully following the same, and set aside the order of Ld. CIT(A) and Pa g e | 3 7 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 direct the AO not to treat the long term capital as bogus and delete the consequential addition.”
(ii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018, order dated
05.09.2018.
“35.In the light of the documents stated in para 30 at Page14(supra) we find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. In the aforesaid facts and circumstance, for allowing the appeal we rely on the decision of the Hon’ble Calcutta High Court in the case of M/s. Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the High Court held as follows : “It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment.

It appears from the facts and materials placed before the Tribunal and after examining the same, the tribunal allowed the appeal by the assessee.

In doing so the tribunal held that the transactions cannot be brushed aside on suspicion and surmises. However it was held that the transactions of the shares are genuine. Therefore we do not find that there is any reason to hold that there is no substantial question of law held in this matter. Hence the appeal being ITA No.620 of 2008 is dismissed.”

36. We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale Pa g e | 3 8 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We therefore direct the AO to delete the addition.”

(iii).Navneet Agarwal, ITA No.2281/Kol/ 2017, order dated 05.09.2018 “The assessee in this case had stated that the assessee was allotted of 50000 equity shares of SCITIL. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money). Annual return no. 20B was filed with Registrar of companies by SCITIL showing the assessee’s name as shareholder. The assessee lodged the said shares with the Depository ESSBSL with a Demat request. The said shares were dematerialized and copy of demat request slip along with the transaction statement is placed on record. Later on, the High Court approved the scheme of amalgamation of SCITIL with CSL. In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of CSL. The demat shares are reflected in the transaction statement of the period from 1-11-2011 to 31-12-2013. The assessee sold 50000 shares through her broker SKP which was a SEBI registered broker and earned a Long Term Capital Gain. Copy of Form No. 10DB issued by the broker, in support of charging of S.T.T. in respect of the transactions appearing in the ledger is placed on record. The holding period of the said scrip is more than one year (above 500 days) through in order to get the benefit of claim of Long Term Capital Gain the holding period is required to be 365 days The Assessing Officer as well as the Commissioner (Appeals) have rejected these evidences filed by the assessee by referring to ‘Modus Operandi’ of persons for earning long term capital gains which is exempt from income tax. All these observations of Investigation wing were general in nature and were applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee were not controverted by the revenue authorities. No evidence collected from third parties was confronted to the assessees. No opportunity of cross-examination of persons, on whose statements the revenue relied to make the addition, was provided to the assessee. The addition is made based on a report from the investigation wing.

The issue for consideration is whether, in such cases, the legal evidence produced by the assessee has to guide decision in the matter or the general observations based on statements, probabilities, human behaviour and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee’s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation’s office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assessee, if the Assessing Officer relies on any statements or third party as evidence to make an addition. If any material or evidence was sought to Pa g e | 3 9 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
be relied upon by the Assessing Officer, he has to confront the assessee with such
material. The claim of the assessee cannot be rejected based on mere conjectures
unverified by evidence under the pretentious garb of preponderance of human
probabilities and theory of human behaviour by the department.

It is well settled that evidence collected from third parties cannot be used against
an assessee unless this evidence is put before him and he is given an opportunity
to controvert the evidence. In this case, the Assessing Officer relied only on a
report as the basis for the addition. The evidence based on which the DDIT report
was prepared is not brought on record by the Assessing Officer nor is it put
before the assessee. The submission of the assessee that she is just an investor and
as she received some tips and she chose to invest based on these market tips and
had taken a calculated risk and had gained in the process and that she is not
party to the scam etc., has to be controverted by the revenue with evidence. When
a person claims that she has done these transactions in a bona fide and genuine
manner and was benefitted, one cannot reject this submission based on surmises
and conjectures. As the report of investigation wing suggests, there are more than
60,000 beneficiaries of LTCG. Each case has to be assessed based on legal
principles of legal import laid down by the Courts of law Just the modus operandi, generalisation, preponderance of human probabilities
cannot be the only basis for rejecting the claim of the assessee. Unless specific
evidence is brought on record to controvert the validity and correctness of the
documentary evidences produced, the same cannot be rejected by the assessee.
The burden of proving a transaction to be bogus has to be strictly discharged by
adducing legal evidences, which would directly prove the fact of bogusness or
establish circumstance unerringly and reasonably raising an interference to that
effect.

The Assessing officer as well as the Commissioner (Appeals) has been guided by
the report of the investigation wing prepared with respect to bogus capital gains
transactions. However, the Assessing Officer as well as the Commissioner
(Appeals), have brought out any part of the investigation wing report in which the
assessee has been investigated and /or found to be a part of any arrangement for
the purpose of generating bogus long term capital gains. Nothing has been
brought on record to show that the persons investigated, including entry
operators or stock brokers, have named that the assessee was in collusion with
them. In absence of such finding how is it possible to link their wrong doings with
the assessee. In fact, the investigation wing is a separate department which has
not been assigned assessment work and has been delegated the work of only
making investigation. The Act has vested widest powers on this wing. It is the duty
of the investigation wing to conduct proper and detailed inquiry in any matter
where there is allegation of tax evasion and after making proper inquiry and
collecting proper evidences the matter should be sent to the assessment wing to
assess the income as per law. No such action executed by investigation wing
against the assessee. In absence of any finding specifically against the assessee in
the investigation wing report, the assessee cannot be held to be guilty or linked to
the wrong acts of the persons investigated. In this case, the Assessing Officer at
best could have considered the investigation report as a starting point of
investigation. The report only informed the Assessing Officer that some persons
may have misused the script for the purpose of collusive transaction. The
Assessing Officer was duty bound to make inquiry from all concerned parties Pa g e | 4 0 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16 relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions.

The Assessing Officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence under these circumstances nothing can be implicated against the assessee One is bound to consider and rely on the evidence produced by the assessee in support of its claim and base decision on such evidence and not on suspicion or preponderance of probabilities no material was brought on record by the Assessing Officer to controvert the evidence furnished by the assessee. Under these circumstances, the evidence filed by the assessee is accepted and the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares is allowed and hence exempt from income tax. [Para 20]”
26. To conclude,we notethat SEBI has given a clean chit to the company and has
freed it from the allegation of market rigging. Therefore, the allegation of the AO
itself becomes infructuous. Further, the assessee had also requested for an
opportunity to cross examine Sri Sunil Dokania, whose statement has been relied
on by the AO for making the addition. However, the Ld. AO did not provide any
opportunity for cross examine, the so-called operators. It is well established law
that no adverse view can be taken against an assessee, on the basis of statement
recorded by department of any person without providing copy of the statement to
the assessee and also without providing opportunity for cross examination of the
said person.We note that the assessee had never entered into any transaction with
Sri Sunil Dokania, against whom investigation wing had allegedly made inquiry.
We also note that in the extracts of the statement of Sri Sunil Dokania given in the
Show Cause notice, it is nowhere mentioned that the alleged person has provided
any entry to the assessee directly.

We note that the ld Counsel has provedthat assessee is a regular investor in shares
and securities. The shares were purchased and sold through a Registered Broker
named “Eureka Stock & Share Broking Services Ltd.” in the Stock Exchange. The
shares were purchased and sold based on the prevailing market condition. The Pa g e | 4 1 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
payments were received through proper banking channel. The purchase and sale
transactions were subjected to Security Transaction Tax (STT), Service Tax,
Brokerage charges and Stamp duty. The share purchase and sale transactions are
reflected in the DMAT account. The purchase of shares (Investments) was not
disputed in earlier year, where assessment is completed u/s. 143(3) of the Income
Tax Act. These facts are verifiable from the regular books of accounts. The
transactions can also be verified from the Stock Exchange.It is clear from the
above that the facts of the case of the assessee are identical with the facts in the
cases wherein the co-ordinate benches of this Tribunal has deleted the addition and
allowed the claim of LTCG. The assessee`s case is also covered by the various
judgments of Jurisdictional High Court of Calcutta, as noted (Supra). We,
therefore, respectfully following the same, set aside the order of Ld. CIT(A) and
direct the AO not to treat the long termcapital as bogus and hence we delete the
addition of Rs.7,12,89,467/-.

27. The next issue in ITA No.205/Kol/2018, for A.Y. 2014-15 is in relation to
confirming the addition of Rs.57,02,785/- as unexplained expenditure towards
commission charges of sale of such shares by the operator. We have already held
that the transactions relating to LTCG were genuine and not the accommodation
entries as alleged by the AO. Consequently, the addition of Rs.57,02,785/- is
hereby directed to be deleted. We accordingly hold that the issue is allowed in
favour of the assessee.

28. Same above detailed reasoning to be followed in all remaining appeals,
being, ITA No. 2268 & 2269/Kol/2018, case of former assessee and in case of
latter assessee’s in ITA No.205/Kol/2018, for A.Y. 2014-15, as it transpires that
there are common and identical issues are involved in these two assessees relating
to the same group. We further note that the relevant scrips in issue were Kailash
Auto Finance Ltd, Lifeline Drugs & Pharma Ltd, and ENIS Edutech, in ITA
2270/Kol/2018, same as is the “lead” case.We note that in Sanjib Kumar Patwari
(HUF), in ITA 205/Kol/2018, the relevant scrips were,Kailash Auto Finance Ltd,
Lifeline Drugs & Pharma Ltd, which are exactly identical& Common and scrips of
M/s NCL Research &Financial Services and Essar India Limited were also Pa g e | 4 2 Shri Sanjay Kumar& Sanjib Kumar Patwari ITA Nos.2268-2270 & 205/Kol/2018 A.Ys:12-13 to 13-14 & 15-16
covered by the identical facts and issues by our this order and other orders of the
Coordinate Benches. We adopt the preceding detailed reasoning mutatis mutandis
to delete all the corresponding Long term capital gain(LTCG) addition
hereinabove.

29. In the result, all thefour appeals of the assessees, in ITA No.2268 to
2270/Kol/2018 and ITA 205/Kol/2018 are allowed. A copy of this order be placed
in the respective case files.

Order is pronounced in the open court on 08.05.2019.
Sd/- Sd/- (S.S.GODARA) (DR. A.L.SAINI) ाियकसद / JUDICIAL MEMBER ले खासद / ACCOUNTANT MEMBER िदनां क Dated 08/05/2019 SB, Sr. PS Copy of the order forwarded to:
1. Shri Sanjay Kumar Patwari (HUF) & Shri Sanjib Kumar Patwari (HUF)
2. ACIT, Circle-22, Kolkata & ACIT, Circle-36, Kolkata
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy By Order Assistant Registrar ITAT, Kolkata Benches Pa g e | 4 3

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