Income Tax Appellate Tribunal – Kolkata
Mool Chand Jagwayan , Kolkata vs Ito, Ward – 22(4) , Kolkata on 7 June, 2019 1 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 आयकर अपील य अधीकरण, यायपीठ – “C(SMC)” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C(SMC)” BENCH: KOLKATA (सम ) ी ऐ. ट . वक , यायीक सद य) [Before Shri A. T. Varkey, JM] I.T.A. No. 2381/Kol/2018 Assessment Year: 2015-16 Mool Chand Jagwayan Vs. Income-tax Officer, Wd-22(4),
(PAN: ABHPJ2637E) Kolkata.
Appellant Respondent Date of Hearing 19.03.2019 Date of Pronouncement 07.06.2019 For the Appellant Shri Subash Agarwal, Advocate For the Respondent Shri Rabin Choudhury, Addl. CIT, Sr. DR ORDER
This appeal filed by assessee is against the order of Ld. CIT(A) – 6, Kolkata dated
16.10.2018 for AY 2015-16.
2. In this case the assessee has raised as many as seven grounds of appeal but the sole
issue involved in this appeal of assessee relates to confirmation of the addition/disallowance
by Ld. CIT(A) on account of Long Term Capital Gain of Rs.21,96,793/- claimed by the
assessee as exempt u/s. 10(38) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) from gross sale consideration of 5000 shares of M/s. CCL International Ltd..
3. Briefly stated facts as observed by the AO are that the assessee filed his return of
income on 23.09.2015 for AY 2015-16 electronically declaring total income of
Rs.9,90,050/-. The case was selected for scrutiny under CASS. Accordingly, notice u/s.
143(2) of the Act dated 29.07.2006 and subsequently notice u/s. 142(1) of the Act along
with questionnaire dated 11.01.2017 were issued and served upon the assessee fixing the
date of hearing on 18.01.017. In response the said notices, assessee himself appeared from
time to time and necessary documents and explanations were filed. On perusal of the said
2 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
submissions of the assessee, the AO found that the assessee had purchased scrip of M/s.
CCL International Ltd. of 5000 shares. These shares were sold during the FY 2014-15
relevant to AY 2015-16 and assessee claimed exemption on account of LTCG u/s. 10(38) of
the Act in his return for AY 2015-16 having capital gain of Rs. 21.96,793/-. It was brought
to the notice of AO that the assessee had purchased 5,000 shares of CCL International Ltd.
in June, 2013 from M/s. Goodshine Commerce Pvt. Ltd. for a consideration of Rs.
2,60,000/-. The consideration amount of Rs.2,60,000/- was paid by assessee to the seller of
the said shares by account payee cheque No. 547147 drawn on Indusind Bank Account no.
200004739924. The aforesaid 5,000 shares of CCL International Ltd. were received in
Dernaterialized form to the assessee’s DEMAT account (Client ID 10017878) maintained by
assessee with Vedika Securities Ltd, a Depository Participant registered with NSDL (DPID
No IN301493). The assessee sold all those 5,000 shares of M/s. CCL International Ltd.
during the previous year 2014-15 through M/s. Vardhaman Capital Pvt. Ltd., a Registered
Share & Stock Broker. The assessee earned LTCG of Rs. 21,96,793/- on sale of aforesaid
shares being the aggregate value of gross sale consideration Rs. 24,56,793/- minus Rs.
2,60,000/- being cost of acquisition of such shares. The said amount of LTCG was claimed
as exemption under section 10(38) of the Act. During the course of assessment proceedings
the assessee produced and furnished the evidences relating to purchase of 5,000 shares of
M/s. CCL International Ltd. for Rs.2,60,000. The relevant extract of Bank Account
Statement was submitted to show that the said amount was paid by account payee cheque.
The assessee also produced and filed the copy of the Demat account to show that the said
5,000 shares of M/s. CCL International Ltd. were credited in assessee’s Demat account. The
said 5,000 shares were sold through Vardhaman Capital Pvt Ltd, a registered share and
stock broker. The assessee also produced and filed the copies of contract note in support of
sale of 5,000 shares as aforesaid and also submitted relevant extract of his bank account
statement to show that the sale consideration was credited to his bank account. It was also
shown that the sales of those shares are reflected in the Demat statement of the assessee.
The period of holding of such shares being more than 12 months was also brought to the
notice of AO by the assessee from the aforesaid documentary evidences.
ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
4. On perusal of the submission of the assessee, the AO found that the assessee had
purchased scrip of M/s . CCL International Ltd. of 5,000 units. These were sold during the
F.Y. 2014-15 having capital gain of Rs.21,96,793/-. The assessee has taken this amount as
exempt long term capital gain in his return for the A.Y. 2015-16 u/s. 10(38) of the Act.
According to AO, regarding this kind of huge capital gain and claiming exemption
u/s.10(38) of the Act an investigation was conducted on a number of penny stock companies
by the Directorate of Investigation Wing, Kolkata. And as per the report submitted by the
wing it was discovered that total 84 penny stock companies were identified to be indulged
in giving beneficiaries LTCG etc. so number of search & surveys were conducted in the
office premises of more than 32 share broking entities which inturn accepted that they were
actively involved in the bogus LTCG/STCL scam. Surveys were also conducted in the
office premises of many accommodation entry providers and their statements recorded. All
have accepted their role in the scam. Beneficiaries of more than Rs.38000 crores have been
identified and segregated DGIT(Investigation) wise. Total number of more than 60,000
PANs of the beneficiaries have been identified which have been reported to the assessment
wing through the DGITs. Out of 84 penny stock companies which have been used for
generating bogus LTCG , the above named penny stock, i.e. M/s. CCL International Limited
is included. According to AO, the basic trade pattern of all the 84 scrips are same. A close
view of all such data suggested that there is a common pattern in the trading of such scrips
and the pattern is that they represent a bell shape in their trading. It means first, their prices
start from low range, then it rises rapidly, stays there for a while and then it decreases more
rapidly. Thus trade pattern makes a bell shape. In support of the aforesaid common feature,
the share pricing chart of M/s. CCL International Limited from Jan, 2013 to July, 2017
available at website of money control are reproduced at page 2 of the assessment order.
According to AO, apart from that from the balance sheet of the penny stocks it can be seen
that they have no credentials to support their share movement pattern. Further it was
observed by the AO that all the companies have no fixed asset, no turnover, no profitability
and they did not pay taxes. So according to AO, it shows that these are made especially for
the purpose of providing bogus Long Term Capital Gain or Short Term Capital Loss to
willing beneficiaries. So, according to AO, the above the long term capital gain claimed to
4 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
be exempted u/s.10(38) of the Act amounting to Rs.21,96,793/- is found to be fictitious
claim of assessee and is nothing but assessee’s income from other-sources brought back in
his books in the form of exempted income. So, the AO issued show cause why not the
above amount of Rs. 21,96,793/- as claimed to be exempted should not be added back to
assessee’s total income and taxed thereon. After considering the reply of the assessee, the
AO observed that the assessee tried to prove the veracity of the said transactions but he
failed to provide any reasonable explanation regarding the above facts of suspicious
transaction of long term capital. In view of the above, the AO observed that the long term
capital gain claimed to be exempted u/s. 10(38) of the Act amounting to Rs.21,96,793/- was
found to be fictitious claim on assessee’s part is nothing but his income from other sources
brought back in his books in the form of exempted income. So, the above amount of
Rs.21,96,793/- as claimed to be exempted was added back to the total income of the
assessee by the AO. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who
confirmed the action of AO. Aggrieved, assessee is before us.
5. I have heard rival submissions and gone through the facts and circumstances of the
case. At the time of hearing it was brought to our notice by the ld AR that the Delhi
Tribunal, in the case of Mukta Gupta vs ITO & Mohan Lal Agarwal (HUF) vs ITO in ITA
Nos. 2766-2767/DEL/2018 dated 26.11.2018 in AY 2014-15 wherein the assessee placed
the assessment orders for AY 2013-14 and 2014-15 in the case of M/s. CCL International
Ltd. passed u/s. 143(3) of the Act held that the scrips of M/s. CCL International Ltd. cannot
be called as bogus and allowed the claim. So the Ld AR wants us to allow the claim of the
6. The Ld. DR for the Revenue vehemently opposed the contentions of the assessee and
took us through the AO’s order and Ld. CIT(A) order and submitted that scrips of M/s. CCL
International Ltd. was artificially rigged to provide LTCG to the assessee which cannot be
allowed and supported the impugned order and relied on the order of Hon’ble Bombay High
Court in the case of Binod Chand Jain in Tax Appeal No.18 of 2017 and so he does not
want us to interfere with the impugned order .
ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
7. I am not repeating the facts again for the sake of brevity. In a nutshell, I note that the
assessee had purchased scrip of M/s. CCL International Ltd. of 5000 shares. These shares
were sold during the FY 2014-15 relevant to AY 2015-16 and assessee claimed exemption
on account of LTCG u/s. 10(38) of the Act in his return for AY 2015-16 having capital gain
of Rs. 21,96,793/-. In the assessment order the AO did not accept the transaction of the
assessee and held it to be bogus and the assessee’s claim for LTCG of Rs.21,96,793/- was
not accepted. According to Ld. AR, the AO has made the addition on a general report of
department and is riddled with suspicion and conjectures. It has been brought to our notice
that the assessee is a Chartered Accountant and the Ld. AR drew our attention to page 11 of
the paper book which shows that this was not a standalone investment of the assessee. I
note that there are several number of investments made by the assessee during the
assessment year under consideration. I note that the assessee had purchased 5000 numbers
of shares of M/s. CCL International Ltd. in 8th June, 2013 from M/s Goodshine Commerce
Pvt. Ltd. for a consideration of Rs. 52 per share Rs. 2,60,000/- (Copy of the purchase bill is
enclosed in the Paper Book at Page Number 13). It is taken note that the payment was made
through an account payee cheque and copy of money receipt alognwith the bank statement
evidencing the payment made to M/s Goodshine Commerce Pvt. Ltd. for such share
purchase is enclosed in the Paper Book at Page Number 14 to 15. It is taken note that the
assessee lodged the said shares with the DP M/s. Vedika Securities Ltd. on 19.07.2013 (i.e.
within a month & 10 days). The said shares were subsequently dematerialized (copy of
demat statement of enclosed in the Paper Book at Page Number 18).Thereafter it is noted
that in the relevant year, the assessee had sold the shares at a consideration of Rs. 494.70 per
share Rs. 24,56,793/- and remitting STT through M/s. Vardhaman Capital Ltd. which is a
registered broker at the BSE and claimed Long Term Capital Gains of Rs. 21,96,793/-(Copy
of contract notes in connection with sale of shares alongwith the bank statement reflecting
the receipt of sale consideration is enclosed in the Paper Book at Page Number 16 to 17).It
is noted that the AO at the time of assessment proceedings described after taking note of the
Investigation Report of Investigating Wing the Modus Operandi of booking the alleged
bogus LTCG. However, the AO has nowhere in the assessment order referred to any
material which can prove the complicity of assessee either in the price rigging or in the
6 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
alleged accommodation entry operation. The Ld. CIT(A) confirmed the action of the AO on
the ground that the entire transactions entered into by the assessee are beyond human
probability. It is noted that in the instant case, the assessee is not connected with M/s. CCL
International Ltd. or their promoters, directors and any other person who exercises any
control over M/s. CCL International Ltd. or any so called entry operator. There is no
evidence/material to suggest that the assessee has indulged in any dubious activity nor has
been part of any modus operandi as stated by the AO. It is noted that there is no material/
evidence in the hands of the AO to conclude what is apparent is not real. In the absence of
any link between the assessee and the alleged admissions of the directors and brokers, no
adverse inference can be drawn against the assessee.In the assessment order AO had relied
upon the purported statements of various alleged operators on the basis of which the AO
had drawn adverse inference in the instant case. However nowhere any of them has named
the assessee in the alleged manipulation. Further, the AO neither provided a copy of the
third party statement which show the complicity of assessee in any wrong doing to claim
LTCG nor gave any opportunity to cross examine the said persons. It is a well-settled
principle of law that no credence can be given to the statement/report of any person taken
behind the back of the assessee unless an opportunity to cross examine the third party is
afforded to the assessee. In this regard, reliance is placed upon the following judgement:
(i) Andman Timber Industries vs CCE-  62 taxmann.com 3 (SC) 8. It is noted that the assessee conducted all the transactions through a recognized share
broker and received and made the payments through account payee cheques. It is noted that
the genuine transactions cannot be and should not be treated as ingenuine merely on
arbitrary view of suspicion. For this we rely on the following cases:
i.CIT vs Carbo Industries Hondings Ltd. 244 ITR 422 (Cal)
ii. CIT vs Emerald Commercial Ltd. 250 ITR 539 (Cal)
iii. Mukta Gupta vs ITO & Mohan Lal Agarwal (HUF) vs ITO, ITA Nos. 2766-
2767/Del/18, order dated 26.11.2018 [Scrip Name – CCL International Ltd. – at page 1
to 12 of the compilation of judgment]
7 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
9. It was also brought to our notice that in a case decided by the Tribunal, Delhi Mukta
Gupta vs ITO & Mohan Lal Agarwal (HUF) vs ITO in ITA Nos. 2766-2767/DEL/2018
dated 26.11.2018 in AY 2014-15 wherein the assessee placed the assessment orders for AY
2013-14 and 2014-15 in the case of M/s. CCL International Ltd. passed u/s. 143(3) of the
Act which goes on to show that the scrips of M/s. CCL International Ltd. cannot be called
as bogus wherein it has been held as under:
“8. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as mater referred to before us. As discussed above, assessee has purchased 10,000 shares on 11.05.2009 @ 16.30 per share for total amount of Rs.1,63,000/- out of which Rs.20,000/- was paid in cash and balance amount of Rs.1,43,000/- through cheque which was duly reflected in the statement of affairs in the return of income filed for Assessment Year 2010-11. Later on, the said shares were sub-divided into 50,000 shares in August, 2011. These shares were stated to be purchased from the direct allottee, Mr. Himanshu Pokhariyal and such shares were transferred directly from Demat account of the said person to the Demat account of the assessee through e-transfer with Allied Services Pvt. Ltd. Out of 50,000 shares, 20,000 shares were sold in previous year and balance amount of 30,000 shares have been sold in the relevant Assessment Year. It has not been brought on record that the sale of similar shares in the earlier Assessment Year has been doubted or not. It is not in dispute that, in so far as purchase of shares through cheque is concerned the same were duly reflected in the bank account of the assessee and shown in the earlier years and the sale consideration is also supported by following evidences:-
a) Contract note giving date, time settlement details etc
b) STT is paid on transaction
c) Transaction is through Trustline Securities
d) Sale is made on online market of Bombay Stock Exchange
e) Consideration is received electronically in bank through RTGS
f) Shares are transferred from Demat Account.
9. Apart from that, it is not in dispute rather both Assessing Officer and ld. CIT (A) in their exhaustive order have incorporated the price movement of the said scrip right from 06.02.2010 to 09.12.2016 and on perusal of the same it is seen that there has been increase and decrease in the shares prices like a normal scrip and it is also not in dispute that the said shares were traded in all the years under the stock exchange. Before us, learned counsel has also placed the assessment orders for the Assessment Year 2013-14 and 2014-15 in the case of M/s. CCL International Ltd. passed u/s.143(3) to show that this company is genuine and regularly assessed to tax by the Department. From the perusal of the entire assessment order and ld. CIT (A) order, it is seen that, nowhere there is any reference to any material or information so as to suggest that;
ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 • Firstly, assessee has been found to be beneficiary of any bogus or accommodation entry in any of the investigation/searches carried out anywhere; • Secondly, there is no material that any action has been taken by the SEBI against this company and such an action of black-listing this company had attained finality and; • Lastly, it is also matter of record that the Department in other cases under scrutiny proceedings has accepted similar transaction of sale of shares of M/s. CCL International Ltd.
10. Nowhere the evidences filed by the assessee has been rebutted or any inquiry whatsoever has been conducted by the Assessing Officer or by the ld. CIT(A) to prove that assessee was involved in any clandestine manner for routing its own unaccounted money. If the assessee has filed the entire evidences relating to purchase which is mostly through cheque shown in the earlier years and also filed all the details of sale transactions and the shares which have been routed through Demat account and sold through stock exchange on a quoted price on that date, then onus shifts upon the Department to prove that all these evidences are only make believe documents and certain minimal inquiry is required to rebut all these evidences. As stated above, nowhere it has been found that assessee was in any manner found to be beneficiary of any accommodation entry under any inquiry or investigation. Once all these transactions are duly proved by trading from stock exchange, then to hold the sale of shares as unexplained credit or as unexplained money cannot be upheld. Accordingly, we hold that the money credited in the account of the assessee is from the sale of shares and accordingly benefit of Long Term Capital Gain on sale of such listed equity shares have to be given.
11. In the result, the appeal of the assessee is allowed.”
10. We note that shares of M/s. CCL International Ltd were sold by assessee through
recognized broker in a recognized Bombay Stock Exchange. The details of such sale and
contract note have been submitted before AO/Ld. CIT(A). We take note that when the
transactions happened in the Stock exchange, the seller who sells his shares on the stock
exchange does not know who purchases shares. According to our knowledge, the shares are
sold and bought in an electronic mode on the computers by the brokers and there is also no
direct contact at any level even between the brokers. We note that as and when any shares
are offered for sale in the stock exchange platform, any one of the thousands of brokers
registered with the stock exchange is at liberty to purchase it. As far as our understanding,
the selling broker does not even know who the purchasing broker is. This is how the SEBI
keeps a strict control over the transactions taking place in recognized stock exchanges.
ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
Unless there is a evidence to show that there is a breach in the aforesaid process which fact
has been unearthed by meticulous investigation, we are of the opinion that the unscrupulous
actions of few players exploiting the loopholes of the Stock Exchange cannot be the basis to
paint the entire sale/purchase of a scrip like that of M/s. CCL International Ltd as bogus
without bringing out adverse material specifically against the assessee.
11. The fact of holding the shares of M/s. CCL International Ltd in the D-mat account
cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the
D-mat account and shares credited in the D-mat account of the assessee. Therefore, once,
the holding of shares is D-mat account cannot be disputed then the transaction cannot be
held as bogus. The AO has not disputed the sale of shares from the D-mat account of the
assessee and the sale consideration was directly credited to the bank account of the assessee,
therefore, once the assessee produced all relevant evidence to substantiate the transaction of
purchase, dematerialization and sale of shares then, in the absence of any contrary material
brought on record the same cannot be held as bogus transaction merely on the basis of
statement of third party recorded by the Investigation Wing, Kolkata wherein there is a
general statement of providing bogus long term capital gain transaction to the clients
without stating anything about the transaction of allotment of shares by the company to the
12. We note that the sale of shares of M/s. CCL International Ltd which was
dematerlized in Demat account has taken place through recognised stock exchange and
assessee received money through banking channel. So, assessee has explained the nature
and source of the money with supporting documents and thus has discharged the onus
casted upon him by producing the relevant documents mentioned in para 7 (supra),
accordingly, the question of treating the said gain as unexplained cash credit under section
68 of the Act cannot arise unless the AO is able to find fault/infirmity with the same. We
note that the source of the receipt of the amount has been explained and the transaction in
respect of which the said amount has been received by assessee has not been cancelled by
10 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
the stock exchange/SEBI. So, it is difficult to countenance the action of AO/Ld. CIT(A) in
the aforesaid facts and circumstances explained above.
13. Even assuming that the brokers may have done some manipulation then also the
assessee cannot be held liable for the illegal action of the brokers when the entire
transactions have been carried out through banking channels duly recorded in the Demat
accounts with a Government depository and traded on the stock exchange unless specific
evidence emerges that the assessee was in hand in gloves with the broker for committing the
unscrupulous activity to launder his own money in the guise of LTCG is brought on record
by the AO.
14. There is also nothing on record which could suggest that the assessee gave his own
cash and got cheque from the alleged brokers/buyers. The assessment is based upon some
third parties statements recorded behind the back of the assessee and the assessee has not
been allowed to cross examine those persons, so the statements even if adverse against the
assessee cannot be relied upon by the AO to draw adverse inference against the assessee in
the light of the documents to substantiate the claim of LTCG, which has not been found
fault with by the AO.
15. Let us look at certain judicial decisions on similar facts:-
16. The case of the assessee’s is similar to the decision of Hon’ble Bombay High Court,
Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal & Ors. dated 23rd September, 2010
reported in (2010) 328 ITR 656 wherein it was held that:
“The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the
11 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions. The statement of the broker P that the transactions with the H Group were bogus has been demonstrated to be wrong by producing documentary evidence to the effect that the shares sold by the assessees were in consonance with the market price. On perusal of those documentary evidence, the Tribunal has arrived at a finding of fact that the transactions were genuine. Nothing is brought on record to show that the findings recorded by the Tribunal are contrary to the documentary evidence on record. The Tribunal has further recorded a finding of fact that the cash credits in the,bank accounts of some of the buyers of shares cannot be linked to the assessees. Moreover, yn the light of the documentary evidence adduced to show that the shares purchased and sold by the assessees were in conformity with the market price, the Tribunal recorded a finding of fact that the cash credits in the buyers’ bank accounts cannot be attributed to the assessees. No fault can be found with the above finding recorded by the Tribunal. Therefore, the decision of the Tribunal is based on finding of facts. No substantial question of law arises from the order of the Tribunal.–Asstt. CIT vs. Kamal Kumar S. Agrawal (Indl.) & Ors. (2010) 41 DTR (Nag) (Trib) 105: (2010) 133 TTJ (Nag) 818 affirmed; Sumati Dayal vs. CIT (1995) 125 CTR (SC) 124: (1995) 80 Taxman 89 (SC) distinguished.”
12. The Hon’ble High Court of Rajasthan in CIT vs. Smt. Pushpa Malpani – reported in (2011) 242 CTR (Raj.) 559; (2011) 49 DTR 312 dismissed the appeal of department observing ‘Whether or not there was sale of shares and receipt of consideration thereof on appreciated value is essentially a question of fact. CIT(A) and Tribunal have both given reasons in support of their findings and have found that at the time of transactions, the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, ‘the prese/itdppeal does not raise any question of law, much less any substantial question of law.”
17. The Hon’ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299
ITR 0179 has held as under:-
“The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. –Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is
12 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.– C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguished”
18. The Co-ordinate Bench of Ahmedabad in ITA Nos. 501 & 502/Ahd/2016 had the
occasion to consider a similar issue which was wherein the assessment was framed on the
strength of the statement of a broker. The relevant part reads as under:-
“14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross-examination was given by the Assessing Officer/CIT(A). The Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:-
“6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders.”
15. The Hon’ble Apex Court held as under:-
“According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their exfactory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.
As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the
13 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.
In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause.
We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.”
16. On the strength of the aforementioned decision of the Hon’ble Supreme Court, the assessment order has to be quashed.
17. Even on facts of the case, the orders of the authorities below cannot be accepted. There is no denying that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn.
18. In the light of the decisions of the Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences on record relating to the sale/purchase transactions in shares supported by broker’s contract notes, confirmation of receipt of sale proceeds through regular banking channels and the demat account.
19. Accordingly, we direct the A.O. to treat the gains arising out of the sale of shares under the head capital gains- “Short Term” or “Long Term” as the case may be. The other grievance of the assessee becomes infructuous.”
19. The assessee has furnished all evidences in support of the claim of the assessee that it
earned LTCG on transactions of his investment in shares. The purchase of shares had been
accepted by the AO in the year of its acquisition and thereafter until the same were sold.
ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
The off market transaction for purchase of shares is not illegal as was held by the decision of
Co-ordinate Bench of this Tribunal in the case of Dolarrai Hemani vs. ITO in ITA No.
19/Kol/2014 dated 2.12.2016 and the decision by Hon’ble Calcutta High court in PCIT Vs.
BLB Cables & Conductors Pvt. Ltd. in ITAT No. 78 of 2017 dated 19.06.2018 wherein all
the transactions took place off market and the loss on commodity exchange was allowed in
favour of assessee. The transactions were all through account payee cheques and reflected
in the books of accounts. The purchase of shares and the sale of shares were also reflected in
Demat account statements. The sale of shares suffered STT, brokerage etc. In the facts and
circumstances of the case, it cannot be held that the transactions were bogus. The following
judgments of Hon’ble Jurisdictional High Court:-
(i) 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 land 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.”
ii) 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
15 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16 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 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.
iii)CIT V. Lakshmangarh Estate & Trading Co. Limited  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.
iv) CIT V. Shreyashi Ganguli [ITA No. 196 of 2012] (Cal HC) – In this case the Hon’ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI’s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed.
v) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal HC) – In
this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal , wherein,
the tribunal allowed the appeal of the assessee where the AO did not accept the explanation
of the assessee in respect of his transactions in alleged penny stocks. The Tribunal found that
the AO disallowed the loss on trading of penny stock on the basis of some information
received by him. However, it was also found that the AO did not doubt the genuineness of
16 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
the documents submitted by the assessee. The Tribunal held that the AO’s conclusions are
merely based on the information received by him. The appeal filed by the revenue was
vi) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) –
In this case the Hon’ble Calcutta High Court affirmed the decision of this Tribunal wherein
the loss suffered by the Assessee was allowed since the AO failed to bring on record any
evidence to suggest that the sale of shares by the Assessee were not genuine.
vii) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of
2009 dated 29.4.2009] – In this case the Assessee claimed exemption of income from Long
Term Capital Gains. However, the AO, based on the information received by him from
Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore
held that the transactions were bogus. The Hon’ble Jurisdictional High Court, affirmed the
decision of the Tribunal wherein it was found that the chain of transactions entered into by
the assessee have been proved, accounted for, documented and supported by evidence. It
was also found that the assessee produced the contract notes, details of demat accounts and
produced documents showing all payments were received by the assessee through banks. On
these facts, the appeal of the revenue was summarily dismissed by High Court.
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 ld AR, in addition to the aforesaid judgements, has referred to and relied on
the following cases:-
(i) Baijnath Agarwal vs. ACIT –  40 SOT 475 (Agra (TM)
(ii) ITO vs. Bibi Rani Bansal –  44 SOT 500 (Agra) (TM)
17 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
(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 –  29 taxmann.com 402 (Allahabad HC)
(xi) CIT vs. Udit Narain Agarwal –  29 taxmann.com 76 (Allahabad HC)
(xii) CIT vs. Jamnadevi Agarwal  20 taxmann.com 529 (Bombay HC)
(xiii) CIT vs. Himani M. Vakil –  41 taxmann.com 425 (Gujarat HC)
(xiv) CIT vs. Maheshchandra G. Vakil –  40 taxmann.com 326 (Gujarat HC)
(xv) CIT vs. Sumitra Devi  49 Taxmann.com 37 (Rajasthan HC) (xvi) Ganeshmull Bijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 21. 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  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
18 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
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
(i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT) 22. Moreover it was submitted before us by ld AR that the AO was not justified in taking
an adverse view against the assessee on the ground of abnormal price rise of the shares and
alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or
the enquiry report of the Investigation Wing to the effect that the assessee, the Companies
dealt in and/or his broker was a party to the price rigging or manipulation of price in CSE.
The ld AR referred to the following judgments in support of this contention wherein under
similar facts of the case it was held that the AO was not justified in refusing to allow the
benefit under section 10(38) of the Act and to assess the sale proceeds of shares as
undisclosed income of the assessee under section 68 of the Act :-
(i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (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 –  6 SOT 247 (Mum) 23. 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
19 ITA No. 2381/Kol/2018 Mool Chand Jagwayan, AY 2015-16
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. 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
para 9 supra and allowed the claim of LTCG on sale of shares of M/s. CCL International
Ltd. We, therefore, respectfully following the same, and set aside the order of Ld. CIT(A)
and direct the AO not to treat the long term capital as bogus and delete the consequential
addition. Respectfully taking note of the aforesaid decision of the Tribunal & documents
furnished by assessee taken note by me at para 7 (supra), I allow the appeal of the assessee.
25. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 7th June, 2019 Sd/- (A. T. Varkey) Judicial Member Dated: 7th June, 2019 Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant -Shri Mool Chand Jagwayan, C/o, M. C. Jagwayan & Co., 46, Kali Krishna Tagore Street, 2nd floor, Kolkata-700 007.
2 Respondent – ITO, Ward-22(4), Kolkata. 3 CIT(A)-6, Kolkata. (sent through e-mail) 4 CIT , Kolkata 5 DR, Kolkata Benches, Kolkata (sent through e-mail) /True Copy, By order, Assistant Registrar