Income Tax Appellate Tribunal – Kolkata
Shri Yogesh Kumar Dalmia, Kolkata vs Acit, Circle – 36, Kolkata , … on 9 August, 2019 आयकर अपील य अधीकरण, यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “B” KOLKATA Before Shri S.S.Godara, Judicial Member and Dr. A.L. Saini, Accountant Member ITA No.774-775/Kol/2018 Assessment Years :2009-10 & 2015-16 Shri Yogesh Kumar V/s. ACIT, Circle-36, Dalmia, 59, N.S. Road, 110, Shantipally, Kolkata-700001 Aayakar Poorva, [P AN No. ACXPD 6692 C] Kolkata-107 अपीलाथ /Appellant .. यथ /Respondent अपीलाथ क ओर से/By Appellant Shri Miraj D Shah, Advocate यथ क ओर से/By Respondent Shri Rabin Choudhury, CIT-DR सन ु वाई क तार ख/Date of Hearing 23-07-2019 घोषणा क तार ख/Date of Pronouncement 09-08-2019 आदे श /O R D E R PER S.S.Godara, Judicial Member:- These two assessee’s appeals for assessment year(s) 2009-10 and
2015-16 arise against the Commissioner of Income Tax (Appeals)-10,
Kolkata’s separate order dated 21.03.2018 & 16.03.2018 passed in case Nos.
497/CIT(A)-10/C-36/2009-10 & 875/CIT(A)-10/C-36/2015-16/2017-18/Kol,
involving proceedings u/s 147 r.w.s. 143(3) and 143(3) of the Income Tax Act,
1961; in short ‘the Act’; respectively. Heard both the parties. Case file(s) perused.
2. The assessee’s former appeal ITA No.774/Kol/018 raises two
substantive grounds challenging correctness of the re-opening as well as
lower authorities action holding him to have derived bogus loss amounting to ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 2 ₹2,12,209/- from client code modification. Mr. Shah is very fair in not pressing
for above stated former substantive ground.
3. Coming to latter issue of the assessee’s bogus loss. The CIT(A)’s
detailed discussion under challenge reads as under:- “07. FINDINGS & DECISION 1. I have carefully examined the action of the Ld AO in reopening the case and disallowing the claim of loss, by treating the same as bogus. I have carefully examined the reasons recorded by the Ld AO for reopening the case, wherein he has recorded all the submissions made by the appellant during the impugned reassessment proceedings. I have also perused the submissions of the appellant offered during the course of the appellate proceedings, I find that the AO has duly show-caused the assessee in the matter, and also supplied him with the reasons for reopening, and allowed the appellant to file the necessary objections in the matter. Thereafter, the AO has countered point by point the various objections raised by the appellant, and they have been recorded in the order. During the appeal proceedings also, the appellant has raised several points, inter- alia challenging the reassessment proceedings on grounds that the AO had not acted in the “belief”, but on mere “satisfaction”, and that there had been no application of mind by the AO, and that the reassessment proceedings were void ab initio. I find to be without any substance, as I find that the AO had observed each and every guideline relating to the procedure for reopening of the case at hand. In this matter, the following judicial precedents elucidate the principle involved. As regards, the much debate expression “has reason to believe”, the same has been held to have much larger and wider than “is satisfied”. The Hon’ble Courts have held that these reasons as recorder by the Assessing Officer must have a “proximate and live link” with the formation of belief. This I find to be true in the case at hand. “Information” for reopening has been explained in detail by several judicial pronouncements. Information may come from external sources or even from materials already on record or may be derived from the discovery of new and important matter or fresh facts – Word “information” would also include true and correct state of law derived from relevant judicial decisions either of the IT. authorities or Courts of law – Whether the ground on which the original assessment is based is held to be erroneous by Supreme Court in some other case, that will also amount to a fresh information which comes into existence subsequent to the original assessment – Taxpayer would not be allowed to take advantage of an oversight mistake committed by the taxing authority [Kalyanji Mavji & Co. Vs CIT (SC) 102 ITR 287] 2. Similarly, as regards the “existence of reason” Vs “sufficiency of reason”, this has also been adjudicated as follows: Sufficiency of reason is not open to question in a court of law but the existence of belief can be challenged. Courts can examine whether the reasons are relevant and have a bearing on the matters with regard to which he is required to entertain the belief before he can issue notice. Here I find that the reasons recorded have a direct and live bearing to the matters at hand. 3. Failure to disclose fully and truly material facts – Belief of ITO that income had escaped assessment – Sufficiency of reasons for forming the belief is not for the Court to judge. This is the ration emanating from ITO Vs Lakhmani Mewal Das (SC) 103 ITR 437, Phool Chand Bajrang Lal and Another Vs ITO & Anr. (SC) 203 ITR 456, Raymond Woollen Mills Vs ITO & Anr. (SC) 236 ITR 34, & Desh Raj Udyog Vs ITO (All) 318 ITR 6. ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 3 4. Similarly, it has been decided by Hon’ble Courts that to judge the validity of reassessment on the basis of final outcome of reassessment proceedings on that item will not be “Information” for re-opening. The matter has been elucidated and explained in detail as – Information proper – At the time of reopening, assessing officer is not required to establish escapement of income. Sri Krishna (P) Ltd. Vs CIT (SC) 221 ITR 538 & Central Provinces Manganese Ore Co. Ltd. Vs ITO (SC) 191 ITR 662 5. Hon’ble Courts have also held that what is necessary to re-open an assessment is not the final verdict but a prima facie reason – Once such a reason is recorded by the Assessing Authority, he assumes jurisdiction to issue notice u/s148 – Mere fact that for earlier assessment years issue in dispute has been decided by CIT(A) in assessee’s favour cannot be a fetter in exercising his jurisdiction u/s 147. This ratio emerges from the judgments in ACIT Vs Tube Investments of India Ltd. (ITAT, Chennai-TM) 133 ITD 79 & Rajat Export Import India Pvt. Ltd. Vs ITO (Del) 341 ITR 135. 6. I also find that in the case at hand the earlier assessment was completed without the AO recording any” specific opinion” or finding about the matters which led to the subsequent reopening, namely the issue relating to deduction of TDS by the appellant. Therefore, I find that it cannot be said that there would not be a different method possible which the AO is precluded from adapting for arriving at the correct income, in a situation where he takes a second look on account of what appears to him a better or legally sound understanding of the applicable law. This method, could also be based on information available to the AO from an external source (return of the appellant for another assessment year) which would lead to the formation of any reason to reopen. In the case of – Yuvraj vs. Union of India (Bom) (2009) 315 ITR 84, it has been held by the Hon’ble High Court that the points not decided while passing assessment order under section 143(3), do not lead to a case of change of opinion. In that case, it was held that the assessment was reopened validly. In the case at hand that the matter of TDS to be made had not been addressed, less of decided in the first round of assessment. Moreover Hon’ble Courts have held that what is necessary to re-open an assessment is not the final verdict but a prima facie reason – Once such a reason is recorded by the Assessing Authority, he assumes jurisdiction to issue notice u/s148 – Mere fact that for earlier assessment years issue in dispute has been decided by CIT(A) in assessee’s favour cannot be a fetter in exercising his jurisdiction u/s 147. I have also examined the judicial precedent offered in support by the Ld.A.R, namely the decision of the Hon’ble Calcutta High Court in the case of CIT vs. M/s. Stumm India. After examination, it is seen that the factual matrix in that case was quite at variance to the case at hand, and I find that the same does not come to the rescue of the appellant. In view of the above, I find that the AO had rightly reopened the assessment, after observing all the procedures and legal requirements. The action of the AO in such matters is therefore upheld, and the ground taken by the appellant in these matters stand dismissed. 7. As regards the action of the Ld AO is treating the claim of loss to be bogus, I find that the Ld AO has elaborately recorded the reasons for doing so, and has very clearly established the modus operandi of the assessee. Having examined the matter, I find that the appellant has not been able to bring anything on record to prove the rationale, need and justification for client code modifications. While it may be true that such client code modification may not per se be illegal, it has to be brought on record by the appellant, as he is the beneficiary that the modifications were on an acceptable level, and the clients were KYC complaint. In such matter, the ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 4 relevant extract of SEBI Circular dated February 06, 2003, relating to the Modification of Client Code is being reproduced hereunder for convenience: “The stock exchanges shall not normally permit changes in the Client ID and would keep a strict vigil on cases of client code modification and would implement a monetary penalty structure that would escalate with the number of such incidences. Besides, the exchange may take necessary action against members repeated changes. However, genuine mistakes may be allowed to be rectified. ” 8. Thus, a careful reading of the above extract suggests that the change in generally not allowed except where there is some genuine mistake. The SEBI also mandates the Stock Exchanges to keep strict vigil on the Instances of all modification and implementation of a penalty structure. In the light of the and submission of NSE, it Is to be observed that the practice adopted by ‘scrutiny of client code modifications on a post-facto basis’, with monetary penalties in direct proportion to the quantum of Incidence In compliance with the SEBI circular Regarding the requirement of not allowing the change in client code except genuine mistake, it is also to be observed that the term ‘genuine mistake’ has wide connotation. From the submissions made out by the appellant during both assessment and appeal, it does not emanate that the modifications were genuine. Further, a careful study of the SEBI Circular would reveal that a two tier penalty structure has been provided for. A monetary penalty has been envisaged when there is an escalation in the number of client code modifications. However, in the case of repeated offences, further necessary action has been recommended. With such view of matters, in my considered view of the matter, the Ld.AO was correct In concluding that for the case in hand there was deliberate shifting of profits by the assessee In connivance with the broker. The action of the Ld.AO accordingly stands confirmed, and the grounds taken by the appellant numbering 2 to 13 stand dismissed.” 4. Learned departmental representative vehemently contends that both the
lower authorities action treating the assessee’s foregoing loss as bogus since
derived from the alleged client code modification. The assessee’s first and
foremost plea is that he had never made any transactions in the relevant
previous year. Coupled with this, we find that this tribunal’s co-ordinate
bench’s decision in ITA No.457/Kol/2018 Sumati Kumar Lunia vs. ITO Ward
36(4), Kolkata decided on 28.02.2019 has deleted the identical
disallowance/addition as under:- 3. I have given my thoughtful consideration to the rival contentions. It transpires that during the course of hearing that this Co-ordinate Bench’s decision in the case of M/s. Ratnabali Commodities Pvt. Ltd Vs. ITO, W 12(3), Kolkata decided on 16-06- 2017 has deleted the identical addition vide following discussion :- “3. Sole issue raised by assessee in its grounds of appeal is that Ld. CIT(A) erred in holding the loss of ₹19,76,538/- in the transactions of derivatives as bogus loss. ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 5 4. Briefly stated facts are that the assessee is a private limited company and engaged in the business of dealing in commodities. The assessee in the year under consideration has incurred loss of ₹45,23,943/- in derivatives transactions of shares. The above loss was incurred by the assessee at the fag-end of the relevant Assessment Year i.e. from 18.03.2009 to 26.03.2009. All the transactions were carried out through a broker namely M/s Ratnabali Capital Markets Ltd. (RCML for short) a member of National Stock Exchange (NSE for short). The director in the assessee-company and RCML were common and the name of RCML was appearing in the list of specified person as envisaged u/s.40(A)(2)(b) of the Act. The assessee has also paid brokerage to RCML for ₹92,566/- only for the above stated transactions. The Assessing Officer during the course of assessment proceedings to verify the veracity of the loss claimed by assessee has confirmed from NSE by issuing a notice u/s.133(6) of the Act. As per the confirmation received from NSE, the AO observed that the name of the client and code has been modified during the process of said transactions. Therefore, the AO had a doubt about the genuineness of the impugned loss and therefore has sought the explanation from the assessee. In compliance thereto the Director of the assessee- company and RCML namely, Shri Vikash Somani in his statement recorded dated 22.12.2010 submitted that the name of the client and code was modified due to punching errors by the clerical staff. It was also submitted that all the modification in the name of client and its code were carried out within the time permitted by the Stock Exchange. The assessee also submitted that the Security Transaction Tax (STT) was paid in respect of all the transactions giving rise to the impugned loss. However, AO disagreed with the contention of assessee on account of following reasons:- (a) The impugned loss was incurred by the assessee at the fag-end of the year and similar loss was also incurred in the immediate preceding AY 2008- 09 at the fag-end of the year which was also disallowed. (b) The client code and name were modified by RCML without having instruction from the assessee. (c) The nature of modification carried out in the client’s name and code do not suggest that it was a clerical punching error rather it is suggesting that the loss was taken by the assessee in order to reduce its profit which is not permissible in the eyes of law. In view of the above, AO treated the impugned loss of ₹19,76,538/- as bogus and accordingly added to the total income of assessee. 5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the client’s name and code were modified within the time permitted by National Securities Clearing Corporation Ltd., (NSCCL short) which is the wholly owned subsidiary of NSE. The assessee also submitted that there is always huge rush during the marketing hours and therefore there is high possibility of human errors due to extremely high volume of orders which are placed on screens on real time basis. The assessee also submitted that all the transactions were carried out through banking channel and this was supported with the contract notes. The assessee also produced Form No.10BB which evidenced the payment of STT on the impugned transactions in recognized Stock Exchange. However, Ld. CIT(A) disregarded the contention of assessee and confirmed the order of AO by observing as under:- “… … The facts in this case have been considered and it is apprehended that there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 6 concern. Even though apparently it has not been established that the such modification had been done in violation of rules and regulations prescribed by SEBI and the AO had proceeded on suspicion, however at the same time it also cannot be concluded either that the loss would not be attributable to these “modifications”. Thus, I find merit in the contention of the AO. Therefore, the appellant’s contention in respect of the claim of loss cannot be acceptable as the same pertained to the modified transactions being entered into by the appellant’s sister concern who was the Broker and helped in manipulation for the benefit of the Appellant. I also find that similar addition was made by the AO on the same ground in the previous AY 2008-09 and the CIT(A)-XXX, Kolkata has partly confirmed the addition so made by the AO vide Appeal Order dated 23.11.2012. Hence disallowance made by the AO for the loss of Rs.19,76,538/- claimed to be incurred by the appellant company is confirmed as it was done with the intention of reducing appellant company’s taxable income manipulation of transactions entered into by the Appellant’s sister ITA No.191/Kol/2015 A.Y. 2009-10 M/s Ratnabali Commodities Pvt. Ltd. Vs. ITO Ward-12(3) Page 4 concern who was the Broker and helped in manipulation for the benefit of the Appellant. Hence, this ground of appeal of the appellant is dismissed.” Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us. 6. Ld. AR for the assessee filed paper book which is running pages from 1 to 20 and cited case law. Ld. AR for the assessee reiterated the arguments that were placed before Ld. CIT(A). Further, he also submitted the copies of contract notes in support of the transactions giving rise to the impugned loss which are placed on pages 1 to 5 of the paper book. He also submitted the evidence for the payment of STT on such transactions which is placed on pages 6 of the paper book. Ld. AR also submitted the copy of bank statement of the assessee and RCML along with the ledger copy of the broker and the assessee in the respective books of accounts which are placed on pages 7 to 20 of the paper book. On the other hand, Ld. DR vehemently relied on the order of Authorities Below. 7. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The issue before us revolves for the amount of loss claimed by assessee for ₹19,76,538/- which was treated by the Authorities Below as bogus mainly due to the modification carried out in the name and code of the assessee by the broker. The director of the assessee-company and the director of the broker company listed with NSE are same person. The impugned loss was treated as bogus due to several reasons such as it was incurred at the fagend of the year, to reduce the taxable profit earned by assessee during the year and similar kind of loss was also disallowed in the immediate preceding year. 7.1 From the foregoing discussion, we find that indeed the client’s code and name were modified in respect of transactions claimed by assessee. However, on perusal of record, we find that the impugned transactions were carried out through banking channel and all the supporting evidence such as contract note, payment of STT were filed at the time of assessment proceedings. We also find that Ld. CIT(A) confirmed the order of AO on the basis of his guess-work as evident from his appellate order which is reproduced below:- ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 7 “there is a possibility that the modifications might have been made to accommodate the appellant as the broker of the appellant was a sister concern.” Further the ld. CIT-A has observed in his order as under:- “Even though apparently it has not been established that the such modification had been done in violation of rules and regulations prescribed by SEBI and the AO had proceeded on suspicion, however at the same time it also cannot be concluded either that the loss would not be attributable to these “modifications” On perusal of the order, we find that Ld. CIT(A) has confirmed the order of AO on his own surmise and conjecture which is not permissible in the eyes of law. Ld. DR has also not brought anything on record contrary to the advance arguments placed by Ld. AR for the assessee as well as no defects of whatsoever has been pointed out in the documents produced by assessee in support of its impugned loss. We also find whatever modifications were carried out by the broker they were carried out within the time permitted by the NSE for the purpose of modification. Thus, we are of the view that the order of Authorities Below is based on surmise and conjecture and same is not based on tangible material to treat the impugned loss as bogus loss. 7.2 Moreover, we also find that the details furnished by the assessee in respect of transactions giving rise to the loss were exactly matching with the details furnished by the NSE. In none of the case, Authorities Below have brought on record where any mismatch is found between the books of the assessee and the confirmation received from NSE. Had there been any manipulation in the impugned loss then it could have been revealed from the confirmation received from NSE. Therefore, the modifications in the client’s name and code cannot justify the impugned loss as bogus. Thus, we conclude that the impugned addition has been made by the Authorities Below on the basis of surmise and conjecture which is not permissible in the eyes of law as held by the Hon’ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT Bihar and Orissa (1959) 159 ITR 289 (SC). Therefore, we hold that the impugned loss cannot be subject-matter of addition on the basis of 11 ITA No.457/Kol/2018 A.Y 2009-10 Sumati Kumar Lunia 11 suspicion. In this regard we also rely in the case of CIT vs. Kundan Investment Ltd. reported in 263 ITR 626 (Cal) where Hon’ble jurisdictional High Court has held:- “The Tribunal had found that all relevant documents relating to contract notes, bills, the quoted price and other materials were produced. The transactions were made through cheques. All the shares related to the reputed companies and were quoted shares in the stock exchanges and were purchased and sold at the prevalent quoted market rates, which was verified from the statement of the stock exchanges. On these basis, the Tribunal found that the CIT(A) had proceeded on the basis of suspicion that there might be some ingenuinity in the transactions. On the basis of the materials produced, the Tribunal came to a finding of fact, which does not seem to be perverse. Whether the shares could be sold immediately on the date of purchase or not was a question of business expedience. Whether the decision was correct or wrong cannot be a question, which can be a subject-matter of decision in such a case. In order to find out whether the transaction is genuine or ingenuine, it is neither the expedience or correctness of the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss could not be a factor for such purpose. Having regard to the facts and circumstances of the ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 8 case, the view taken by the Tribunal allowing share loss cannot be said to be erroneous or perverse.-CIT vs. Emerald Commercial Ltd. & Anr. (2001) 171 CTR (Cal) 193: (2001) 250 ITR 539 (Cal), CIT vs. Dhawan Investment & Trading Co. Ltd. (1999) 238 ITR 486 (Cal) and CIT vs. Currency Investment Co. Ltd. (2000) 158 CTR (Cal) 361 : (2000) 241 ITR 494 (Cal) relied on.” Respectfully following the same, we hold that the impugned loss claimed by assessee is genuine loss in the above facts and circumstances of the case and therefore eligible for deduction. Accordingly, AO is directed. This ground of assessee’s appeal is allowed “. 4. I put up a specific query to the department as to whether assessee’s broker carried out the relevant client code modification as per prescribed rules or not. There is no such violation pointed out during the course of hearing before me. I, therefore, adopt the above detailed discussion mutatis mutandis to delete the impugned addition of Rs. 11,41,737/-. The assessee’s legal ground challenging the re-opening is treated as infructuous.” 5. Factual position is no different in the instant list as well wherein the
department has failed to prove as to whether the impugned client code
modification has violated any rule or not and that the figure(s) in issue
indicates any mismatch with the corresponding stock exchange details. We
accordingly adopt the above detailed reasoning mutatis mutandis to delete the
impugned disallowance. This assessee’s instant former appeal ITA
No.774/Kol/2018 is partly allowed in above terms. 6. Next comes assessee’s latter appeal ITA No.775/Kol/2018 seeking to
reverse both the lower authorities action treating his sale proceeds amounting
to ₹1,81,009/- derived from sale of shares in M/s GCM Securities Pvt. Ltd and
Kappac Pharma Ltd. has to be in the nature of unexplained cash credits. Both
the lower authorities have further disallowed the alleged commission
expenditure @ 5% thereupon with coming to ₹1,81,009/- u/s. 69C of the Act.
The CIT(A)’s detailed discussion under challenge to this effect reads as
under:- “06. FINDINGS & DECISION: 1. I have carefully considered in making an addition of Rs.34,62,689/- as unexplained credit u/s 68 of the Income Tax Act, 1961. After an exhaustive discussion and elaborating the factual and legal matrix, has held that the claim of Long Term Capital Gain u/s. 10(38) was to be denied to the assessee-individual, and was to be assessed as unexplained cash credit u/s 68 has placed on record the entire gamut of findings, and there is, in my considered view no further requirement for elaboration from this forum. In my view of the facts there are elaborate and direct evidence to clearly indicate that the entire transactions undertaken by the appellant were merely ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 9 accommodation entries taken for the purpose of such bogus Long Term Capital Gain made by the assessee during the previous year. It is apparent that, in the grab of alleged LTCG, the assessee “earned” exempt income of Rs.34,62,689/- and huge amount brought into the books without paying a single rupee of tax. The Ld.AO 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-individual. 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 brought out by the Ld. AO to be artificial and not commensurate with the normal market, as the Company has no business at all. The Ld. AO has also brought forth information that the Regulatory Authority SEBI has also after investigating such abnormal price increases of certain stocks investigated the matter and suspended trading in certain scripts. It is very clear that the prices of these scripts fell sharply after the offloading of these scripts by pre-arranged and manipulated transactions. The entire transactions were carried out on the Stock Exchange to give it a color of real transactions. 2. I also find that the submissions made by the appellant during the course of the appeal point towards the elaborate documentation, meaning thereby that the appellant has produced papers relating to application for the shares, the allotment of the shares, the share certificates payments by cheque and the necessary papers filed before the Registrar of companies, where the name of the assessee has been reflected as a shareholder. The appellant has also filed proof of amalgamation of the companies wherein the shareholding has changed hands. It is also the contention of the appellant that it has provided copies of the bank statement, bank contract notes and delivery instructions to the broker by way of proof that an these transactions were genuine. However, In my view of the matter, it is precisely this elaborate paperwork that strengthens the matter relating to the bogus benefit of the LTCG, which clearly has been schemed, pre-planned and executed with mala fide intelligence and precision. Therefore all these papers are mere documents and not any evidence. The whole gamut of transactions are unnatural and highly suspicious, and therefore the rules of SUSPICIOUS TRRNSACTIONS ought to apply in the instant case. There are grave doubts in the story propounded by the assessee before the authorities below, None of the material produced before the Ld. AO by the assessee-appellant are enough to justify the humongous gains accruing to the assessee by way of Capital Gains,. In my considered view banking documents are mere self serving recitals. The law in the matter of self-serving recitals has been long established by the Hon’ble apex Court. In the case of CIT vs P Mohankala 291 ITR 278, the Hon’ble Supreme Court held that the money came by way of bank cheque and was paid through the process of banking transactions was not by itself of any consequences. The burden of proof is on the assessee in the matter of justification of receipts which are of suspicious and dubious nature, In the case of CIT Durga Prasad More (1971) 82 ITR 540 (SC), their Lordships laying down the significance of human probabilities held as under: “in a case where a party relied on self serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to Find out the reality such recitals. ” Similarly in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), their Lordships held as under: “In view of section 68 of the Act, where any sum is found credited in the books of the assessee tor any previous veer, the same may be charged to income tax as the income of the assesses of’ that previous veer if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer not satisfactory. In such a case, there is prima facie, evidence against the assessee viz. the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature.”In the case of Sajjan ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 10 Das & Sons vs. CIT (2003) 264 ITR 435 (Delhi), their Lordships of the High Court of Delhi, while considering a case in which gifts were received by the assessee through banking channels laid importance on the capacity of the donor for making the gift and his identity as well as importance of relationship between the donor and done in determination of genuineness of gift held as under: “That a mere identification of the donor and showing the movement of the gift amount through banking channels was not sufficient to prove the genuineness of the gift. Since the claim of the gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it had actually been received as a gift from the door.”In my considered view wherever documents are relied upon they should pass the test of normal behaviour of the assessee in the curse of business viz., human conduct, preponderance of probability and surrounding circumstances. In my considered view, even if documentary evidence is produced, the same must pass the test of human probabilities and surrounding circumstances if they do not, then addition justified. Reliance on such matters is placed on the case of Smt. Phoolwati Devi 314 ITR (AT) 1 (Del). 3. It must also be stated here that in Commissioner of Income Tax vs NR Portfolio Pvt Ltd on 22 November, 2013, the Hon’ble Delhi High Court has held… … “The Assessing Officer is both an investigator and an adjudicator. When a fact is alleged and stated before the Assessing Officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the Assessing Officer unless for justification and reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars. This may entail issue of notices to third parties to furnish and supply information or confirm facts or even attend as witness. The Assessing Officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response. We cannot lay down or state a general or universal procedure or method which should be adopted by the assessing officer when verification of facts in required. The manner and mode of conducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons from whom confirmation or verification is required. The verification and investigation should be one with the least amount of intrusion, inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application or mind on the relevant facts and the decision should take into consideration the entire material, which is germane and which should not be ignored and exclude that which is irrelevant. Certain facts or aspects may be neutral and should be noted. These should not be ignored but they cannot become the bedrock or substratum of conclusion. The provisions of Evidence Act are not applicable, but the assessing officer being a quasi judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the cannons of equity, fairness and justice. The evidence should be impartially and objectively analyzed to ensure that the adverse findings against the assessee when recorded are adequately and duly supported by material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderance of probabilities applies. What is stated and the said standard, equally apply to the Tribunal and indeed this Court. The reasoning and the grounds given in any decision or pronouncement while dealing with the ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 11 contentions and issues should reflect application of mind on the relevant aspects. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing Officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally falls to produce evidence before the Assessing Officer with the desire to prevent inquiry or investigation, an adverse view should be taken.” 4. In this connection, I also wish to refer to the decision of the Hon’ble ITAT Bombay Bench ‘B’ ITA(No.614/Bom/87 A.Y. 1983-84) in the case of M/s. Mont Blane Properties and Industries Pvt. Ltd., which was upheld by the Hon’ble Supreme Court. The Hori’ble Tribunal herd that the word ‘evidence’ as used in sec. 143(3) covered circumstantial evidence also. The word ‘evidence’ as used in sec. 143 (3) obviously could not be confined to direct evidence. The word ‘evidence’ was comprehensive enough to cover the circumstantial evidence also. Under the tax jurisprudence, the word ‘evidence’ had much wider connotations. While the word ‘evidence’ might recall the oral and documentary evidence as may be admissible under the Indian evidence Act the use of word ‘material’ in Sec.143(3) Snowed that the assessing officer, not being a court could rely upon material, which might not be evidence admissible under the Indian Evidence Act for the purpose of making an order’ of assessment. Court often took judicial notice of certain facts which need not be proved before them. The plain reading of section 142 and 143 clearly suggests that the assessing officer may also act on the material gathered by him. The ward ‘material’ dearly shows that the assessing officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking be accepted evidence in court of law. 5. The Hon’bte Supreme Court in CIT v, Durga Prasad More 82 ITR 540 at pages 545-547 made a reference to the test of human probabilities in the following fact situation :. “… … It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the re4al. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals. Otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality9 of the recitals made in those documents…. 6. It is well settled principle of law as declared by the Hon’ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC) that the true nature of transaction have to be ascertained in the light of surrounding circumstances. IT needs to be emphasized that standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. In the present case, it is clear that apparent is not the real as evidenced from the investigation report. Further, the Hon’ble Supreme Court, in the case of Chuhar Mal Vs CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guiding principle, since the AO is not fettered, by technical rules evidence, as held by the Hon’ble ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 12 Supreme Court in the case of Dhakeshwari Cotton Mills v CIT (1954) 261 TR 775. The Hon’ble Supreme Court, in the case of Chuhar Mel V CIT (supra) held that what was meant by saying that evidence Act did not apply to the proceedings under Income-tax Act,1961, was that the rigors of Rules of evidence, contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of Evidence Act, in proceedings before them, they were prevented from doing so. It was further held by the Hon’ble Apex Court that all that Section 110 of the Evidence Act, 1872 did, was ‘to embody a salutary principle of common law, jurisprudence viz, where a person was found in possessing of anything, the onus of proving that he was not its owner, was on that person. Thus, this principle could be attracted to a set of circumstances that satisfies its conditions and was applicable to taxing proceedings. 7. I am in agreement with the Ld. AO that the transactions relating to the claim of LTCG as made by the Ld. AO come within the ambit of “suspicious transactions”, and therefore the rules of suspicious transactions would apply to the case. Payment through Banks, performance through stock exchange and other such features are only apparent features. The real features are the manipulated and abnormal price of off load and the sudden dip thereafter. Therefore, I have to reach the inevitable conclusion that the transactions as discussed by the Ld.AO fall in the realm of “suspicious” and “dubious” transactions. The Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In the case of Win Chadha Vs CIT (International Taxation) in ITA No.3088 &: 3107/Del/200S the Hon’ble Delhi ITAT “B”-Bench has observed, on 31.12.2010 as under: “SUSPICIOUS AND DIBI0US TRASANCTI0N HOW TO BE DEALT WITH: 6.11, The tax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available with AO. 6.12. In the case of Sumati Dayal V. CIT (1995) 80 Taxman 89 (SC), the Hon’ble Supreme Court’ has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department in cases of suspicious Circumstances, by following observations: “,,,,. It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that It is within the taxing provision and if a receipt is in the nature of income; the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee, But in view of section 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income- tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is prima facie eYid~l1ce against the assessee, vtz., the receipt of money, and if he falls to rebut the same, the said evidence being un- rebutted, can be used against him by holding that il’ is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably. … … Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record, an inference could ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 13 reasonably be drawn that the winning tickets were purchased by the appellant after the event. The majority opinion after considering surrounding circumstances and applying the test of human probabilities had rightly concluded that the appellant’s claim about the amount being her winning from races, was not genuine. It could not be said that the explanation offered by the appellant in respect of the said amounts had been rejected unreasonably and that the findings that the said amounts were income of the appellant from, other sources was not based on evidence.” CIRCUMSTANTIAL EVIDENCE HOW TO BE USED 6.13 It would, at this stages, be relevant to consider the admissibility and use of circumstantial evidence in income tax proceedings. Circumstantial evidence is evidence of the circumstances, as opposed to direct evidence. It may consist of evidence afforded by the bearing on the fact to be proved, of other and subsidiary facts, which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the truth of the principle fact. It is evidence of various are so associated with the fact in issue, that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are – (1) the circumstances alleged must be established by such evidence, as in the case of other evidence. (2) the circumstances proved m9uste be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. (3) although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced; some of these links may have to inferred from the proved facts; (4) in drawing those inferences or presumptions, the Authorities must have regarded to the common course of natural events, to human conduct and their relation to the facts of the particular case. (5) The circumstantial evidence can, with equal facility, be restored to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect, circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth.” 6.14 It will also be worthwhile to consider the nature of burden of proof on the AO for proving a fact or circumstances in the income tax proceedings. The questions raised about the tax liability by the AO are to be answered by the assessee by furnishing reasonable and plausible explanations. If assessee is not forthcoming with proper or complete facts or his statement or explanation is contradictory, drawing of suitable inferences and estimation of facts is inevitable. Courts generally will not interfere with such estimate of facts, unless the inferences or estimates are perverse or capricious. 6.15. The Assessee’s technical contentions about admissibility and reliance on material available on the AO’s record are in the nature of contentions challenging criminal or civil liabilities in a court of law. We are dealing with a ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 14 process of adjudication of assessees tax liability i.e. assessment under Income Tax Act rather than conducting criminal or civil court proceedings. As held by the Hon’ble Supreme Court in the case of S.S. Gadgil (supra) no ‘lis” is involved in adjudication of tax liability. The Assessee’s contention that there was no new material before the AO after the CIT(A)’s setting aside order cannot be accepted. New information and material did indeed come on record. In our view, in a sensitive matter like this, even a single clue or revelation can be of great importance. To reverse the order of the AO on this technical plea will amount to taking a lopsided view of the proceedings. Besides, the JPC has underlined the importance of Reports of investigation agencies like CBI DRI, ED whose were in the offing, as the relevant investigations were in process. In view of these observations, we do not accede to the assessee’s pleas in this behalf. The Assessee’s contentions and objections in this behalf that the material available on record was not admissible as evidence and that it cannot be relied on by the AO, are devoid of any merit and are rejected outright…..” 8. When the impossible is projected as possible through a plethora of well arranged documents, It would be very reasonable to reject the documents outright as make believe and self serving. In the Case of Usha Chandresh Shah Vs ITO, Ward- 19(1)(2), Mumbai, the Hon’ble ITAT-“F”- Bench Mumbai by their Order for A.Y 2006- 07 dated 26th September, 2014 have, in the operational portion adjudicated as under: [Quote] 9. We have heard the rival contentions and perused the record. The pertinent points are that me assessee has claimed to have purchased the impugned shares through Off market transaction. The purchase price was not paid by Cheque, but it was claimed to have been adjusted against the speculation profit claimed to have been made by the assessee. The small difference of Rs.324/- was claimed to have been paid by way of cash. It is also pertinent to note that the alleged Speculation transaction carried out earlier to the purchase of shares of Prime Capital Markets Ltd was also claimed to have been carried in off market transaction. Another important point is that the assessee did not possess copies of Share certificates or copies of Share transfer forms. The , broker M/s Khandelwal & Co., has expressed its inability to furnish copies of contract notes available with it and also failed to furnish its books of account to substantiate the transactions of purchase of shares by the assessee. Since the impugned transaction was an off market transaction, the purchase transaction could not be confirmed by the Kolkata Stock exchange. The seta shares were earlier held by M/s Brightsun Merchants (P) Ltd .and the assessee had purchased the shares from them. The notice issued to M/s Brightsun Merchants (P) Ltd was returned unserved by the postal authorities with the remark “unknown”. In this regard the assessee had replied that the name of the company was wrongly mentioned by the AO as M/s Brightsuns (P)Ltd and hence the notice got returned. But there is not comment about the address, meaning thereby, the AO had issued notice to the correct address only and hence the slight variation in the name of the company would not normally make any difference. Hence the fact that the notice was returned back only shows that the seller of the shares could not be identified. All these discussions would show that the purchase transaction could not be cross verified by the assessing officer. 10. One more point to be noted here is that the speculation transactions can be entered only payment of margin money. But the details of said payment are not available. With regard to the query raised by the AO relation to Margin ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 15 money, the broker M/s D,K. KhandeJwal & Co has replied In the context of purchase of shares of M/s Prime Capital Markets Ltd and not in the context of speculation transactions. Thus, It is seen that the question of keeping margin money for speculation transactions remains unanswered both by the assessee as well as by the Share broker cited above. Further the speculation transaction is also claimed to be an off market transaction, which further casts shadow of doubt over the claim put forth by the assessee. 11. Though the assessee has claimed to have purchased the shares in physical formation May, 2004, she chose to D-Mat the same only in June 2005, just two months prior to its sale, The shares were sold through a share broker named Sanju Kabra, who is indicted SEBI for rigging the prices of penny stock shares. It is pertinent to note that the share prices of M/s Prime Capital Markets Ltd went from Rs.5, 17 (May, 2004) to Rs.279,50 (Sep., 2005). The assessee could not furnish any reasons or at-least stock market news to support: the abnormal increase In the prices of the above said shares. The financial statements of the above said company were also not produced. Though M/s Prime Capital Markets Led has confirmed the entries in its books of account with regard to the purchases made by the assessee, it could not identify the name of purchaser to whom the shares were sold by the assessee. 12. We have already seen the the tax authorities have applied the test of human probabilities explained by the Hon’ble Supreme Court in the cases of Sumati Dayal and Durga Prased More (supra) to disbelieve the claim of Long term Capital gains put forth by the assessee. We notice that the test of human probabilities was not applied by the co-ordinate benches of Tribunal In the case of Shri Avinosh Kantilal Jain (supra) and Mr. Shyam R Pawar (supra). Hence, in our view) the assessee cannot take support from the above said decisions, We further notice that the ld CIT(A) has placed reliance on the decision dated 04.1.2011 rendered by ITAT Delhi In the case of Haresh Win Chaddha Vs. DDIT, wherein the Tribunal has expressed the view that there is no presumption in law that the AO is supposed to discharge an impossible burden to assess the tax liability by direct evidence only and to establish the evasion beyond doubt as in criminal proceedings. Further It was held that: the AO can assess on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of Incriminating information / evidence available on record. 13. In the case of Smt. Jamnadevi Agrawal (supra), the Hon’ble Bombay High Court has upheld the order of Tribunal on the reasoning that no fault can be found with the findings recorded by the Tribunal. A perusal of the above said order would Show that the revenue in the above said· case had contended that the assessees in the group have purchased and sold shares of similar compat1ieS through the same broker. Further the purchase prices and sale prices were supported by producing the evidence to show that the said transactions were undertaken at the rates prevailing on the respective dates. Under these set of facts, the High Court held that the findings given by the Tribunal cannot be found fault with the further held that the decision rendered by Hon’ble Supreme Court in the case of Sumati Dayal (supra) was not applicable. In the case of Shri Mukesh Ratilal Marolia (supra), the Hon’ble Bombay high court has observed that the assessee has furnished copies of share certificates to show that the shares were in fact transferred to the name of the assessee before it. Further there was no allegation that the prices of shares purchased by the assessee in the case before High court were manipulated. ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 16 14. However, in the instant case, the assessee could not produce the copies of share certificates and copies of share transfer forms. The transaction of purchase of shares could not be cross verified. The shares of M/s Prime Capital Markets Ltd was declared as “Penny Stock” by SEBI and the broker Sanaju Kabra, through whom the shares were sold by the assessee was indicated for manipulating the prices of penny stock shares. Hence, in our view, the tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. 15. We notice that the M9umbai D bench has considered an identical issue in the case of Shri Ramesh Kumar D Jain in ITA No.3192/Mum/2010 relating to assessment year 2006-07. The Tribunal vide its order dated 15-06-2011, rejected the claim of making speculation gains on the reasoning that speculation transactions could not haves been entered into by the assessee therein without paying margin money to the broker. Accordingly, the claim of purchase of shares was rejected by the Tribunal and consequently the claim of sale of shares was also rejected. It is pertinent to note that, in the decisions relied upon by the assessee, the claim of speculation profits was not considered by the Tribunal. In yet another case of Shri Araving M Kariya considered by “A” bench of Mumbai ITAT, the test of human probabilities was applied to reject the claim of profit realized on sale of penny stocks. There should not be any dispute that the onus to produce necessary evidences to convincingly show that the shares were purchased and sold at the prices claimed always lies upon the assessee. Our view finds support from the decision rendered by Hon’ble Guwahati High Court in the case of CIT vs. Smt. Jasvinder Kaur (357 ITR 638) 16. In view of the foregoing discussions, we are of the view that the decisions relied upon by the assessee cannot be taken support of by the assessee for the reasons discussed supra. Accordingly, we are of the view that the Ld CIT(A) was justified in confirming the order of the assessing officer by applying the test of human probabilities. 17. In the result, the appeal filed by the assessee is dismissed. [Unquote] 9. Reliance is also placed In the case of Somnath Maini Vs ITO (226) 100 TTJ 917 wherein the Hon’ble Chandigarh bench of ITAT held that if facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have to be held to be non genuine. 3. The relevant facts briefly stated are that during the course of assessment proceedings, the AO observed that assessee had incurred a long term capital loss on account of sale of gold jewellery declared under the VDIS, 1997, amounting to Rs.19,87,705 and also there was a short-term capital gain near to this amount of long-term capital loss amounting to Rs.20,36,700 resulting into net capital gain of Rs.48,995. The AO on perusal of record further observed that in the case of a family member of the same assessee Shri D.C. Maini, in the same assessment year, similar exercise has been done by the assessee wherein a long-term capital loss of Rs.11,59,066 had been incurred on account of sale of gold jewellery declared under the VDIS and short-term capital gain of Rsw.11,75,100 resulting into a net gain of Rs.16,034. On going through the nature of transactions, the AO doubted the genuineness of the short-term capital gain in the case of ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 17 the assessee and he made further inquiry that during the year assessee had purchased 45,000 shares of M/s Ankur International Ltd. At varying rates from Rs.2,06 to Rs.3.1 per share and sold them within a short span of six-seven months at the rate varying from Rs.47.75 to Rs.55. These shares were purchased through a broker Munish Arora & Co. And sold through another broker M/s S.K. Sharma & Co. The AO took by surprise the astronomical rise in shares price of a company from Rs.3 to Rs.55 and started further inquiry. The AO issued notice under Section 131 to both the brokers from whom shares were purchased and sold and statements were recorded. The AO also analyzed the balance sheet of M/s Ankur International Ltd. To justify as to how the share price of a company can go up from a mere Rs.3 to Rs.55 in a short span of six to seven months’ time. The AO made detailed and extraneous exercise of finding the fundamental of the share of the company by different methods and concluded that these shares were not genuine and transactions were so arranged so as to cover up the loss incurred on account of sale of jewellery only. the AO also recorded the finding that transactions were done at Ludhiana where also the share price of the company is quoted but maximum value of the share quoted was Rs.17 but that was only in July, 1997, i.e. long before the shares were sold by the assessee to M/s S/.K. Sharma & Co. In the months of February and March, 1998. The AO also recorded the finding that although the shares were transferred in the name of the assessee, they were still lying in the name of assessee much after the sale to M/s S.K. Sharma & Co. The learned CIT(A) deleted the addition on the ground that both the brokers from whom the shares have been purchased and sold were called under Section 31 by the AO. Both have confirmed the sale and purchase of said shares. Other aspect of the facts and circumstances raised by the AO was not discussed by the CIT(A) in his order. 4. In appeal before us, the learned Departmental Representative contended that it is highly improbable that shares of a company go up so high in few months’ time. The learned Departmental Representative took us through various pages of the assessment order and the paper book wherein sale bill of the shares with the said M/s S.K. Sharma & Co. were also filed. The learned Departmental Representative pointed out that shares have been sold at Ludhiana when actually stock exchange was not functional – a fact which is also recorded by the AO. The learned Departmental Representative also pointed out that shares have been sold to M/s S.K. Sharma & Co. On 9th Feb., 1998 and 23rd March, 1998, whereas from the statement of account of M/s S.K. Sharma & Co. Payments have been received by the assessee from 31st March, 1988 to 27th July, 1998, meaning thereby that had the transactions been genuine, payment could have been received in one go by S./K. Sharma & Co. The learned Departmental Representative pointed out that any such type of transactions relating to these types of company operating on stock exchanges payments are received in piecemeal whereas in normal market share transactions, contract notes are issued by the broker and payments are received in one go. The learned Departmental Representative also argued that as per the statement of S.K. Sharma & Co. Recorded at the time of inquiry, he did not produce any books of account and identity of persons to whom the shares have been sold. Ordinarily, when brokers are enquired about share transactions, they ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 18 keep proper books of account form, whom shares have been purchased and sold. However, in this case, S.K. Sharma & Co. failed to provide the names of purchases of the shares and identity of the purchasers. 5. On the other hand, the leaned Authorised Representative contended that in the share market, share price does not move according to the fundamentals of a company. They go up and down as per sentiments prevailing at that time. To controvert, the argument of the learned Departmental Representative, he argued that share prices are quoted at Jaipur Stock Exchange and were quoted on the relevant date of sale at the same price on which shares were sold to M/s S.K. Sharma & Co. However, the learned Departmental Representative controverted his argument by saying that volume of transactions on the relevant dates is only 600 shares on 9th Feb., 1998 and 1000 shares on 23rd March, 1998 whereas number of shares involved in the transactions with S.K. Sharma & Co. are 45000 shares. 6. After hearing the rival submissions, going through the orders of authorities below and paper book, we find that M/s Ankur International Ltd., although it is a quoted company, its shares were not being transacted at Ludhiana Stock Exchange ate, the relevant time. Shares have been purchased and sold through the brokers and payments have been received in cheque on different dates as per the statement of account of M/s S.K. Sharma & Co. Factual matrix of the case from start of the purchase of shares at the rate of Rs.3 to the sale of shares at Rs.55 in a short span of time and shares being not, quoted at Ludhiana Stock Exchange and the way in which different, installment payments have been received from the brokers and non-availability of the records of the brokers and the shares remaining in the name of assessee even long after the sale of the shares does not stand the test of probabilities. As rightly pointed out by the learned Departmental Representative, these types of companies function in the capital market whose sale price is manipulated to astronomical height only to create the artificial transaction in the form of capital gain. Surrounding circumstances differ from the normal share market transactions in which they are ordinarily carried out. Taking all the steps together, final conclusion does not accord with the human probabilities. The Hon’ble Supreme Court in the case of CIT v. Durga Prasad More held as under: It is a story that does not accord with human probabilities. It is strange that High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money. It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-in-law of the assessee for proving the Department’s case. All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department. ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 19 7. The learned CIT(A) only got swayed by the issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that share transactions were genuine overlooking the material gathered by the AO from the statements recorded of broker M/s S.K. Sharma & Co. and the other facts and circumstances that volume of transactions of Jaipur Stock Exchange is only 600 shares and 1000 shares. Payments have been received from the brokers only in installments over a period of 6-7 months. It is true that when transactions are through cheques, it looks like real transaction but authorities are permitted to look behind the transactions and find out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, it is highly improbable that share price of a worthless company can go from Rs.3 to Rs.55 in a short span of time. Mere payment by cheque and receipt by cheque does not. Render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to offset the loss incurred on the sale of jewellery declared under VDIS. In considered view that the CIT(A) was not justified in deleting the impugned addition. We, accordingly set aside order of the CIT(A) and restore that of the AO.
8. In the result, the appeal of the Revenue is allowed.
[Unquote] 10. Moreover, all the judgements relied upon by the appellant fall flat in the face of the facts of the case, and the preponderance of probability against the assessee. In a decision of the Hon’ble Bombay High Court in the case of Sanjay Bimalchand Jain Vs. Pr. CIT by their order dated 10th April, 2017 have upheld the orders of the Hon’ble ITGAT, Nagpur Bench dated 18.07.2016 in ITA No.61/Nag/2013 in Sanjay Bimalchand Jain Vs ITO, Ward-4(2), Nagpur, wherein it was held that on the facts emergent in the case, and the preponderance of probabilities, entire Capital Gains claims were to be treated as fictitious and bogus.
Bogus LTCG from Penny stocks. The assessee has not tendered cogent evidence to explain how the shares in an unknown company worth Rs.5 had jumped to Rs.485 in no time. The fantastic sale price was not at all possible as there was no economic or financial basis to justify the price rise. The assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s. 68.
In view of the above discussion, I find no infirmity in the orders of the Ld. AO, and I confirm the same, holding the claim of LTCG of Rs.34,62,689/- to be bogus. As a natural corollary, I also hold that the Ld. AO was also correct in adding back an amount of Rs.1,81,009/- under Sec. 69C of the Income Tax act. The same also stands confirmed.
Therefore these grounds are dismissed.”
7. We have given our thoughtful consideration to rival contentions. There
can hardly be any dispute that assessee has placed on record his supportive ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 20 documentary evidence comprising of relevant purchase bills of shares
allotment, certified copies, contract notes, brokerage details etc. We put up a
specific query as to whether any of entry operators searched or survey has
quoted these assessees names or not before the departmental authorities.
There is no such material in the case file indicating such as statement. I find
that this co-ordinate bench’s decision in ITA No. 1918/Kol/2018 in Smt.
Sangita Jhunjhunwala vs. ITO decided on 04.01.2019 has deleted similar
bogus LTCG vide following detailed discussion in para 3 to 5 as under:-
“3. I have given my thoughtful consideration to rival contentions. Identical paper book(s) comprising of relevant purchase bills of shares, allotments certificates, contract notes, brokerages details ledger, demat statement etc., stand perused. Mr. Bhattacherjya vehemently contends during the course of hearing that all these assessees have acted in collusion with various entry operators for availing the impugned LTCG entries claimed to be exempt s. 10(38)of the Act. He strongly supports both the lower authorities’ action seriously doubting genuineness of the impugned capital gains more particularly as analysized in assessment order as per scrip price movement in stock exchange, profit and loss account, balance-sheet and business activities. Mr. Bhattacherjya’s case is that the impugned LTCG derived from sale of contract scrip which has not seen any profitable business activity during the relevant holding period which defies all commercial prudence which has been rightly treated as non-genuine both in assessment as well as lower appellate proceedings. He quotes case law of Sumati Dayal vs. CIT (1995) 80 Taxmann. 89/214 ITR 801 (SC) and CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC) various tribunal decisions as well as hon’ble high court’s judgments adding similar sums to be unexplained cash credits are also cited in support.
4. I find no merit in either of the Revenue’s above stated submissions. It emerges that this tribunal’s co-ordinate bench’s decision in Sanjay Mehta vs. ACIT ITA No.1089/Kol/2018 decided on 28.09.2018 has deleted identical addition of LTCG treated as unexplained cash credits regarding the very scrip as follows:-
“5. We have given our thoughtful consideration to rival contentions. Case file as well as a compilation of judicial precedent stand perused. Learned Departmental Representative emphasizes time and again that the instant issue of bogus LTCG has rightly been decided against the assessee in both assessment as well as lower appellate proceedings raised pertaining to artificial manipulation of share prices in both M/s Unno Industries Ltd. & Sharp Trading Finance Ltd. We find no force in Revenue’s instant argument. This tribunal co-ordinate bench’s decision in ITA 2394/Kol/2017 Prakash Chand Bhutoria vs. ITO decided on 27.06.2018 for AY 2014-15 itself upholds such a share prices increase to be genuine qua the above former entity as under:-
5. In response to the queries raised by the assessing officer on the issue of the fact that the assessee received Rs. 31,62,372/- from sale of once scrips i.e. ‘Unno Industries Ltd.’ the assessee submitted the following facts:
“Details of Purchase of share for Long Term capital Gain F.Y.2013-14 (A.Y.2014-
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Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 21
1. I state that I had purchased 100 equity shares of Pinnacle Vintrade Ltd. on 20.01.2012 from Uniglory Developers Pvt. Ltd. Pinnacle Vintrade Ltd. was merged with Unno Industries Ltd. and there was change of management and control of Unno Industries ltd. pursuant to scheme of arrangement sanctioned by the Hon’ble High Court at Bombay.
2. Payment for the purchase of aforesaid 100 equity of Pinnacle Vintrade Ltd. was made by Account Payee Tamilnad Mercantile Ltd. Bank Cheque no. 736027.
3. Bank statement of Tamilnad Mercantile Ltd. Bank reflecting payment (cheque no. 736027) for purchase of the said investment in equity shares of Pinnacle Vintrade Ltd. is enclosed (highlighting the said entry). Annexure-I.
4. The equity shares of Unno Industries Ltd. were allotted pursuant upon merger of Pinnacle Vintrade Ltd. with Unno Industries Ltd. pursuant to sanction of scheme of arrangement by the Hon’ble High Court at Bombay, I was issued 91000 equity shares of Unno Industries ltd. in lieu of my shareholding in Pinnacle Vintrade Ltd. The relevant gist of the scheme of arrangement sanctioned by the Hon’ble High Court was communicated by the company to the Bombay Stock Exchange vide letter dated 12th February, 2013. A copy of the said letter downloaded from BSE website is enclosed for your ready reference. I also enclose Unno Industries Ltd. letter dated 12th February, 2013 and 7th March, 2013 communicating the issuance of shares in lieu shares of Pinnacle Vintrade Ltd. upon sanction of scheme of arrangement by the Hon’ble Court. Annexure II 5. As the equity shares of Pinnacle Vintrade ltd. purchased were not listed, hence no Contract Notes were issued. However, copy of bill indicating purchase of said equity shares is enclosed. Annexure III 6. Equity shares of Pinnacle Vintrade Ltd., were directly purchased from Uniglory Developers Pvt. Ltd. 209, Vireshwar Chambers, M.G. Road, Nera Shan Talkies Vile Parle (E), Mumbai, Maharashtra-400057.
7. Equity shares of Pinnacle Vintrade Ltd. were purchased in Physical Form.
8. I have three Demat Accounts as follows-
a) Name of DP- Ashika Stock Broking Ltd. (DP ID No. 12034500) Demat account No. 1203450000003128 Address of DP-Trinity, 7th Floor, 226/1, A.J.C. Bose Road, Kolkata-700020. DP Account opened on-31.08.2004
b) Name of DP- Guiness Securities Ltd. (DP ID No. IN302898) Demat account No. 10350406 Address of DP-Guiness House, 18, Deshpriya Park Road, Kolkata-700026. DP A/c opened on-25.05.2013
c) Name of DP- Tamilnad Mercantile Bank ltd. (DP ID No. IN303069) Demat account No. 10051996 Address of DP-Pearl Towers DPS Cell, AC 16, III Floor, II Avenue, Anna Nagar West, Chennai-600040.
9. Demat Statements of M/s Ashika Stock Broking Ltd. and Guiness Securities Ltd. for f.y. 2013-14 and 2014-15 in respect of long term capital gains are enclosed. Annexure IV.
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Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 22
10. The Equity Shares of M/s Unno Industries Ltd. were submitted for dematerialization on 01.04.2013 and credited to my Demat A/c No. 1203450000003128 with M/s Ashika Stock Broking Ltd. (DP ID No. 12034500) on 12.04.2013 (91000 shares).
Details of Sale of Share for Long Term Capital Gain financial year 2013- 14(A.Y.2014-15):
1. The equity shares of M/s Unno Industries Ltd. are listed at Bombay Stock Exchange (BSE), a recognized Stock Exchange of India since last so many years and even during the time of sale by me. The security code of the said equity shares at BSE is 519273 and ISIN No. is INE 142N0 1023.
2. Equity shares of Unno Industries Ltd. were sold on Bombay Stock Exchange through SEBI registered stock broker Ashika Stock Broking Ltd. and Guiness Securities Ltd. whose details are as under:
a) Name: Ashika Stock Broking Ltd.
Address: Trinity, 7th Floor, 226/1, A.J.C. Bose Road, Kolkata-700020. Contact No. 033 22839952.
b) Name: Guiness Securities Ltd.
Address: Guiness House, 18, Deshpriya Park Road, Kolkata-700026 Contact No. 033 30015555.
3. Contract Notes issued regarding sale of equity shares of Unno Industries Ltd. on Bombay Stock Exchange by SEBI registered brokers- Ashika Stock Broking Ltd. and Guiness Securities ltd. are enclosed. Annexure V.
4. The relevant Demat Account statements of Ashika Stock Broking Ltd. and Guiness Securities Ltd. reflecting the debit of shares of Unno Industries Ltd. upon sale are enclosed. (entries highlighted). Annexure VI.
5. The Ledger of the brokers of Ashika Stock Broking Ltd. and Guiness Securities Ltd. for the financial year 2013-14 are enclosed. Annexure VII.
6. Tamilnad Mercantile Ltd. bank Statement reflecting the receipts of sale consideration from the SEBI registered stock brokers (highlighting the said entries) is enclosed. Annexure VIII.
7. Out of sale consideration money of Rs. 3151423.00 from Unno Industries Ltd. a sum of Rs. 3150000.00 has been invested in equity shares of Glow Diam Designs Pvt. Ltd.
All the evidences were attached as annexures as stated above.
6. The Assessing Officer in his order did not refer to any of these evidences. Instead at para 6 and 7 he concluded held as follows:
“6. The details of purchase and sale of this particular scrip i.e. ‘Unno Industries Ltd.’ (hereinafter referred as The Scrip) were examined in which shares were sold in June/August, 2013 at the price of Rs. 31,62,379/- and purchased Rs. 1,00,000/- i.e. a humongous rise of over 3100% over a very short period of just 24 months. These facts demanded a deeper study of the price movements and share market behavior of the entities involved in trade, of the scrip as the share price movements and the profit earned by the beneficiaries were beyond human probabilities. Thus a deeper study was needed to ascertain whether the transactions were genuine investment transaction of sham ones and colorable device only to convert the unaccounted cash into tax exempt.
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Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 23
7. Apart from this, the directorate of income tax, Kolkata various enquiries have been made on project basis, which has resulted into the unearthing of huge syndicate of entry operators, share brokers and money lender involved in providing bogus accommodation entries of Long Term Capital gain and short term capital loss. It has come to the light that large scale manipulation has been done in market price of shown of certain companies listed in the BSE by certain beneficiary is utilized to purchase shares of such company at a very high artificially inflated market price. Some of the listed companies directly or in directly owned by operators and whose shares price have been apparently manipulated by the syndicate of operators. Out of the above enquiry made by DIT(Inv.), Kolkata has established that one of the main manipulated company which you had availed is also under this syndicate. Hence, it is crystal clear that Sharp Trading Company is one of the main manipulated company (Penny listed) to convert unaccounted cash of beneficiary through long term capital gain with claim a certain percentage of commission.”
7. Thereafter the AO made an addition under 68 of the Act. Aggrieved the assessee carried the matter an appeal. The ld. First appellate authority confirmed the action of the AO on the ground that, the transaction in question comes within the ambit of ‘Suspicious Transaction’ and therefore, the rules of ‘Suspicious Transaction’ would apply to the case. He further stated that the payments through bank of processing of transaction through stock exchange and other such features are only apparent features and that the real feature are the manipulation and abnormal price raise and the sudden dip thereafter. Based on surrounding circumstances and circumstantial evidence and the order of the Tribunal in the case of “Bhag Chand Chabra (HUF) vs. ITO”, in I.T.A. No. 3088& 3107/2007 dated 31.12.2010, the addition made by the AO was confirmed. Aggrieved the assessee is in appeal before us.
8. A perusal of the order of the AO demonstrates that this addition was made merely on “suspicion” and in a routine and mechanical manner. This is clear from the fact that the AO refers to some ‘Sharp Trading Company as one of the main ,manipulated company and whereas the assessee sold scrips in Unno Industries Ltd. The AO refers to various enquiries made by “The Directors of Income Tax”, Kolkata on project basis and that this resulted into unearthing of a huge syndicate of entry operators and share brokers and money lenders involved in providing of bogus accommodation entries. The report as the so-called project and the evidence collected by the DIT (Inv.), Kolkata etc have not been brought on record. It is well settled that any document relied upon by the AO for making an addition has to be supplied to the assessee and an opportunity should be provided to the assessee to rebut the same. In this case, general statements have been made by the AO and the addition is made based on such generalizations. The assessee has not been confronted with any of the evidence collected in the investigation done by the DIT(Inv.), Kolkata. Evidence collected from third parties cannot be used against the assessee without giving a copy of the same to the assessee and thereafter giving him an opportunity to rebut the same.
9. The AO further relies on the shop increase of 31000% of the value of shares over the period of 2 years. Though this is highly suspicious, it cannot take the place of evidence. The Hon’ble Supreme Court has stated that suspicion however strong cannot be the basis for making an addition. The evidence produced by the assessee listed above proves his case and the AO could not controvert the same by bringing on record any evidence. The evidence said to have been collected by the DIT (INV.), Kolkata and the report is not produced before this Bench.
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Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 24
10. I now discuss the case law on the subject. The Hon’ble Calcutta High Court in the case of CIT, Kolkata-III vs. Smt. Shreyashi Ganguli reported in  (9) TMI 1113 held as follows:
“1. Whether on the facts and circumstances of the case, the order of the Ld.. Tribunal is perverse in law as well as on facts in deleting the addition made by the Assessing Officer as unexplained cash credit under section 68 of the Income Tax Act, 1961, by ignoring the facts on record.
The ld. Tribunal after considering the material and hearing came to a fact finding which is as follows:
The Assessing Officer has doubted the transaction since the selling broker was subjected to SEBI’s action. However, the demat account given the statement of transactions from 01.04.2004 to 31.03.2005 i.e. relevant for the assessment year under appeal (2005-06) are before us. There cannot be any doubt about the transaction as has been observed by the assessing officer. The transactions were as per norms under controlled by the Securities Transaction Tax, brokerage service tax and cess, which were already paid. They were complied with. All the transactions were through bank. There is no iota of evidence over the above transactions as it were through demat format. Hence, we agree with the given findings of the ld. Commissioner of Income Tax (Appeals) in accepting the transactions as genuine too.
In view of the fact findings we cannot reappreciate, recording is such, cannot be said to be perverse as it is not fact finding of the ld. Tribunal alone. The commissioner of Income Tax came to the same fact finding. Concurrent fact finding itself makes the story of perversity, unbelievable.”
The “D” Bench of the Kolkata Tribunal in the case of Gautam Kumar Pincha vs. ITO, in I.T.A. No. 569/Kol/2017 dated 15.11.2017 at para 19 onwards held as follows:
(i)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 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.
(ii) 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. (iii) 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 ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 25 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.
(iv) 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 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 dismissed.
(v) 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.
(vi) 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.
8.4. In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered 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 supported with material evidences which are on record and could only rely on the orders of the AO/CIT(A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also 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. These evidences were neither found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. 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 that income from LTCG is exempted u/s 10(38) of the Act. For coming to such a conclusion 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 ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 26 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.”
8.5. 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 by us 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 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.
9. In the result the appeal of the assessee is allowed.”
The “A” bench of the Kolkata Tribunal in the case of ITO vs. Shaleen Khemani in I.T.A. No. 1945/Kol/2014 dated 18.10.2017 at para 9.1. to 9.4 held as follows:
9.1 We further find that the transaction of sale of shares by the assessee was duly backed by all evidences including Contract Notes, Demat Statement, Bank Account reflecting the transactions, the Stock Brokers have confirmed the transactions, the Stock Exchange has confirmed the transactions, the Shares have been sold on the online platform of the Stock Exchange and each trade of sale of shares were having unique trade no. and trade time. It is not the case that the shares which were sold on the date mentioned in the contract note were not traded price on that particular date. The ld AO doubted the transactions due to the high rise in the stock price but for that, the assessee could not be blamed and there was no evidence to prove that the assessee or any one on his behalf was manipulating the stock prices. The stock exchange and SEBI are the authorities appointed by the Government of India to ensure that there is no stock rigging or manipulation. The ld AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee and or the brokers and or the Company. In absence of any evidences it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transactions. It is also to be seen that in this case, the shares were held by the Donors from 2003 and sold in 2010 thus there was a holding period of 7 years as per Section 49 of the Act and it cannot be said that the assessee and the Donors were making such plans for the last 7 years to rig the stock price to generate bogus capital gains that too without any evidences whatsoever. 9.2 It is also pertinent to note that the assessee and / or the stock broker M/s P Didwania & Co and Toshith Securities P Ltd., both registered share and stock brokers with Calcutta Stock Exchange had confirmed the transaction and have issued legally valid contract notes under the Law and such contract notes are available in pages 41-52 of the Paper Book. We find that the Hon’ble Calcutta High Court in the case of Pr CIT Vs Rungta Properties Private Limited ITAT No 105 of 2016 dated 8th May 2017 in a similar issue dismissed the appeal of the Department by making the following observations:
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(11) On the last point, the Tribunal held that the Assessing Officer had not brought on records any material to show that the transactions in shares of the company involved were false or fictitious. It is finding of the assessing officer that the scrips of this company was executed by a broker through cross deals and the broker was suspended for some time. It is assessee’s contention on the other that even though there are allegations against the broker, but for that reason alone the assessee cannot be held liable. On this point the Tribunal held –
“As a matter of fact the AO doubted the integrity of the broker or the manner in which the broker operation as per the statement of one of the directors of the broker firm and also AO observed that assessee had not furnished any explanation in respect of the intention of showing trading of shares only in three penny stocks. AO relied the loss of Rs.25,30,396/- only on the basis of information submitted by the Stock fictitious. AO has also not doubted the genuineness of the documents placed on record by the assessee. AO’s observation and conclusion are merely based on the information representative. Therefore on such basis no disallowance can be made and accordingly we find no infirmity in the order of ld. CIT(A), who has rightly allowed the claim of assessee. Thus ground No. 1 of the revenue is dismissed.”
We agree with the reasoning of the Tribunal on this point also. We do not find any reason to interfere with the impugned order. The suggested questions, in our opinion do not raise any substantial question of law.
9.3. We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bona fide and genuine and therefore the ld AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act. We also find that the ld CITA rightly relied on the decision of the Hon’ble High Court at Calcutta in the case of ALPINE INVESTMENTS in ITA No. 620 of 2008 dated 26th August 2008 wherein the Hon’ble Court 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 payments received from stockbroker through account payee instruments, which were also filed in accordance with the assessment.
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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.”
9.4. We also find that the various other case laws of Hon’ble Jurisdictional High Court and other case laws also relied upon by the ld AR and findings given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of SOICL as undisclosed income of the assessee u/s 68 of the Act and therefore we uphold the order of the ld CITA and dismiss the appeal of the revenue. Accordingly the grounds raised by the revenue are dismissed.”
Applying the proposition of law laid down in all the above referred cases, the facts of this case, I find force in the submission of the assessee and there are backed by evidence. I also find that the revenue has not based its finding on in any evidence. In view of the above discussion the addition made u/s 68 of the Act is hereby deleted.”
6. Learned Departmental Representative vehemently contends at this stage that the DIT(Inv) has carried out a detailed investigation in various entry operators cases. They have been found to have rigged such kind scrip’s prices rise. There is not even a single material during the course of hearing which could suggest the assessee to have engaged in any kind of foul play. This tribunal’s another co-ordinate bench decision in ITA No.2281/Kol/2017 Navneet Agarwal vs. ITO decided on 20.07.2018 has rejected Revenue’s all these arguments as follows:
9. The ld. DR on the other hand, relied on the order of the assessing officer and reiterated the findings made therein and submitted that the same be upheld. He vehemently argued that merely because the assessee has produced all the evidences required to prove his claim, the same cannot be accepted as these are organized and managed transactions. He took this bench through the modus operandi mentioned by the AO and submitted that in all cases where the shares of these companies are purchased and sold, additions have to be made, irrespective of the evidence produced as there are cases where manipulation has taken place. He reiterated each and every observation and finding of the ld. AO as well as the Ld. CIT(A) and prayed that the same be upheld.
10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows.
11. The assessee in this case has stated the following facts and produced the following documents as evidences:
1. The assessee had made an application for allotment of 50000 equity shares of “Smart champs IT and Infra Ltd.” and she was allotted the share on 3rd December 2011 (copy of Application form, intimation of allotment and share certificate Paper Book at page 8 to 10).
2. The payment for the allotment of shares was made through an account payee cheque (copy of the bank statement evidencing the source of money and payment made to “Smart Champs IT & Infra Ltd.” for such shares allotted is placed in the Paper Book at page no. 11).
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3. Annual return no. 20B was filed with Registrar of companies by “Smart Champs IT & Infra Ltd” showing the assessee’s name as shareholder (copy of annual return no. 20B filed with Registrar of companies by “Smart Champs IT & Infra Ltd. “is placed in the Paper Book at page no. 12 to 18.)
4. The assessee lodged the said shares with the Depository M/s. Eureka Stock & Share Broking Services Ltd. with a Demat request on 11th February, 2012. The said shares were dematerialized on 31st March, 2012 (copy of demat request slip along with the transaction statement is placed in the paper book at page no. 19 to
5. On 24.01.2013, the Hon’ble Bombay High Court approved the scheme of amalgamation of “Smart Champs IT and Infra Ltd.” with “Cressanda Solutions Ltd.” In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of “M/s. Cressanda Solutions Ltd.” The demat shares are reflected in the transaction statement of the period from 1st November 2011 to 31st December, 2013 (A copy of the scheme of amalgamation alongwith copy of order of the Hon’ble Bombay High Court and a copy of the letter to this effect submitted by “Cressanda Solutions Ltd”. to Bombay Stock Exchange is placed in the Paper Book at page no 22 to 43.)
6. The assessee sold 50000 shares costing Rs. 500000/- through her broker “SKP Stock Broking Pvt. Ltd” which was a SEBI registered broker and earned a Long Term Capital Gain of Rs. 2,18,13,072/-. (Copy of the bank statement, brokers contract note together with the delivery instructions given to the DP and broker’s confirmation is also placed in the paper book at page no 44 to 65).
7. 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 in the paper book at page no. 66.
8. 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.
12.The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to “Modus Operandi” of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing.
13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior 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 in 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 ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 30 brought on recording 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 AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, 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 behavior by the department.
14. 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 AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO 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.
15. In our view, 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 Hon’ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon’ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. 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 Hon’ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale price are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisations. Courts of law are bound to go by evidence.
16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, we do not find that the assessing officer as well as the Ld. CIT(A), 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 ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 31 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. We find 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, in our view, 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 relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that 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.
17. The Hon’ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT  37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon’ble Court held:
“Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,—this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about Rs. 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 32 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs.1,000 each”.
The observations of the Hon’ble Apex Court are equally applicable to the case of the assessee. In our view, 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 in our view under these circumstances nothing can be implicated against the assessee.
18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments:
a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors.
“23. A Constitution Bench of this Court in State of M.P.v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross- examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448;Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131).
24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944,considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alterampartem.
28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an effective and useful cross- examination.
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29. In Rajiv Arora v. Union of India and Ors. AIR 2009SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review.
30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross- examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice.”
b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that:
“4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K.Radhakrishnan, learned senior counsel who appeared for the Revenue.
5. 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 ex-factory 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. 6. 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 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 ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 34 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 17-3-2005[2005 (187) E.L.T. A33 (S.C.)] 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.
7. 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 notice.”
19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows:
a) The CALCUTTAHIGH COURT in the case of BLBCABLES &CONDUCTORS[ITA No. 78 of2017] dated19.06.2018. The High Court held vide Para 4.1:
“…………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. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee’s appeal.” [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal’s finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set off acts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed.”
b) The JAIPURITAT in the case of VIVEKAGARWAL [ITA No.292/JP/2017]order dated 06.04.2018 held as under vide Page 9 Para 3:
“We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the Assessing Officer has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account.”
c) The Hon’ble Punjab and Haryana High Court in the case of PREMPAL GANDHI[ITA-95-2017(O&M)] dated18.01.2018 at vide Page 3 Para 4 held as under:
ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 35
“….. The Assessing Officer in both the cases added the appreciation to the assessee’s’ income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee’s’ income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner.”
The Court also held the following vide Page 3 Para 5 the following:
“Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises.”
d) The BENCH “D”OF KOLKATAITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017]order dated 15.11.2017 held as under vide Page 12 Para 8.1:
“In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the Assessing Officer 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 supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also 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. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. 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 that income from LTCG is exempted u/s 10(38) of the Act.”
Further in Page 15 Para 8.5 of the judgment, it held:
“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 by us 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 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.”
ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 36
e) The BENCH “D” OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as under:
“…….. 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. 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.
It further held as follows:
“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 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.”
f) The BENCH “A”OF KOLKATAITAT in the case of SHALEENKHEMANI [ITA No.1945/Kol/2014]order dated 18.10.2017 held as under vide Page 24 Para 9.3:
“We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee’s case clearly support the claim of the assessee that the transactions of the assessee were bona fide and genuine and therefore the ld AO was not justified in rejecting the assessee’s claim of exemption under section 10(38) of the Act.”
ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 37
g) The BENCH “H” OF MUMBAI ITAT in the case of ARVINDKUMAR JAINHUF [ITA No.4682/Mum/2014] order dated 18.09.2017 held as under vide Page 6 Para 8:
“……We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A).”
h)The Hon’ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF2010] order dated 14.11.2011 vide Page 2 Para 3 held as under:
“On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed.”
i) The Hon’ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows:
“The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax (Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank.”
j) The Hon’ble Supreme Court in the case of PCIT vs. Teju Rohit kumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon’ble Gujarat High Court as under:
ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 38
” It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.”
20. Applying the proposition of law as laid down in the above-mentioned judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bona fide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax.
21. Under the circumstances and in view of the above discussion, we uphold the contentions of the assessee and delete the addition in question.”
7. We adopt all this reasoning mutatis mutandis to conclude in this factual backdrop that both the lower authorities have erred in treating assessee’s LTCG to be bogus. The impugned addition(s) of ₹93,19,895/- and ₹4,65,995/1- are deleted.”
5. Coming to Revenue’s arguments that department had searched / surveyed various entry operators alleged to have engaged in giving bogus LTCG regarding very scrip, I put a specific question to Mr. Bhattacherjee as to whether any of the said entry operators had ever quoted assessee’s name or not. The replies is received in negative. Coupled with this, there is no substance in Revenue’s argument that similar addition(s) stand affirmed in various judicial precedents (supra) for the reason that sec. 68 addition is a factual issue requiring the taxpayer to prove the identity, genuineness and creditworthiness of the relevant sum credited. I make it clear that all these assessees have placed sufficient materials on record indicating them to have derived the impugned LTCG form sale of shares held in M/s Unno Industries Ltd. only. I therefore delete the impugned addition(s) respectively. Brokerage commission disallowance, if any, thereupon shall automatic stood as a necessary corollary.”
8. This tribunal’s yet another decision in (2017) 60 ITR (Trib) 1 (Bang)
Canara Bank vs. JCIT holds that the estopple principle does not apply in
income tax proceedings. We therefore reject Revenue’s arguments in support
of impugned addition. We take into account all the relevant facts and
circumstances to adopt the learned co-ordinate bench’s above extracted
detailed reasoning mutatis mutandis to delete the impugned addition forming
subject-matter of the instant appeal. Commission expenditure disallowance; if
any, shall automatically follow suit as a necessary corollary. No other ITA No.774-775/Kol/2018 A.Ys. 09-10 & 15-16
Sh. Yogesh Kr. Dalmia Vs. ACIT, Cir-36, Kol. Page 39 argument has been raised before us during the course of hearing. This
assessee’s latter appeal ITA No. 775/Kol/2018 is allowed.
09. The assessee’s former appeal ITA No. 774/Kol/2018 is partly allowed
whereas latter appeal ITA No.775/Kol/2018 is allowed.
Order pronounced in the open court 09/08/2019 Sd/- Sd/- (लेखा सद%य) ( या’यक सद%य) ( A.L.Saini) (S.S.Godara)
(Accountant Member) (Judicial Member)
(दनांकः- 09/08/2019 कोलकाता । आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Shri Yogesh KR. Dalmia 59, N.S. Road, Kolkata-001
2. यथ /Respondent-ACIT, Cir-36, 110, Shantipally, Aaykar Poorva, Kolkata-107
3. संब3ं धत आयकर आय4 ु त / Concerned CIT Kolkata
4. आयकर आय4 ु त- अपील / CIT (A) Kolkata
5. 7वभागीय ‘त’न3ध, आयकर अपील य अ3धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड< फाइल / Guard file.
By order/आदे श से, /True Copy/ सहायक पंजीकार आयकर अपील य अ3धकरण, कोलकाता ।