Income Tax Appellate Tribunal – Kolkata
Sri Kush Nahata , Kolkata vs Ito, Ward – 35(3), Kolkata , … on 8 May, 2019 IN THE INCOME TAX APPELLATE TRIBUNAL “C”, BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1899/Kol/2018 (िनधा रणवष / Assessment Year: 2014-15)
Shri Kush Nahata Vs. ITO, Ward-35(3), Kolkata 1 s t Floor, Jyoti Chhaya, 121,
Rashbehari Avenue,
Gariahat, Kolkata-700029 थायीले खासं ./जीआइआरसं ./PAN/GIR No. : ADDPN 1413 C (Appellant) .. (Respondent) Appellant by : Shri Sunil Surana, FCA
Respondent by :Shri Robin Choudhury, Addl. CIT DR सुनवाईकीतारीख/ Date of Hearing : 23/04/2019
घोषणाकीतारीख/Date of Pronouncement : 08/05/2018 आदे श / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the assessee, pertaining to assessment year
2014-15, is directed against an order passed by the learned Commissioner of
Income Tax (Appeals)-10, Kolkata (in short the ld. ‘CIT(A)’], which in turn arises
out of an assessment order passed by the Assessing Officer u/s 143(3) of the
Income Tax Act, 1961 ( in short the ‘Act’), dated 27.12.2016.
2. However, in this appeal the assessee has raised a multiple grounds of appeal, but
at the time of hearing, the solitary grievance of the assessee has been confined to
the issue as to whether on the facts and circumstances of the case, the ld. CIT(A)
erred in confirming the order of the Assessing Officer in treating the sale S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
consideration of shares of Lifeline Drugs and Pharma Ltd. amounting to Rs.
1,09,74,902/- as unexplained cash credit u/s 68 of the Act.

3. Brief facts qua the issue are that assessee ‘Shri Kush Nahata’ is an individual
and filed his return of income for assessment year 2014-15 on 31.07.2014
declaring total income of Rs. 3,81,430/-. The assessee’s case was selected for
scrutiny under CASS specifying the reasons as “Suspicious long term capital gain
on shares- based on inputs and information received from Investigation Wing”.
The assessee, in his return of income has claimed Long Term Capital Gain
(LTCG) as exempt under section 10(38) of the Income Tax Act, to the tune of
Rs.1,07,74,922/- on sale of shares of Lifeline Drugs & Pharma Ltd. To prove the
bona-fide and to substantiate the claim of Long Term Capital Gain (LTCG), as
exempt under section 10(38) of the Income Tax Act, the assessee submitted before
the assessing officer, the Bank statements, DP statements, brokers notes and
purchase bills etc. However, the assessing officer rejected the contention of the assessee and noted
that the assessee has earned a return of income approximately 5388% on the shares
of Lifeline Drugs & Pharma Ltd, which is not possible and therefore assessing
officer did a deeper study of the price movements and share market behavior. The
assessing officer observed that some entities involved in trade of the scrip namely, ‘Lifeline Drugs & Pharma Ltd’ and the profit earned by the beneficiaries were
beyond human probabilities. Therefore, the Assessing Officer in view of the above
discussion and relying upon the findings of the Investigation Directorate of
Income Tax Department, Kolkata, held that the explanation offered by the assessee
was not satisfactory and hence he made addition to the tune of Rs.1,09,74,902/-,
under section 68 of the Act.

4. Aggrieved by the order of the Assessing Officer, the assessee carried the matter
in appeal before the ld. CIT(A) who has confirmed the order passed by the
Assessing Officer. The ld. CIT(A), just reiterated the findings of the Assessing
Officer and confirmed the addition of long term capital gain to the tune of Rs.
1,09,74,902/-.Aggrieved by the order of the ld. CIT(A), the assessee is in appeal
before us.
Pa g e | 2 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15 7. The ld. Counsel for the assessee submitted before us that the Ld. A.O. has made
reference of statement dated 30/12/2014 of one Sri Devesh Upadhyay and his
connection with companies M/s Mahamani Tradelink Private Limited and M/s
Comfort Dealcon Private Limited and their directors. The Ld. A.O. has also made
reference of a share broker Shri Amit Saraogi. It is also mentioned that M/s
Mahmani Tradelink Pvt Ltd is one of thecounter parties which has purchased
shares from the assessee. The Ld. A.O. never discussed these names, matters and
facts during the assessment proceedings. The assessee has no connection
whatsoever with aforesaid persons. Moreover, since the shares were sold at
theelectronic system of Bombay Stock Exchange through registered broker, the
assesseee hasno knowledge of counter party.

The Ld. A. O. considering the surrounding circumstances and applying the test of
human probabilities coupled with report of the DIT (INV) and SEBI arrived at
conclusion that assessee hadentered into pre-designed modes of transactions in
shares of M/s Life Line Drugs and Pharma ltd, andtreated the entire sale
consideration as aforesaid as unexplained cash credit. The Assessee was neither
confronted with the said Investigation Report of the Investigation wing and SEBI
nor was given an opportunity to cross examine the persons whose statements were
recorded by the Investigation wing. In fact,assessee was not confronted with any
material and information possessed by the Ld. A. O. In response to show cause
notice dated 14/12/2016, theassessee made a comprehensive reply on 22/12/2016.
In his reply, assessee categorically stated that he is notaware of any such
Investigation report of Investigation Wing and is not a party to such alleged
rigging of stock prices. In his reply,assessee asked for copies of material and
documents which according tothe ld A O. indicate the bogus nature of transaction.

Assessee also asked for statement of any person, entry operator and brokers etc,
with reference to which the ld AO concluded the bogus nature of transactions to
cross examine them. The Ld. A.O. took no pain to supply the material, documents,
and statements of person as aforesaid though he was duty bound to supply and
confront the same with theassesseein view of the settled legal position and in view Pa g e | 3 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
of principal of natural justice. The Ld. A.O. took no steps to find out whether such
modus operandi existed in the present case or not. The Ld. A.O. failed to
appreciate the explanation offered by the assessee. No defect was pointed out by
the Ld. A. O. in the submissions, explanation of assessee and in the documentary
evidences like contract notes, bills, allotment advices, Dmat account statements
etc. filed by the assessee. The Ld. A. O. failedto bring any conclusive material on
record directly related to the facts of the case in support of his action except citing
some case laws with facts different to the present case.

The fact remains that case was selected for scrutiny on the reason “Suspicious
Transaction relating to long term capital gain on shares” on the basis of report
ofInvestigation Wing which means that the Ld. A.O. was required to convert the
suspicioninto the legal evidence by way of bringing concrete and conclusive
findings and material onrecords. Since, the Ld A.O. took no step whatsoever the
suspicion remains intact andsuspicion whatsoever strong cannot take the position
of legal evidences.

8.On the other hand, the ld. DR for the revenue submitted before us that
Investigation Wing, Kolkata has prepared a sample cash trail for showing that how
the mechanism works for the syndicate of providing long term capital gain/ short
termcapital loss. For preparing this cash trail, Investigation WingKolkata, has
followed the money movement from undisclosed proprietorship accounts, where
cash is being deposited mostly, to the Jamakharchi companies who are registered
as clients with theshare brokers. Undisclosed and unaccounted cash gets deposited
to proprietorship accounts and then it gets transferred to client companies, who
exist in paper only. From the Jamakharchi client company account, money gets
transferred to Beneficiaries ofLong Term Capital Gain via Share Broker’s
Account. On a sample basis, Investigation Wing, Kolkata has prepared cash trail
of more than 1500 Crore Rupees and assessee is part of it.

The ld DR explained before us the modus operendi of the bogus transactions
stating that when a person needs entry of LTCG, he approaches a share broker or
entry operator. Entry operator gets him registered with some share broker as a
client.Then shares of a listed penny stock are provided to beneficiaries. After a Pa g e | 4 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
year, beneficiaryprovides cash to entry operator for having equaling amount of
entry of LTCG. Then entryoperator or share broker gets such cash deposited to the
various accounts and routes itto bogus client. Bogus client purchases the penny
stock shares from beneficiary onabnormally higher rate. Thus, a beneficiary gets
back his unaccounted cash by cheques for receipt against sale of shares. The DR
therefore, submitted before us that since the assessee is part of these penny stock
transactions therefore, order of the AO should be upheld.

9. We have heard both the parties and perused the material available on record.
We note that the assessee submitted before us contract notes for the sale of shares
of Lifeline Drugs & Pharma Ltd.(vide PB 33 to 45). The assessee submitted
before us the balance sheet of profit & loss account of Kush Nahata as on
31.03.2013 and 31.03.2014 (vide PB page no. 46 to 47) wherein the assessee has
shown investments in shares in the asset side of the balance sheet. The transfer
share certificate and Bonus share certificates were also furnished in the paper book
(vide pb page 48 to 49). The assesseesubmitted the demat statement for the
financial year 2013-14 (PB 50 to 52). The bank statements showing receipt of sale
consideration were also submitted before us (PB 53 to 54). The assessee submitted
before us the purchase bill and the bank statement showing payment of purchase
consideration (vide PB 55 to 57). Apart from this the assessee also submitted the
copy of income tax return for assessment year 2013-14, and assessment year
2014-15.

By submitting these plethora documents and evidences, the ld. Counsel for the
assessee claimed that the transactions have been done through recognized share
broker and payment has been made through banking channel. There is transfer
certificate and contract notes for sale of shares of Lifeline Drugs and Pharma Ltd,
this clearly shows that the transaction is genuine. Apart from this, the investments,
that is shares, which the assessee has purchased/sold have been duly reflected in
the Balance sheet of the assessee for the year ended 31.03.2013 and 31.03.2014.
Therefore, all these documents and evidences show that the transactions are
genuine and there is no mala-fide intention to evade payment of tax and therefore
the ld. Counsel claimed that the addition made by the Assessing Officer is not Pa g e | 5 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
justified.One is bound to consider and rely on the evidence produced by the
assessee in support of its claim and base decision on such evidence and not on
suspicion or preponderance of probabilities, we note that no material was brought
on record by the Assessing Officer to controvert the evidence furnished by the
assessee. Under these circumstances, the evidence filed by the assesseeshould be
accepted and the claim that the income in question is a bona- fide, hence,Long
Term Capital Gain (LTCG) arising from the sale of shares should allowed.

10. We note that assessing officer mainly made addition based on theory of “Suspicious Transactions”, on the basis of report of Investigation Wing. We note
that the Ld. A.O. was required to convert the suspicion into the legal evidence by
way of bringing concrete and conclusive findings and material onrecords. Since,
the Ld A.O. took no step whatsoever the suspicion remains intact andsuspicion
whatsoever strong cannot take the position of legal evidences. We note that the
Assessing officer as well as the Commissioner (Appeals) has been guided by the
report of the investigation wing prepared with respect to bogus capital gains
transactions. However, the Assessing Officer as well as the Commissioner
(Appeals), have not brought out any part of the investigation wing report in which
the assessee has been investigated and /or found to be a part of any arrangement
for the purpose of generating bogus long term capital gains. Nothing has been
brought on record to show that the persons investigated, including entry operators
or stock brokers, have named that the assessee was in collusion with them. In
absence of such finding how is it possible to link their wrong doings with the
assessee. In fact, the investigation wing is a separate department which has not
been assigned assessment work and has been delegated the work of only making
investigation. The Act has vested widest powers on this wing. It is the duty of the
investigation wing to conduct proper and detailed inquiry in any matter where
there is allegation of tax evasion and after making proper inquiry and collecting
proper evidences the matter should be sent to the assessment wing to assess the
income as per law. No such action executed by investigation wing against the
assessee. In absence of any finding specifically against the assessee in the
investigation wing report, the assessee cannot be held to be guilty or linked to the
wrong acts of the persons investigated. In this case, the Assessing Officer at best Pa g e | 6 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
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. However, the Assessing Officer has not
brought on record any evidence to prove that the transactions entered by the
assessee which are otherwise supported by proper third party documents are
collusive transactions.

We note that the Assessing Officer having failed to bring on record any material to
prove that the transaction of the assessee was a collusive transaction could not
have rejected the evidences submitted by the assessee. In fact, in this case nothing
has been found against the assessee with aid of any direct evidences or material
against the assessee despite the matter being investigated by various wings of the
Income Tax Department hence under these circumstances nothing can be
implicated against the assessee.
11.Moreover, it was submitted before us by ld Counsel that the AO was not
justified in taking an adverse view against the assessee on the ground of abnormal
price rise of the shares and alleging price rigging. It was submitted that there is no
allegation in orders of SEBI and/or the enquiry report of the Investigation Wing to
the effect that the assessee, the Companies dealt in and/or his broker was a party to
the price rigging or manipulation of price in BSE/CSE. The ldCounsel referred to
the following judgments in support of this contention wherein under similar facts
of the case it was held that the AO was not justified in refusing to allow the benefit
under section 10(38) of the Act and to assess the sale proceeds of shares as
undisclosed income of the assessee under section 68 of the Act :-
(i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs.Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(iii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT) Pa g e | 7 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
(iv) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum) 12. We note that once the assessee has furnished all evidences in support of the
genuineness of the transactions, the onus to disprove the same is on revenue. We
rely on the judgement of Hon’ble Supreme Court in the case of Krishnanand
Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case
the Hon’ble Apex Court held that the burden of showing that a particular
transaction is benami and the appellant owner is not the real owner always rests on
the person asserting it to be so and the burden has to be strictly discharged by
adducing evidence of a definite character which would directly prove the fact of
benami or establish circumstances unerringly and reasonably raising inference of
that fact. The Hon’ble Apex Court further held that it is not enough to show
circumstances which might create suspicion because the court cannot decide on the
basis of suspicion. It has to act on legal grounds established by evidence. The
ldCounsel submitted that similar view has been taken in the following judgments
while deciding the issue relating to exemption claimed by the assessee on LTCG
on alleged Penny Socks.
(i) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF – ITA No. 32/Agr/2007 (Agra ITAT) 13. We note that since the purchase and sale transactions are supported and
evidenced by Bills, Contract Notes, Demat statements and bank statements etc.,
and when the transactions of purchase of shares were accepted by the ld AO in
earlier years, the same could not be treated as bogus simply on the basis of some
reports of the Investigation Wing and/or the orders of SEBI and/or the statements
of third parties. In support of the aforesaid we rely on the following cases:-
(i) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM)
(ii) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM)
(iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT) Pa g e | 8 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
(iv) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(v) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT)
(vi) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT)
(vii) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT)
(viii) Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT)
(ix) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT)
(x) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC)
(xi) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC)
(xii) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC)
(xiii) CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC)
(xiv) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC)
(xv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xvi) GaneshmullBijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvii) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xviii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xix) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT) 14. We note that when the transactions were as per norms prescribed by SEBI and
concerned stock exchange and suffered STT,brokerage, service tax, and cess.
There is no iota of evidence over thetransactions as it were reflected in demat
account. AO did not doubt the genuineness of the documents submitted by
assessee. Theld AO failed to bring on record any evidence to suggestthat the sale
of shares by the Assessee were not genuine. The assessee produced the contract
notes, details of demataccounts and produced documents showing all payments Pa g e | 9 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
were received bythe assessee through banks. In these circumstances, the long term
capital gain (LTCG) earned by the assessee should not be treated as bogus, as held
by the jurisdictional Hon`ble Calcutta High court in various cases, as mentioned
below:

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

(ii) CIT V. Rungta Properties Private Limited [ITA No. 105 of 2016] (Cal-
HC) In this case the Hon’ble Calcutta High Court affirmed the decision of this tribunal,
wherein, the tribunal allowed the appeal ofthe assessee where the ld AO did not
accept the explanation of the assesseein respect of his transactions in alleged
penny stocks. The Tribunal foundthat the ld AO disallowed the loss on trading of
penny stock on the basis ofsome information received by him. However, it was
also found that the ldAO did not doubt the genuineness of the documents
submitted by theassessee. The Tribunal held that the ld AO’s conclusions are
merely basedon the information received by him. The appeal filed by the revenue
wasdismissed.

(iii) CIT V. Andaman Timbers Industries Ltd [ITA No. 721of 2008] (Cal- HC) In this case the Hon’ble Calcutta High Court affirmedthe decision of this Tribunal
wherein the loss suffered by the Assessee wasallowed since the ld AO failed to
bring on record any evidence to suggestthat the sale of shares by the Assessee
were not genuine.
Pa g e | 1 0 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
(iv) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal- HC) in ITA
No. 22 of 2009 dated 29.4.2009] In this case the Assesseeclaimed exemption of income from Long Term Capital
Gains. However,the ld AO, based on the information received by him from
Calcutta StockExchange found that the transactions were not recorded thereat. He
therefore held that the transactions were bogus. The Hon’ble JurisdictionalHigh
Court, affirmed the decision of the Tribunal wherein it was foundthat the claim of
transactions entered into by the assessee have beenproved, accounted for,
documented and supported by evidence. It was alsofound that the assessee
produced the contract notes, details of demataccounts and produced documents
showing all payments were received by the assessee through banks. On these facts,
the appeal of the revenue was summarily dismissed by High Court.

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

“It appears that the share loss and the whole transactions were supported by
contract notes, bills and were carried out through recognized stock broker of the
Calcutta Stock Exchange and all the payments made to the stock broker and all
the payments received from stockbroker through account payee instruments, which
were also filed in accordance with the assessment.

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

(vi) The Hon’ble Calcutta High Court in the case of Principal Commissioner
Of Income vs M/S. Blb Cables And Conductors; ITAT No.78 of 2017, GA
No.747 of 2017; dt. 19 June, 2018, had upheld the order of the Tribunal by
observing as follows:-

“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted Pa g e | 1 1 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15 that the order of the AO is silent about the date from which the broker was expelled.

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

4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence.”
(vii).M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal- HC) In this case the ld AO found that the formal evidences produced by the assessee to
support huge losses claimed in the transactions of purchase and sale of shares were
stage managed. The Hon’ble High Court held that the opinion of the AO that the
assessee generated a sizeable amount of loss out of prearranged transactions so as
to reduce the quantum of income liable for tax might have been the view expressed
by the ld AO but he miserably failed to substantiate that. The High Court held that
the transactions were at the prevailing price and therefore the suspicion of the AO
was misplaced and not substantiated.
(viii)CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40
taxmann.com 439 (Cal) – In this case the Hon’ble Calcutta High Court held that
on the basis of a suspicion howsoever strong it is not possible to record any finding
of fact. As a matter of fact suspicion can never take the place of proof. It was
further held that in absence of any evidence on record, it is difficult if not
impossible, to hold that the transactions of buying or selling of shares were
colourable transactions or were resorted to with ulterior motive.

Pa g e | 1 2 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15 We note that above mentioned judgments of Hon`ble Calcutta High Court, by and
large held that where the whole transactions were supported by contract notes,
bills and were carried out through recognized stockbroker of Stock Exchange and
all the payments made to the stockbroker and all the payments receivedfrom
stockbroker through account payee cheques, then in these facts and circumstances
addition made by assessing officer on account of bogus long term capital gain
should be deleted. We note that unless and until the order of Jurisdictional Hon`ble
High Court is reversed by Hon`ble Supreme Court, the same has to be given due
effect. Judicial discipline demands that once an order has been passed in the
assessee’s own case, by the Jurisdictional High court, the Tribunal is duty bound
to act in accordance with the same.

We note that in the case of Union of India v. Raghubir Singh (1989) 178 ITR
548 (SC), the Supreme Court heldthat the doctrine of binding precedent has
merit of promoting certainty and consistency in judicial decisions. As per the
doctrine of precedent, all lower Courts, Tribunals and authorities exercising
judicial or quasi-judicial functions are bound by the decisions of the High Court
within whose territorial jurisdiction these Courts, Tribunals &authorities functions.
Therefore, respectfully following the judgments of the Jurisdictional, Hon`ble
High Court of Calcutta, on similar and identical facts, the addition made by
assessing officer should be deleted.
15. We note that when the transactions were as per norms prescribed by SEBI and
concerned stock exchange and suffered STT,brokerage, service tax, and cess.
There is no iota of evidence over thetransactions as it were reflected in demat
account. AO did not doubt the genuineness of the documents submitted by
assessee. Theld AO failed to bring on record any evidence to suggestthat the sale
of shares by the Assessee were not genuine. The assessee produced the contract
notes, details of demataccounts and produced documents showing all payments
were received bythe assessee through banks. In these circumstances, the long term
capital gain (LTCG) earned by the assessee should not be treated as bogus, as held
by the Coordinate Benches of ITAT Kolkata, in the following cases:
Pa g e | 1 3 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
(i). Mr. Sanjiv Shroff,I.T.A. No. 1197/Kol/2018, Assessment Year: 2014-15,
order dated, 02.01.2019 “28. We note that since the purchase and sale transactions are supported and
evidenced by Bills, Contract Notes, Demat statements and bank statements etc., and when
the transactions of purchase of shares were accepted by the ld AO in earlier years, the
same could not be treated as bogus simply on the basis of some reports of the
Investigation Wing and/or the orders of SEBI and/or the statements of third parties. In
support of the aforesaid submissions, the ld AR, in addition to the aforesaid judgements,
has referred to and relied on the following cases:-

(xx) Baijnath Agarwal vs. ACIT – [2010] 40 SOT 475 (Agra (TM) (xxi) ITO vs. Bibi Rani Bansal – [2011] 44 SOT 500 (Agra) (TM) (xxii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agra/2009 (Agra ITAT) (xxiii) ACIT vs. Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT) (xxiv) Rita Devi & Others vs. DCIT – IT(SS))A Nos. 22-26/Kol/2p11 (Kol ITAT) (xxv) Surya Prakash Toshniwal vs. ITO – ITA No. 1213/Kol/2016 (Kol ITAT) (xxvi) Sunita Jain vs. ITO – ITA No. 201 & 502/Ahd/2016 (Ahmedabad ITAT) (xxvii)Ms. Farrah Marker vs. ITO – ITA No. 3801/Mum/2011 (Mumbai ITAT) (xxviii) Anil Nandkishore Goyal vs. ACIT – ITA Nos. 1256/PN/2012 (Pune ITAT) (xxix) CIT vs. Sudeep Goenka – [2013] 29 taxmann.com 402 (Allahabad HC) (xxx) CIT vs. Udit Narain Agarwal – [2013] 29 taxmann.com 76 (Allahabad HC) (xxxi) CIT vs. Jamnadevi Agarwal [2012] 20 taxmann.com 529 (Bombay HC) (xxxii)CIT vs. Himani M. Vakil – [2014] 41 taxmann.com 425 (Gujarat HC) (xxxiii) CIT vs. Maheshchandra G. Vakil – [2013] 40 taxmann.com 326 (Gujarat HC) (xxxiv) CIT vs. Sumitra Devi [2014] 49 Taxmann.com 37 (Rajasthan HC) (xxxv) GaneshmullBijay Singh Baid HUF vs. DCIT – ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xxxvi) Meena Devi Gupta & Others vs. ACIT – ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) (xxxvii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT) (xxxviii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT)
29. The ld AR also brought to our notice that once the assessee has furnished all
evidences in support of the genuineness of the transactions, the onus to disprove the same
is on revenue. He referred to the judgement of Hon’ble Supreme Court in the case of
Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this
case the Hon’ble Apex Court held that the burden of showing that a particular transaction
is benami and the appellant owner is not the real owner always rests on the person
asserting it to be so and the burden has to be strictly discharged by adducing evidence of
a definite character which would directly prove the fact of benami or establish
circumstances unerringly and reasonably raising inference of that fact. The Hon’ble Apex
Court further held that it is not enough to show circumstances which might create
suspicion because the court cannot decide on the basis of suspicion. It has to act on legal
grounds established by evidence. The ld AR submitted that similar view has been taken in
the following judgments while deciding the issue relating to exemption claimed by the
assessee on LTCG on alleged Penny Socks.
(iii) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT) Pa g e | 1 4 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
(iv) ACIT vs. J. C. Agarwal HUF – ITYA No. 32/Agr/2007 (Agra ITAT) 30. Moreover, it was submitted before us by ld AR that the AO was not justified in
taking an adverse view against the assessee on the ground of abnormal price rise of the
shares and alleging price rigging. It was submitted that there is no allegation in orders of
SEBI and/or the enquiry report of the Investigation Wing to the effect that the assessee,
the Companies dealt in and/or his broker was a party to the price rigging or manipulation
of price in CSE. The ld AR referred to the following judgments in support of this
contention wherein under similar facts of the case it was held that the AO was not
justified in refusing to allow the benefit under section 10(38) of the Act and to assess the
sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act
:-
(v) ITO vs. Ashok Kumar Bansal – ITA No. 289/Agr/2009 (Agra ITAT)
(vi) ACIT vs.Amita Agarwal & Others – ITA Nos. 247/(Kol)/ of 2011 (Kol ITAT)
(vii) Lalit Mohan Jalan (HUF) vs. ACIT – ITA No. 693/Kol/2009 (Kol ITAT)
(viii) Mukesh R. Marolia vs. Addl. CIT – [2006] 6 SOT 247 (Mum) 31. We note that the ld. D.R. had heavily relied upon the decision of the Hon’ble
Bombay High Court in the case of Bimalchand Jain in Tax Appeal No. 18 of 2017. We
note that in the case relied upon by the ld. D.R, we find that the facts are different from
the facts of the case in hand. Firstly, in that case, the purchases were made by the
assessee in cash for acquisition of shares of companies and the purchase of shares of the
companies was done through the broker and the address of the broker was incidentally
the address of the company. The profit earned by the assessee was shown as capital gains
which was not accepted by the A.O. and the gains were treated as business profit of the
assessee by treating the sales of the shares within the ambit of adventure in nature of
trade. Thus, it can be seen that in the decision relied upon by the ld. DR, the dispute was
whether the profit earned on sale of shares was capital gains or business profit.

32. It is clear from the above that the facts of the case of the assessee are identical
with the facts in the cases wherein the co-ordinate bench of the Tribunal has deleted the
addition and allowed the claim of LTCG on sale of shares of M/s KAFL. We, therefore,
respectfully following the same, and set aside the order of Ld. CIT(A) and direct the AO
not to treat the long term capital as bogus and delete the consequential addition.”
(ii) Jagmohan Agarwal Vs. ACIT, ITA No.604/Kol/2018, order dated
05.09.2018.

“35. In the light of the documents stated in para 30 at Page14(supra) we find
that there is absolutely no adverse material to implicate the assessee to the entire
gamut of unfounded/unwarranted allegations leveled by the AO against the
assessee, which in our considered opinion has no legs to stand and therefore has
to fall. We take note that the ld. DR could not controvert the facts which are
supported with material evidences furnished by the assessee which are on record
and could only rely on the orders of the AO/CIT(A). We note that the allegations
that the assessee/brokers got involved in price rigging/manipulation of shares
must therefore consequently fail. At the cost of repetition, we note that the assessee Pa g e | 1 5 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
had furnished all relevant evidence in the form of bills, contract notes, demat
statement and bank account to prove the genuineness of the transactions relevant
to the purchase and sale of shares resulting in long term capital gain. Neither
these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious
or bogus nor the AO had issued any notice to the brokers for confirmation. The
facts of the case and the evidence in support of the evidence clearly support the
claim of the assessee that the transactions of the assessee were genuine and the
authorities below was not justified in rejecting the claim of the assessee exempted
u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be
kept in mind that suspicion how so ever strong, cannot partake the character of
legal evidence. In the aforesaid facts and circumstance, for allowing the appeal
we rely on the decision of the Hon’ble Calcutta High Court in the case of M/s.
Alipine Investments in ITA No.620 of 2008 dated 26th August, 2008 wherein the
High Court held as follows :
“It appears that there was loss and the whole transactions were supported by the contract notes, bills and were carried out through recognized stock broker of the Calcutta Stock Exchange and all the bills were received from the share broker through account payee which are also filed in accordance with the assessment.

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

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

36. We note that the ld. AR cited plethora of the case laws to bolster his claim
which are not being repeated again since it has already been incorporated in the
submissions of the ld. AR (supra) and have been duly considered to arrive at our
conclusion. The ld. DR could not bring to our notice any case laws to support the
impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances
of the case, we hold that the ld. CIT(A) was not justified in upholding the addition
of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the
Act. We therefore direct the AO to delete the addition.”

(iii).Navneet Agarwal, ITA No.2281/Kol/ 2017, order dated 05.09.2018 “The assessee in this case had stated that the assessee was alloted of 50000 equity shares
of SCITIL. The payment for the allotment of shares was made through an account payee
cheque (copy of the bank statement evidencing the source of money). Annual return no.
20B was filed with Registrar of companies by SCITIL showing the assessee’s name as
shareholder. The assessee lodged the said shares with the Depository ESSBSL with a
Demat request. The said shares were dematerialized and copy of demat request slip
along with the transaction statement is placed on record. Later on, the High Court
approved the scheme of amalgamation of SCITIL with CSL. In accordance with the said
scheme of amalgamation, the assessee was allotted 50000 equity shares of CSL. The
demat shares are reflected in the transaction statement of the period from 1-11-2011 to
31-12-2013. The assessee sold 50000 shares through her broker SKP which was a SEBI
registered broker and earned a Long Term Capital Gain. Copy of Form No. 10DB issued Pa g e | 1 6 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
by the broker, in support of charging of S.T.T. in respect of the transactions appearing in
the ledger is placed on record. The holding period of the said scrip is more than one year
(above 500 days) through in order to get the benefit of claim of Long Term Capital Gain
the holding period is required to be 365 days
The Assessing Officer as well as the Commissioner (Appeals) have rejected these
evidences filed by the assessee by referring to ‘Modus Operandi’ of persons for earning
long term capital gains which is exempt from income tax. All these observations of
Investigation wing were general in nature and were applied across the board to all the
60,000 or more assessees who fall in this category. Specific evidences produced by the
assessee were not controverted by the revenue authorities. No evidence collected from
third parties was confronted to the assessees. No opportunity of cross-examination of
persons, on whose statements the revenue relied to make the addition, was provided to
the assessee. The addition is made based on a report from the investigation wing.
The issue for consideration is whether, in such cases, the legal evidence produced by the
assessee has to guide decision in the matter or the general observations based on
statements, probabilities, human behaviour and discovery of the modus operandi adopted
in earning alleged bogus LTCG and STCG, that have surfaced during investigations,
should guide the authorities in arriving at a conclusion as to whether the claim is genuine
or not. An alleged scam might have taken place on LTCG etc. But it has to be established
in each case, by the party alleging so, that this assessee in question was part of this scam.
The chain of events and the live link of the assessee’s action giving her involvement in the
scam should be established. The allegation imply that cash was paid by the assessee and
in return the assessee received LTCG, which is income exempt from income tax, by way
of cheque through Banking channels. This allegation that cash had changed hands, has to
be proved with evidence, by the revenue. Evidence gathered by the Director
Investigation’s office by way of statements recorded etc. has to also be brought on record
in each case, when such a statement, evidence etc. is relied upon by the revenue to make
any additions. Opportunity of cross examination has to be provided to the assessee, if the
Assessing Officer relies on any statements or third party as evidence to make an addition.
If any material or evidence was sought to be relied upon by the Assessing Officer, he has
to confront the assessee with such material. The claim of the assessee cannot be rejected
based on mere conjectures unverified by evidence under the pretentious garb of
preponderance of human probabilities and theory of human behaviour by the department.

It is well settled that evidence collected from third parties cannot be used against an
assessee unless this evidence is put before him and he is given an opportunity to
controvert the evidence. In this case, the Assessing Officer relied only on a report as the
basis for the addition. The evidence based on which the DDIT report was prepared is not
brought on record by the Assessing Officer nor is it put before the assessee. The
submission of the assessee that she is just an investor and as she received some tips and
she chose to invest based on these market tips and had taken a calculated risk and had
gained in the process and that she is not party to the scam etc., has to be controverted by
the revenue with evidence. When a person claims that she has done these transactions in
a bona fide and genuine manner and was benefitted, one cannot reject this submission
based on surmises and conjectures. As the report of investigation wing suggests, there
are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on
legal principles of legal import laid down by the Courts of law Just the modus operandi, generalisation, preponderance of human probabilities cannot
be the only basis for rejecting the claim of the assessee. Unless specific evidence is
brought on record to controvert the validity and correctness of the documentary
evidences produced, the same cannot be rejected by the assessee. The burden of proving Pa g e | 1 7 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
a transaction to be bogus has to be strictly discharged by adducing legal evidences,
which would directly prove the fact of bogusness or establish circumstance unerringly
and reasonably raising an interference to that effect.
The Assessing officer as well as the Commissioner (Appeals) has been guided by the
report of the investigation wing prepared with respect to bogus capital gains
transactions. However, the Assessing Officer as well as the Commissioner (Appeals),
have brought out any part of the investigation wing report in which the assessee has been
investigated and /or found to be a part of any arrangement for the purpose of generating
bogus long term capital gains. Nothing has been brought on record to show that the
persons investigated, including entry operators or stock brokers, have named that the
assessee was in collusion with them. In absence of such finding how is it possible to link
their wrong doings with the assessee. In fact, the investigation wing is a separate
department which has not been assigned assessment work and has been delegated the
work of only making investigation. The Act has vested widest powers on this wing. It is
the duty of the investigation wing to conduct proper and detailed inquiry in any matter
where there is allegation of tax evasion and after making proper inquiry and collecting
proper evidences the matter should be sent to the assessment wing to assess the income
as per law. No such action executed by investigation wing against the assessee. In
absence of any finding specifically against the assessee in the investigation wing report,
the assessee cannot be held to be guilty or linked to the wrong acts of the persons
investigated. In this case, the Assessing Officer at best could have considered the
investigation report as a starting point of investigation. The report only informed the
Assessing Officer that some persons may have misused the script for the purpose of
collusive transaction. The Assessing Officer was duty bound to make inquiry from all
concerned parties relating to the transaction and then to collect evidences that the
transaction entered into by the assessee was also a collusive transaction. However, the
Assessing Officer has not brought on record any evidence to prove that the transactions
entered by the assessee which are otherwise supported by proper third party documents
are collusive transactions.
The Assessing Officer having failed to bring on record any material to prove that the
transaction of the assessee was a collusive transaction could not have rejected the
evidences submitted by the assessee. In fact, in this case nothing has been found against
the assessee with aid of any direct evidences or material against the assessee despite the
matter being investigated by various wings of the Income Tax Department hence under
these circumstances nothing can be implicated against the assessee
One is bound to consider and rely on the evidence produced by the assessee in support of
its claim and base decision on such evidence and not on suspicion or preponderance of
probabilities no material was brought on record by the Assessing Officer to controvert
the evidence furnished by the assessee. Under these circumstances, the evidence filed by
the assessee is accepted and the claim that the income in question is a bona fide Long
Term Capital Gain arising from the sale of shares is allowed and hence exempt from
income tax. [Para 20]”
16.To conclude,we note that,the assesseehad requested for an opportunity to cross
examine the person, whose statement has been relied on by the AO for making the
addition. It is well established law that no adverse view can be taken against an
assessee, on the basis of statement recorded by department of any person without
providing copy of the statement to the assessee and also without providing Pa g e | 1 8 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15
opportunity for cross examination of the said person. We note that the assessee
submitted before us contract notes for the sale of shares of Lifeline Drugs &
Pharma Ltd.(vide PB 33 to 45). The assessee submitted before us the balance
sheet of profit & loss account of Kush Nahata as on 31.03.2013 and 31.03.2014
(vide PB page no. 46 to 47) wherein the assessee has shown investments in shares
in the asset side of the balance sheet. The transfer share certificate and Bonus
share certificates were also furnished in the paper book (vide pb page 48 to 49).
The assessee submitted the demat statement for the financial year 2013-14 (PB 50
to 52). The bank statements showing receipt of sale consideration were also
submitted before us (PB 53 to 54). The assessee submitted before us the purchase
bill and the bank statement showing payment of purchase consideration (vide PB
55 to 57). Apart from this the assessee also submitted the copy of income tax
return for assessment year 2013-14 and assessment year 2014-15. By submitting
these plethora documents the assessee has proved that the transactions are bona-
fide as the transactions have been done through recognized share broker and
payment has been made through banking channel. There is transfer certificate and
contract notes for sale of shares of Lifeline Drugs and Pharma Ltd, this clearly
shows that the transaction is genuine. Apart from this, the investments, that is
shares, which the assessee has purchased/sold have been duly reflected in the
Balance sheet of the assessee for the year ended 31.03.2013 and 31.03.2014.
Therefore, all these documents and evidences show that the transactions are
genuine and there is no mala-fide intention to evade payment of tax and therefore
we are of the view that addition made by the assessing officer should be deleted.
One is bound to consider and rely on the evidence produced by the assessee in
support of its claim and base decision on such evidence and not on suspicion or
preponderance of probabilities, we note that no material was brought on record by
the Assessing Officer to controvert the evidence furnished by the assessee. Under
these circumstances, the evidence filed by the assesseeshould be accepted and the
claim that the income in question is a bona- fideshould be acceptedhence, Long
Term Capital Gain (LTCG) arising from the sale of shares is genuine therefore,
we delete the addition of Rs.1,09,74,902/-.

17. In the result, the appeal of the assessee is allowed.
Pa g e | 1 9 S h ri Ku sh Na h a ta ITA No.1899/Kol/2018 Assessment Year:2014-15 Order is pronounced in the open court on 08.05.2019.
Sd/- Sd/- (S.S.GODARA) (DR. A.L.SAINI) ाियकसद / JUDICIAL MEMBER ले खासद / ACCOUNTANT MEMBER िदनां क Dated 08/05/2019 SB, Sr. PS Copy of the order forwarded to:
1. Shri Kush Nahata
2. ITO, Ward-35(3), Kolkata
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File. True copy By Order Assistant Registrar ITAT, Kolkata Benches Pa g e | 2 0

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