Case Law Details

Case Name : Jayesh Shantilal Vira Vs ACIT (ITAT Mumbai)
Appeal Number : ITA Nos. 72 & 73/M/2021
Date of Judgement/Order : 08/06/2021
Related Assessment Year : 2012-13 & 2013-14

Jayesh Shantilal Vira Vs ACIT (ITAT Mumbai)

Addition u/s 10(38) on alleged bogus Long Term Capital Gain (LTCG) deleted where no further verification made by AO except solely reliance on information from investigation wing.

ITAT held that the long term capital gain on the sale of shares of M/s. Blue Circle Services Ltd. is not a bogus capital gain as the AO has solely relied on the report of investigation/survey team and has not carried out any further verification on the basis of documents furnished by the assessee. Similarly, the position of long term capital gain earned on the sale of shares of M/s. Gemstone Investment Ltd. of Rs.88,41,060/- is same as the assessee has filed all the necessary evidences before the AO and AO has failed to carry out any further investigation to prove that the long term capital gain earned by the assessee is bogus and fictitious. Consequently, the appeal of the assessee succeeds on merit also.

FULL TEXT OF THE ITAT JUDGEMENT

The above titled appeals have been preferred by three different assessees against the orders dated 29.12.2019 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment years 2012-13 & 2013-14. Since the issues involved are common in all the appeals, these being disposed off by this common order for the sake of brevity and convenience. First, we would like to take ITA No.72/M/2021 A.Y. 2012-13.

2. The grounds taken by the assessee in AY 2012-13 are reproduced as under:

 1. The learned CIT(A) has erred in law and in facts in not holding that the AO has erred in issuing notice u/s. 143(2) of the Act which is bad in law, illegal and null and void.

2. The learned CIT(A) has erred in law and in facts in not holding that the assessment order u/s. 143(3) r.w.s. 153A of the Act passed by the AO is bad in law, illegal and null and void.

3. The learned CIT(A) has erred in law and in facts in not holding that the AO erred in passing the assessment order in gross violation of principles of natural justice.

4. The learned CIT(A) has erred in law and in facts in confirming the addition of Rs.5,46,86,294/- as an unexplained cash credit u/s. 68 of the Act by treating the claim of LTCG on sale of shares as non-genuine.

5. The learned CIT(A) has erred in law and in facts in confirming the addition of Rs.16,40,588/- u/s. 69 of the Act on account of alleged accommodation entry charges in the form of commission paid.”

3. The issues raised in ground No.1 & 2 are against the jurisdiction of the AO to frame assessment under section 143(3) read with section 153A of the Act. The assessee has challenged by way of ground No.1 that notice issued under section 143(2) is bad in law and consequently illegal, null and void whereas vide ground No.2 the assessee has challenged that the assessment framed is bad in law.

4. The facts in brief are that the assessee filed return of income on 30.07.2012 declaring an income of Rs.18,79,100/-which was processed under section 143(1) of the Act. Thereafter, a search action under section 132 of the Act was conducted on 06.10.2017 on M/S Sunshine Group, M/s. Sabari Developer LLP and M/s. Evergreen Enterprises and various other entities covering their offices, branches and residences of the main persons. Simultaneously, survey under section 133A of the Act was also conducted on various other entities. The search was also extended to cover the directors of the group. During the course of search, the search team found evidences of accommodation entries in the form of unsecured loan, bogus purchases and bogus long term capital gain on penny stocks. The search team observed that no Sunshine Group has taken huge unsecured loans from Shell and bogus companies which were not doing any business and were being managed by Kolkata based entry providers such as Jagdish Purohit, Praveen Agarwal, Pankaj Agarwal and Rajkumar Tharad etc. In the said search Shri Jay Shantilal Veera was also covered under section 132 of the Act. Post search, notice under section 153A of the Act has been issued on 11.01.2019 which was duly served upon the assessee and complied with by filing return of income on 09.02.2019 declaring total income at Rs.18,17,100/-. Notice under section 143(2) was also issued on 12.02.2019 and duly served upon the assessee. The AO finally framed the assessment under section 143(3) read with section 153A of the Act assessing the total income at Rs.4,10,28,240/- as against the return of income of Rs.18,79,100/- by making two additions on account of unexplained cash credits under section 68 of Rs.3,80,08,867/- and unexplained cash credit under section 69C of Rs.11,40,266/-.

5. The Ld. A.R. vehemently submitted before us that the assessment in this case has attained finality on the date of search as the assessment related to A.Y. 2012-13 whereas the search was conducted on 06.10.2017 and therefore the assessment was unabated on the date of search. The Ld. A.R. submitted that in the case of unabated assessment on the date of search, addition can only be made in the assessment framed under section 143(3) read with section 153A of the Act , if there is an incriminating material found during the course of search and not otherwise. In the present case the Ld. A.R. submitted that during the course of search, no incriminating material was found with regard to the purchase and sale of shares made by the assessee and therefore addition made under section 68 & 69C are without jurisdiction and may kindly be deleted on the jurisdictional only. The Ld. A.R. while taking us through the provisions of section 153A of the Act submitted that the provisions as regards search proceedings are contained in section 153A and it is a complete code itself as the provisions of section 153A provide that the powers of AO to frame assessment in the case of unabated assessment are very limited and any additions in the unabated assessment year can only be based upon the incriminating material found during the course of search. The Ld. A.R. submitted that in the present case the assessment had already attained finality on the date of search and therefore no addition could have been made in absence of any incriminating material. The Ld. A.R. in defence of his argument heavily relied on the decision in the case of Ms. Kalpana Ruia & ors. ITA No.6519/M/2019 & ors. in which an identical issue has been decided by the coordinate bench in favour of the assessee.

6. The Ld. D.R., on the other hand, submitted that the assessee thus found to be engaged in the purchase and sale of penny stocks and have made bogus gain on the sale and purchase of the said shares. Therefore, the arguments of the Ld. A.R. are that such addition without seized materials is without jurisdiction is wrong and against the provisions of law. The Ld. D.R. submitted that in case the powers of the AO are confined to the addition based on the incriminating material then there is no point in making search even in those assessment years which have attained finality on the date of search otherwise the provisions of section 153A will be rendered otiose. The ld DR therefore prayed that the ground no. 1 and 2 deserve to be dismissed.

7. We have heard the rival submissions of both the parties and perused the material on record. The undisputed facts are that the return of income was filed by the assessee for the instant year on 30.07.2012 declaring an income of Rs.18,79,100/- which was processed under section 143(1) of the Act. Search and seizure action was conducted on 06.10.2017 and thus on the date of search, the assessment has attained finality and is an unabated assessment on the date of search. We find merit in the arguments of the Ld. A.R. that in the case of unabated assessment year, addition can only be made on the basis of incriminating material found during the course of search and not on the otherwise. In the present case, we have noted that no incriminating material was found during the course of search in relation to the purchase and sale of penny stocks and the authorities below have relied on the general investigation that assessee has made purchase and sale in penny stocks on the basis of documents which are already on records and made huge addition of bogus long term capital gain. The AO had discussed the modus operandi of the penny stock companies and operators involved in carrying out the purchase and sale of shares. However, nowhere the AO has referred to incriminating material found during the course of search in relation to purchase and sale of shares. The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal Smt. Kalpana Mukesh Ruia vs. DCIT ITA No.6519/M/2019 A.Y. 2012-13 & ors. order dated 31.12.2020 wherein an identical issue has been decided by the co-ordinate bench of the Tribunal in favour of the assessee. The operative part is reproduced as under:

“43. In our considered opinion, the honourable jurisdictional High Court has never mentioned that it is only assessment which has been completed under section 143(3) that addition under section 153(A) cannot be done without reference to incriminating seized material Honourable jurisdictional High Court has clearly mentioned that it is those assessments which are unabated, that is not pending, to which the above said ratio will apply. Assessments which are not pending are not only those which have been completed under section 143(3) but also those for which the time for issuing notice under section 143(2) have already elapsed. In other words the references is to those assessments in whose case assessment under section 143 (3) cannot now be done. It is not at all the case of the revenue that in the appeals which have been claimed as unabated here there was time for assessment under section 143(3). In this view of the matter, in our considered opinion, the submission of the learned counsel of the assessee succeeds that addition in the case of unabated assessment without reference to incriminating seized material for assessment u/s.!53(A) is not sustainable on the touchstone of above said honourable jurisdictional High Court decision. Therefore, the learned CIT appeals and the learned departmental representative plea in trying to distinguish the same by reference to Hon’ble Delhi High Court decision and honourable Supreme Court decision in the case of Rajesh Jhaveri (supra) doesn’t succeed.

44. It may not be out of place here to mention that it is specifically provided in section 153A “that assessment or reassessment if any relating to any relevant assessment year or years referred to in this subsection pending on the date of initiation of search under section 132 or making of requisition under section 132 a as the case may be shall abate.” This makes it further abundantly clear that only those assessments which are pending abate. Hence sanguine provisions of the act read with honourable jurisdictional High Court decision as above make it abundantly clear that the assessments which do not abate and assessment and addition under section 153 A without reference to incriminating seized material is not sustainable.

45. The jurisprudence regarding jurisdictional defect in assessment under section 153A / 153C without reference to incriminating seized material has also been expounded by honourable Supreme Court in the case of Commissioner of Income Tax vs. Singhad technical education Society in civil appeal No. 11080 of 2017 and others. In this regard the honourable Supreme Court in paragraph 18 of the said order observed that :-

In this behalf it was noted by the ITAT that as per provisions of section 153C of the act,, incriminating material which was seized had to pertains to assessment years in question and it is an undisputed fact that the documents which were seized did not establish any correlation, document – wise, with these for assessment years since this requirement under section 153C of the act is essential for assessment under the provision it becomes a jurisdictional defect. We find this reasoning to be logical and valid having regard to the provisions of section 153C of the Act.”

46. We also note that the co-ordinate bench of IT AT in the case of Shri Vijayrattan Balkrishan Mittal (supra) in similar situation held that, dehorse incriminating Material assessment u/s. 153A is not sustainable in the case of unabated assessment. We may gainfully refer to the said decision as under:

“44. After hearing both the parties and perusing the facts on record, we observed that undisputably the assessment in the instant year has not abated on the date of search. We further find that the evidences were gathered after issuing notice under section 133(6) that assessee has earned out synchronized trades for obtaining bogus LTCG. In our opinion, the said information/data is collected after the date of search and does not constitute incriminating material found and seized during the course of search. Keeping in view the said facts and circumstances, we are of the considered view that addition to the income of the assessee can only be made on the basis of incriminating record found during the course of search. In the present case, there is no such incriminating material and therefore, the AO has no jurisdiction to make addition in the unabated assessment. The case of the assessee is squarely covered by the decision of Hon’ble Bombay High Court decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein the Hon’ble Bombay High Court held as under. –

“a) Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) was justified in deleting the addition of Rs.3,91,55,000/-under section 68 of the Act in respect of share application money and addition of Rs. 11,24,964/- under section 14A made by the Assessing Officer, as it was not based on incriminating material found during the course of search.

d) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs.3,91,55,000/- under section 68 of the Act in respect of share application money and addition of Rs. 11,24,964/- under section 14A made by the assessing officer without appreciating the fact that the decision of continental warehousing corporation & the decision in the case of All Cargo Global Logistics have not been accepted by the department and an SLP has been filed in the Supreme Court in both the cases decided by the High court i.e. Continental Warehousing Corporation as well as all Cargo Global Logistics vide appeal civil 8546 of 2015 and SLP civil 5254-5265 of 2016 respectively.”

45. Since, there is no incriminating material found during the course of search, we therefore respectfully following the ratio laid down by the Hon’ble Bombay High Court in the above decision, set aside the order of the CIT(A) and direct the AO to delete the addition. Resultantly, the appeal of the assessee on jurisdictional issue is allowed.

47. As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The materials referred are only the statement obtained of the assessee under section 132 (4). These have been duly retracted. Hence without corroborative material addition only based upon the retracted statement is not sustainable. For this proposition following case laws are germane:

    • CIT Vs. Sunil Agarwal (379 ITR 367)
    • CIT Vs. Naresh Kumar Agarwal (369 ITR 171)
    • DCIT Vs. Narendra Garg & Ashok Garg (AOP) (ITA No. 1531 & 1532 of 2007 dated 28.7.2016)
    • DCIT Vs. Marathon Fiscal Pvt. Ltd. (ITA no. 5783 & 5784/Mum/2017 dated 28.8.2019)
    • Tribhuvandas Bhiinji Zaveri (ITA 2250 & 2251/Mum/2013 dt. 4.11.2015)

48. It may also be pertinent to note here that no seized material said to be incriminating was produced before us. In light of above said case laws the observation of learned CIT(A) that incriminating material need not be specific has no legs to stand. This very observation by the learned CIT(A) itself is an admission that no specific incriminating material has been seized and referred in the assessment order Hence, in all cases of unabated assessment the assessment fails on jurisdictional defect. Thus, ITA No. 6519/MUM/2019, 6520/MUM/2019, 6515/MUM/2019, 6516/MUM/2019, 6513/MUM/2019 & 6514/Mum/2019 are dismissed on account of jurisdictional defect.

As regards the issue of additions on merits for the bogus long-term capital gain, we note that the same is based upon the modus operandi of earning bogus long­term capital gain in general mentioned by the assessing officer. It is further more based upon the statements obtained upon survey. Furthermore it is based upon Assessing Officer’s analysis of the impugned companies financials wherein the assessing officer is of the opinion that the. increase in value is unjustified. Furthermore assessing officer has referred to general SEBI action in case of bogus long-term entry operators. However none of the brokers or the persons or the companies dealt in these appeals have been referred in the above said SEBI enquiry noted by the AO in his order. As regards the merits of additions based upon the statement obtained from Survey from 3rd parties the same is not at all sustainable without any corroborative material. This position was expounded by the honourable Supreme Court in the case of S. Kader Khan (supra). That there is no material incrementing available in this regard is clearly evident from the observation of the assessing officer in the order itself. The assessing officer mentions that what is real was not recorded in the books of accounts at any place. He mentions in the assessment order that no book entries to the real transactions either in the books of assessee or in the books of this entry operators are there. This clearly signifies that assessing officer is not referring to any incriminating material seized. As regards the observation of the assessing officer that the share broker has accepted that he was acting on the advice of Shri Prakash Modi on behalf of the assessee, again there is no incriminating seized record in this regard. The same remains solely statement upon survey which is not a conclusive evidence of addition of undisclosed income without corroborative material.”

8. We, therefore, respectfully following the decision of the co­ordinate bench of the Tribunal which has been passed after following the decision of the jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom) and various other decisions, hold that the addition made by the AO under section 68 & 69 are without jurisdiction and are directed to be deleted on the jurisdictional issue.

9. The issues raised in ground No.3 & 4 are on merit challenging the order of Ld. CIT(A) confirming the addition of Rs.3,80,08,867/- by Ld. CIT(A) as made by the AO under section 68 as unexplained cash credit by treating the long term capital gain on sale of shares as non genuine.

10. The facts in brief are that the assessee has claimed the long term capital gain on sale of shares of two companies as exempt under section 10(38). The details

whereof is given as under:

Name of  Script
No. of equity  Shares
Date  of Acquisition
Cost of Acqui sition
Year  of sale
Sale Consid eration
Gain/Loss
Blue Circle Services Ltd.
3,45,961
06.09.2010
5,18.942
FY 2011-12
2,58,07,807
2,52,88,865
M/s Gemstone Investment Ltd.
14,00,000
30.10.2009
33,60,000
FY 2011-12
1,22,01,060
88,41,060

According to the Revenue the said transactions are suspicious and bogus which was revealed during the course of search and seizure action on the assessee. The search team found that these two companies M/s. Blue Circle Services Ltd. and M/s. Gemstone Investment Ltd. which have listed on Bombay Stock Exchange were used for providing accommodation entries of long term capital gain/ short term capital gain. Out of these two companies M/s. Blue Circle Services Ltd. is included in the list of 84 companies whose share prices have been manipulated and rigged by a syndicate of operators. The AO discussed the modus operandi of these companies in great detail in the assessment order and required the assessee to show cause as to why the said short term capital gain should not be added to the income of the assessee which was replied by the assessee vide written submission dated 09.12.2019. The assessee also filed the proof of purchase and sale of shares including the D-mat account, contract notes etc. and also the details of brokers through whom these transactions were carried out. The AO finally rejected the claim of the assessee under section 10(38) of the Act and added the entire sale consideration realised from sale of shares of these two companies viz. Rs.2,58,07,807/- as sale of shares of M/s. Blue Circle Services Ltd. and Rs.1,22,01,060/- of M/s. Gemstone Investment Ltd. and added the same under section 68 of the Act as unexplained investment in the assessment framed under section 143(3) read with section 153A of the Act.

11. In the appellate proceedings also the Ld. CIT(A) affirmed the order of AO by holding that the long term capital gain as claimed exempt under section 10(38) of the Act on sale of shares of two companies as stated hereinabove are bogus and fictitious. The ld CIT(A) also relied heavily on the general investigation done by search team in Kolkata.

12. After hearing both the parties and perusing the material on record, we observe that the assessee has earned capital gain of Rs.3,41,29,925/- by selling shares of two companies on a total sale consideration of Rs.3,80,08,867/-. The assessee has claimed the said gain on the sale of these two scripts as exempt under section 10(38) of the Act. We note that assessee has purchased these shares through Bombay Stock Exchange and the payment was made through account payee cheques and the purchase of shares is duly evidenced by contract notes and recorded in D-mat account. Similarly, the sale of shares was also made through registered broker of Bombay Stock Exchange.

We also note that one of the two scripts namely M/s. Blue Circle Services Ltd. on which a capital gain of Rs.2,52,88,865/- was earned has been held to be not a penny stock in the case of Shri Subrata Benerjee vs. ACIT ITA No.2275/Kol/2018 & ors. The operative part is reproduced as under:

“5. Coming to latter two appeal(s) filed at the Revenue’s behest (supra), there is no dispute that the Assessing Officer had adopted identical reasoning in disallowing the losses in issue to the tune of Rs.78,25,188/- and Rs.1,44,20,606/-; respectively after alleging holding same to be bogus entries. The CIT(A)’s findings reversing the said identical addition read as follows:

“I have considered the submissions of the authorized representative of (the appellant as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment, proceedings. The facts of the case are that the AO in treating the share trading loss of sum of Rs78,25,188/- as bogus in nature. The appellant is a public limited company engaged in the business of Non-Banking Financial activities. The appellant for the year under consideration filed its return of income declaring income of Rs 30,26,790/-. The said income was declared after claiming loss on purchase and sale of equity shares of Rs 78,25,188/-. The said loss was incurred for 17,000 equity shares of Blue Circle Service Ltd of Rs 9,60,171/- and for 48,550 equity shares of Tuni Textiles Ltd of Rs 68,65.017/-.

The AO in the assessment order alleges that, he has received some information from the investigation wing, Kolkata about the appellant that it has claimed bogus/fictitious loss by trading in scripts namely ‘Blue Circle Services Ltd’ & ‘Tuni Textile Ltd’. Finally, the AO relying entirely upon the Information of the investigation wing, Kolkata held that loss incurred by appellant company by trading in scripts of Blue Circle Services Limited amounting to Rs9,60,171/- and Tuni Textile Mills Ltd amounting to Rs 68,65,0177- are fictitious loss.

The AR has submitted that during the course of scrutiny assessment proceedings the assessee’s letter dated 15.03.2016 and 18.03.2016 filed in the office of AO and the said letters included complete details of purchase, sale, payments, movement of shares, Contract Notices received from respective Stock Exchange loss/gains etc. in respect each and every shares which were traded by the appellant during the relevant year, The documents, evidences filed by the appellant were not found to be bogus or false, There was no irregularity or discrepancy pointed out by the AO in respect of details filed by the appellant during the relevant claim that the share loss is a genuine loss. The AR further has submitted that in the assessment order; besides relying upon the general report of the investigation wing, Kolkata. the AO has not brought on record any cogent, relevant evidences and facts which can prove that in reality there was no purchase & sale of shares by the appellant or the loss incurred by the appellant was a bogus loss, The AR has further submitted that the appellants being a registered NBFC, its main income is only from share trading and interest income, Purchase and sale of shares is the regular business activity of the appellant It is not that the appellant has only dealt in shares of these two companies, The appellant has traded in number of scripts which has resulted in profits as well as losses also, So, it’s a regular business activity of the appellant company, The appellant filed complete details of entire share transaction including those mentioned herein above before the AO, Such details included Statement of quantity of shares purchased and sold of each scrip, scrip wise profit and loss earned during the relevant year, details of purchase and sale of Tuni Textile Mills Ltd and Blue Circle Services Ltd along with Contract Notes received from respective Stock Exchange including settlement number, demat statement (issued by the Depository participant) showing inward and outward .movement in such scripts, Copies of bank statements were also furnished to substantiate the payments made and payments received in respect of trading of shares of these scripts and an explanation was also filed vide letter dated 15,03,2016 explaining as to why no disallowance of share loss should be made by the AO, The AR further submitted that the scripts were not suspended by SEBI either at the time of transaction entered by the appellant or thereafter. There is no denial of any of the transaction of either purchase or sale by the stock exchanges where the transactions were entered upon. The shares were purchased and sold at prevailing market rate through the stock exchange and the entire transactions were routed through proper Banking channel. The shares were duly reflected in the demat account of the appellant company. The AR of the appellate also placed his reliance on various judgements as mentioned above in his submissions,

I have gone through the submissions along with document as filed by the AR during the appellate proceeding. I find that all the transactions were executed in the relevant year, the purchase and sale of shares were made through online trading system. I find from the perusal of paper book filed along with written submissions that the Contract Notes were received from respective Stock Exchange in support of purchase and sale of such shares, Similarly the demat account and bank statement of the appellant company placed in the paper book reflect all the transactions of the appellant. I find that from the materials available in paper book, it can safely be concluded that the transactions were complete in terms of documentation and there was no defect in the papers submitted by the appellant in support of the transactions. The appellant has proved the transaction on the basis of documents and therefore the general report of the investigation wing without considering the positive evidences as well as without establishing any nexus with any of the operator with the appellant company should be held to be invalid. No investigation has been carried out by the AO or by the investigation wing to bring on record any material to disbelieve the claim of the appellant. The AO or the investigation wing has made academic discussion regarding the probability of the appellant having entered into transactions in collusion with operator of scripts with a view to claim loss in share trading business and thereby reducing the taxable income and tax liability. In fact there is no evidence that the prices of the scripts have been deflated by the appellate to take advantage to avoid tax. The AO has not doubted the purchase or sale price prevailing at the material point of time. It is a settled law by now that no addition or disallowance should be made or sustained on conjectures, speculation and suspicion, how high or strong they may be, because suspicion and surmises without any evidence cannot take the place of proof. I find that the AO did not discharge the burden which had shifted on him and had just mechanically adhered to disallow the loss on the basis of general report of the investigation wing, claimed by the appellant without rebutting any of the submissions of the appellant. The Assessing Officer had not dealt with the specific facts of the case. Merely making certain observations on the basis of assumptions and drawing an adverse inference thereon, without any acceptable evidence on record. I find that in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, is entitled to sustain.

I find that the AO disallowed the loss of Rs.78,25,188/- suffered by the assesses company solely on the basis of the information of the Investigation wing without making any independent enquiry in respect of the assessee company’s transactions of purchase and sale of shares of the two companies viz. Blue Circle and Tuni Textiles. The AO disregarded the submissions of the assessee company and all legal evidences produced / furnished by it in relation to the aforesaid loss in the transactions of purchase and sale of the shares of the two companies. The Assessing Officer did not bring on record any legal evidence or material on record to hold that the appellant’s transactions relating to purchase and sale of shares of the aforesaid two companies were manipulated/prices rigged/bogus. I find that the appellant had discharged its onus of by furnishing all evidences but the AO has not discharged his onus by making fresh enquiry and proving that the documents / evidences as filed by the appellate are proved to be false or bogus. It is difficult, if not impossible, to hold that the transaction of buying and selling of shares was a colourable transaction or was resorted to with any ulterior motive of reducing the tax payable. The assessee produced the contract notes, details of his DEMT account and, also, produced documents showing that all payments were received by the assessee through bank. It cannot be said by any stretch of imagination that any loss was generated. The opinion that the assessee generated a sizable amount of los:, out of pre-arranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the Assessing Officer, but he miserably failed to substantiate that Loss might have been suffered. If the loss was suffered, then appropriate deduction has to be made and there is no reason why the Assessing Officer should have refused to do so. The transactions were carried out at the prevailing price. Therefore, the question of generating loss could not have arisen. The suspicion entertained by the Assessing Officer was misplaced or in any event not substantiated. 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 d-mat format. The assessee, however, clarified that he had carried out all the transactions of purchase and sale of those shares through registered share brokers and that they had issued the contract notes which had been duly submitted. It was also pointed out that the consideration for purchase and sale of those shares have been paid or received through banking channels and copies of bank statements have also been submitted. It further appeared that on purchase of these shares the delivery was taken in Demat account and similarly when the shares were sold, the delivery to the respective brokers have also been given through Demat account. The copy of the Demat account was also submitted during the assessment proceeding and the same has also been filed during the appellate proceeding (PB page-267 to 270).

The Assessing Officer had not brought anything on record to prove that there was any connivance between the assessee and the share brokers. The Assessing Officer himself had not brought anything on record to prove that the transactions of purchase and sale of the shares in which the assessee had suffered the loss were not genuine transactions. The appellate had submitted the complete documentary evidences to prove his transactions of purchase and sale of those shares and the Assessing Officer could not prove that the evidence submitted by the assessee was either false or fictitious. The AR of the appellate also placed his reliance in various judgement including of jurisdiction High court and IT AT as mentioned above in is submission. Keeping in view of above, I am of the view that the appellate had submitted the complete documentary evidences to prove his transactions of purchase and sale of those shares and the Assessing Officer could not prove that the evidence submitted by the assessee was either false or fictitious. The AO has made the addition simply on the basis of general report of the investigation wing.

Accordingly, the AO is directed to delete the addition and this ground of appeal is allowed.”

There is no dispute that the CIT(A) had adopted the very reasoning in Revenue’s latter appeal ITA No.1496/Kol/2017 for assessment year 2014-15 s well.

5. We have heard rival contentions at Revenue’s and assessee’s behest against and in support of CIT(A)’s findings reversing Assessing Officer’s identical action treating the assessee’s losses arising from sale of various script to be non-genuine. The Revenue fails to dispute herein as well as there is no material either of the case file indicating this assessee to have availed accommodation entries as per any search / survey statement. The Revenue seeks to place a very heavy reliance in department investigation wing survey operation statements u/s. 133A from one of the assessee’s directors against genuineness of the impugned losses. We find that such a search and survey statement; if any in absence of any evidence in itself carries no value as per CBDT’s Circular dated 10.03.2003 as reiterated in subsequent clarification dated 18.12.2014. We therefore go by our foregoing detailed discussion to conclude that the CIT(A) has rightly deleted the impugned loss disallowance in both assessment year(s). The Revenue’s two appeals ITA No. 1495-1496/Kol/2017 fail accordingly.”

13. Therefore, respectfully, following the decision of the co­ordinate bench of the Tribunal, we hold that the long term capital gain on the sale of shares of M/s. Blue Circle Services Ltd. is not a bogus capital gain as the AO has solely relied on the report of investigation/survey team and has not carried out any further verification on the basis of documents furnished by the assessee. Similarly, the position of long term capital gain earned on the sale of shares of M/s. Gemstone Investment Ltd. of Rs.88,41,060/- is same as the assessee has filed all the necessary evidences before the AO and AO has failed to carry out any further investigation to prove that the long term capital gain earned by the assessee is bogus and fictitious. Consequently, the appeal of the assessee succeeds on merit also. Accordingly, the issue raised in ground No.3 & 4 are allowed.

14. The issue raised in ground No.5 is against the order of Ld. CIT(A) confirming the addition of Rs.11,40,266/- by Ld. CIT(A) as made by the AO under section 69 of the Act towards commission paid on the accommodation entries. Since we have already decided the grounds raising legal as well as merits in favour of the assessee and consequently the addition of Rs.11,40,266/- is also ordered to be deleted as this is consequential one. Accordingly the ground No.5 is allowed.

15. Accordingly, the appeal of the assessee is allowed.

ITA No.73/M/2021, A.Y. 2013-14, ITA No.79 A.Y. 2012-13, ITA No.82/M/2021 A.Y. 2013-14, ITA No.80/M/2021 A.Y.  2012-13 & ITA No.81/M/2021 A.Y 2013-14

16. The issue involved in the above appeals is identical to the one as stated above in ITA No.72/M/2021 for A.Y. 2012-13. Therefore, our findings in ITA No.72/M/2021 for A.Y. 2012-13, mutatis mutandis, would apply to these appeals as well. Accordingly the appeals of the assessee are allowed.

17. In the result, all the appeals of the three assessees are allowed.

Order pronounced in the open court on 08.06.2021.

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Qualification: LL.B / Advocate
Company: KAPIL GOEL LEGAL
Location: NORTH DELHI, Delhi, India
Member Since: 23 Jun 2020 | Total Posts: 98
Mr.Kapil Goel B.Com(H) FCA LLB, Advocate Delhi High Court [email protected], 9910272804 Mr Goel is a bachelor of commerce from Delhi University (2003) and is a Law Graduate from Merrut University (2006) and Fellow member of ICAI (Nov 2004). At present, he is practicing as an Advocate View Full Profile

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