Case Law Details

Case Name : ITO Vs Shivani Gupta (ITAT Delhi)
Appeal Number : ITA. No. 5204/Del./2019
Date of Judgement/Order : 06/04/2021
Related Assessment Year : 2015-2016

ITO Vs Shivani Gupta (ITAT Delhi)

The A.O. in this case noted that assessee has sold the shares of Shilpi Cable Technologies Ltd., and claimed exempt under section 10(38) of the I.T. Act of the impugned amount. The A.O. merely declared this company to be penny stock company without bringing any evidence on record. Though the A.O. discussed in the assessment order that Investigation Wing as well as SEBI revealed that Shilpi Cable Technologies Ltd., is engaged in scam, but, no details have been brought on record as to how in assessment year under appeal this company was engaged in scam or indulged in price raise in shares. The Ld. D.R. referred to the assessment order in the case of M/s. Renu Proptech Pvt. Ltd., in which it is mentioned that SEBI has suspended the share transactions of this company in the year 2017. But, the assessment year under appeal is A.Y. 2016-2017, therefore, it would have no impact on the transactions carried-out by the assessee in assessment year under appeal. The A.O. thereafter did not bring any evidence on record as to how the transaction of the assessee was not genuine. The Ld. CIT(A) considering the details on record found that there is an increase in the turnover and profit of this company and this company has also declared substantial income and paid the taxes also. There were no basis for the A.O. to hold this company to be penny stock company. The Ld. CIT(A) also found that this company has declared dividend to the shareholders as well as have reputed customers. The assessee kept the shares for more than one year and sold the shares through recognized stock exchange on which STT is also paid. The assessee purchased the shares through banking channel as well as sold the shares through online trading platform of NSE. The payment is also received through banking channel. This company is actually engaged in manufacturing and has substantial assets also. The Ld. CIT(A) also found that in the connected case of the assessee i.e., Shri Dinesh Gupta [HUF], similarly investment was made in the shares of Shilpi Cable Technologies Ltd., and long term capital gains was claimed exempt under section 10(38) of the I.T. Act. Thus, no evidence has been brought on record by the A.O. as to how the assessee’s transactions were not genuine. It was also brought on record that assessee is a habitual investor as is evident from the Demat Statement with the Bank. Thus the issue is on better footing as against the case of Smt. Shivani Gupta (supra). Following the reasons for decision in the case of Smt. Shivani Gupta (supra), we do not find any justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. The decisions relied upon by the Ld. D.R. are thus clearly distinguishable on facts. Accordingly, appeal of the Department is dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

This Order shall dispose of both the above Departmental Appeals in which identical issue have been raised by the Revenue and early hearing have been granted.

2. We have heard the Learned Representative of both the parties and perused the material available on record. The appeals are decided as under.

ITA.No.5204/Del./2019 – Smt. Shivani Gupta – A.Y. 2015-2016 :

3. This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-10, New Delhi, Dated 05.03.2019, for the A.Y. 2015-2016, challenging the Order of the Ld. CIT(A) in deleting the addition of Rs.1,60,98,447/-made on account of disallowing long term capital gains exemption claimed under section 10(38) of the I.T. Act, 1961.

4. Briefly the facts of the case are that return of income for the assessment year under appeal was filed on 31.08.2015 declaring income of Rs.13,17,580/- which was processed under section 143(1) of the Act. In the return of income, the assessee had claimed Long Term Capital Gain of Rs.1,60,98,447/- exempt under section 10(38) of the Act on account of trading in shares of M/s. Eins Eductech Ltd., (Previously known as Thyrocare Lab) on BSE. The transactions were STT paid, therefore the gain was claimed exempt under section 10(38) of the I.T. Act, 1961. The assessee had invested Rs.22,50,000/- by two cheques in purchase of 1,50,000 equity shares of M/s Eins Eductech Ltd in the month of July, 2013 through preferential allotment @ Rs.15/- per share. These shares were credited in the Demat Account of the assessee on 25.11.2013. These shares remained, in lock-in by order of the SEBI till 15.10.2014. Out of these shares 34,451 shares were sold-out by the assessee from 16.10.2014 to 10.03.2015 for a total consideration of Rs.1,27,42,768/- (including STT of Rs.12,767/-) through her brokers M/s. SMP Securities Ltd and M/s SS Corporate Securities Ltd. Thereafter, on 13.03.2015 the shares of Eins Edutech Ltd were split to Rs.1/- per share. Thus, the remaining 1,15,519 shares were split into 11,55,490 shares of Rs.1/- each. Out of these shares 86,000 shares were sold-out through her broker M/s SS Corporate Securities Ltd from 13.03.2015 to 23.03.2015 for total consideration of Rs.40,64,289/- (including STT of Rs.4,075/-). The total sale consideration of all the shares of Eins Edutech Ltd was therefore Rs.1,68,02,668/- which includes STT of Rs.16,842/-. The purchase value of these shares was Rs.6,45,765/-. The indexed cost of the purchase was Rs.7,04,221/-. The LTCG claimed exempt under section 10(38) was Rs.1,60,98,447/-. The purchase cost of the balance shares remained with the assessee had been Rs.16,04,235/-. The AO after a detailed findings in his order considered these transactions as ‘sham’ and disallowed the exemption claimed under section 10(38) of the Act and added total LTCG of Rs.1,60,98,447/- to the income of the assessee. The income was assessed at Rs.1,74,06,030/-against the returned income of Rs. 13,07,583/-.

4.1. The assessee challenged the addition before the Ld. CIT(A). The detailed written submissions of the assessee is reproduced in the appellate order in which the assessee briefly explained that assessee had discharged the onus that lay upon her to prove the nature and source of the amount of sale proceeds of equity shares sold by her in recognized stock exchange through SEBI registered Broker/Member of the Stock Exchange. The sale proceeds of the shares so sold by her were received from the recognized stock exchange through SEBI registered broker on the basis of time stamped contract notes issued by the stock exchange and that there is no basis for the Assessing Officer to make the addition by holding it to be sham transaction without bringing any material on record against the assessee. The A.O. has drawn an adverse inference against the assessee on the basis of some inquiries conducted at the back of the assessee in the case of one Shri Devesh Upadhayaya and some of his companies, to which, assessee has nothing to do. The assessee has been engaged in making investments in shares during the instant year as well as in the earlier years. During the year under appeal. the assessee has sold shares of an unlisted company namely BDR Buildtech Private Limited from which the assessee earned an amount of Rs.13,70,503/- which was duly declared in the return of income. The assessee also incurred a loss of Rs.26.72.949/-on sale of shares of another unlisted company namely USG Solutions Private Limited and accordingly claimed a carry forward loss of Rs.13,98,496/-. This carry forward has been duly allowed by the Assessing Officer while framing the assessment in the assessment year under appeal. Apart from this, the assessee has also sold part of shares of EINS Edutech Limited which were purchased by her in the immediately preceding year and earned a long term capital gain of the impugned amount. These shares were sold on the stock exchange through online trading platform of the stock exchange and STT has also been paid. Therefore, it was rightly claimed as exempt from Tax. The A.O. did not point-out any discrepancy in the documentary evidences filed by the assessee and merely relied upon some investigation which was conducted at the back of the assessee which cannot be read in evidence against the assessee. The findings of the A.O. are mainly based on suspicion without bringing any evidence on record against the assessee. The A.O. has failed to appreciate that assessee has not transacted with any of such parties namely Shri Devesh Upadhayaya and other companies managed by him. Therefore, no adverse inference can be drawn against the assessee. The sales were made by the broker through online trading platform of BSE and the broker realized the payment against the sale of shares from BSE and thereafter passed on the amount to the assessee through account payee cheques/RTGS. It was further submitted that share prices are always determined by the market mechanism at any given point of time because there is a robust system of the stock exchange which is transparent, open and equitable and the assessee has sold the shares on such platform at a price which was a reflection of the market demand and supply. The transactions on the online platform of stock exchange is a faceless transaction where the seller does not know who is buying the shares. Therefore, A.O. should not doubt the transaction and no material has been brought on record by the A.O. to create suspicion in the transactions carried-out by the assessee.

The A.O. has merely suspected the transactions because huge capital gain has been earned by the assessee and that investigation have been conducted at Kolkata against the third parties. However, these are no the basis to make any addition against the assessee. It was submitted that increase in the share price of a particular Company on the stock exchange is not merely dependent only on its financial performance. The inherent nature of stock exchange is such that the share prices are driven by manifold factors and not only by the financials of the company whose shares are traded. It is a well known fact in the stock market that share price movement has very often no co-relation with the fundamentals of the company. The price of any commodity including shares is determined by the market forces of demand and supply of the market players and not by their intrinsic worth. The assessee has sold the shares at the market prevailing price which is adequately proved from the time stamped contract notes issued by the Bombay Stock Exchange. It is not possible to sale/purchase the shares of any Company on the Stock Exchange in variance to the prevailing market price at any point of time. Thus, these are not the reasons sufficient to discard the transactions of the assessee. The A.O. did not allow any cross-examination to any material collected at the back of the assessee or any statement recorded at Kolkata and others. Therefore, such evidence cannot be read in evidence against the assessee. The assessee also relied upon several decisions of different Benches of the Tribunal and Judgments of the Hon’ble High Courts in which the additions have been deleted. The name of the cases are mentioned at Page-7 of the appellate order. The assessee, therefore, prayed that entire addition may be deleted.

4.2. The Ld. CIT(A) considering the submissions of the assessee and material on record, deleted the addition and allowed the appeal of assessee. The findings of the Ld. CIT(A) in Paras 6 to 6.1.5 of the appellate order are reproduced as under :

“6. Decision :

6.1.1 . Through Ground Nos. 1 to 4, the appellant has impugned the addition of Rs.1,60,98,447/- to the income of the assessee by the AO by rejecting the claim of exemption u/s 10(38) of the Act earned through sale of listed equity shares of M/s Eins Edutech Ltd (previously known as Thyrocare Laboratories Ltd) on BSE. Since grounds are in respect of common issue hence these grounds are being clubbed together.

6.1.2. In her return of income the assessee has claimed Long term Capital Gains (LTCG) from transactions on which STT has been paid exempt u/s 10(38) to the extent of Rs.1,60,98,447/- on account of sale of 43,051 shares of M/s Eins Edutech Ltd. The AO has considered the capital gain in the case M/s Eins Edutech Ltd as bogus, the sale consideration of which has been shown in the ITR at Rs.1,68,02,668/- including STT of Rs.16,842/- and the purchase cost at Rs.7,04,221/- after indexation (before indexation 6,45,765). He made addition of Rs.1,60,98,447/- to the income of the assessee being the bogus LTCG on sale of these shares and claimed exempt u/s 10(38) and introduced in the books of accounts being his unaccounted income introduced through this sham transaction. The assessee had invested Rs.22,50,000/- by two cheques in purchase of 1,50,000 equity shares of M/s Eins Eductech Ltd in the month of July, 2013 through preferential allotment @ Rs.15/- per share. These shares were credited in the demat account of the assessee on 25/11/2013. These shares remained in lock-in by order of the SEBI till 15/10/2014. Out of these shares 43,051 shares were sold out by the assessee in the months of October, 2014, November, 2014, February, 2015 and March, 2015 for a total consideration of Rs.1,68,02,668/- through her brokers M/s SMP Securities Ltd and M/s SS Corporate Securities Ltd. In his assessment order, the AO has mainly relied on the investigation report prepared and disseminated by the Kolkata Directorate. He discussed the findings of the Kolkata Directorate in detail as how the LTCG are arranged by various entry operators for the beneficiaries through the sales carried out on the recognized stock exchanges. He discussed the complete modus operandi as how the shares are purchased and sold after a period of 1 year or more for claiming bogus profits exempt u/s 10(38) and also how the shares are purchased and sold to earn bogus STCL for the beneficiaries to adjust their profits. He also discussed roles of various entry operators, brokers and the exit providers in arranging the bogus LTCG/STCL. The AO has discussed the financials of M/s Eins Edutech Ltd which was earlier known as M/s Thyrocare Laboratories Ltd and now as M/s Aplaya Creations Ltd w.e.f 13/04/2015. He discussed the financials of the company from March, 2013 to March, 2017 like P&L account and balance sheets and as well as capital structure obtained from the internet. It is noticed that during the period under consideration the company has authorized capital of 15 Crore and issued share capital of 14.38 Crores. He alleged that the net worth of the company is negligible and even then the share prices have been artificially rigged by the group of operators to accommodate beneficiaries seeking LTCG or STCL. He apprehended that no prudent business man and particularly trader or investor in stock will invest in such penny scrip which is defunct and in-operative. The AO has discussed the business activity of the company that the income earning is very low. The company is in education business to readymade garments and trading of sarees. The AO has also reproduced the relevant questions of the statements of Sh. Bhag wan Das Aggarwal, (one of the director of the company) dated 10/01/2014 and Sh. Pawan Kumar Kayan (a subbroker and one of the exit provider) dated 30/03/2015 recorded u/s 131 by the Kolkata Directorate in which they accepted that they are arranging accommodation entries on commission basis.

6.1.3 During the assessment proceedings, the AO had issued show cause notice u/s 142(1) and also called the assessee u/s 131 and recorded her statement on oath. The show cause notice as well as statement have been reproduced by the AO in the order. The AO found the replies of the assessee as unconvincing because she had only basic knowledge of share market and did not have the understanding of the financials of the company before investment and also she could not reply the where about of the person who recommended the investment in M/s Eins Edutech Ltd. The AO inferred that she knows nothing about the preferential allotments of shares. As per him the assessee is a small time investor having very little exposer to the share market. Whereas the assessee stated that she trade and invest on advice of her husband only. The AO relying on the findings of investigation wing added the entire LTCG claimed exempt u/s 10(38) in ITR of Rs.1,60,98,447/- to the income of the assessee u/s 68 of the Act.

6.1.4 The AR of the appellant during the appellate proceedings filed a detailed submission contesting the above addition and also submitted relevant documents in a paper book which included her bank statements, copies of the contract notes for sale of shares, copies of the documents relating to purchase of shares through cheques in July, 2013 and dematerialization of these shares in the demat account on 25/11/2013, copies of demat account etc. The AR has also relied on several judicial pronouncements which are in his favour. He also placed his reliance upon several orders of jurisdictional bench of ITAT, Delhi which are also in his favour under the same facts and circumstances and the Hon’ble ITAT has deleted the additions. The detailed written submission of the AR has been reproduced in this order in the paras supra.

6 1.5. I have gone through the facts and circumstances of the case. The assessee had subscribed 1,50,000 equity shares of M/s Eins Eductech Ltd (previously known as Thyrocare Laboratories Ltd and now Aplaya Creations Ltd) in July, 2013 @ Rs.15/- per share through preferential allotment. He applied for the shares by making payment of Rs.22.50 lacs through two cheques duly reflected in his bank account. These shares were transferred to his demat account on 25/11/2013 and thereafter remained in the same account. These shares remained in lock-in by order of the SEBI till 15/10/2014. Out of these 1,50,000 equity shares, the appellant had sold out only 43,051 shares in this year cost of which was Rs.6,45,765/- and indexed cost Rs.7,04,221/-. The remaining 1,06,949 (10,69,490 after splitting @ Re 1/-) shares having cost of Rs.16,04,235/- are still unsold. The appellant sold out these 43,051 shares on BSE through her brokers M/s SMP Securities Ltd as well as M/s SS Corporate Securities Ltd for a sale value of Rs.1,68,02,668/- and claimed the capital gain of Rs.1,60,98,447/- exempt u/s 10(38). It is noticed that the appellant is regular investor in shares and she is not new in this business. This is evident from her demat account as well as her ITR. The AO has doubted the capital gain only in the case of Eins Edutech Ltd. He strongly relied on the report of the Kolkata Directorate and on the basis of which he held the LTCG as bogus and disallowed the entire claim made u/s 10(38) and added Rs.1,60,98,447/- to the income of the appellant. The AO has not made any independent enquiry to prove that the transaction was sham in nature. He failed to bring any material on record to prove that the appellant was also involved in bogus share transactions and she was directly involved in any manner to get benefitted with the bogus entries of LTCG. Mere reliance on the investigation report without directly pin pointing the role of the appellant in the transactions it is not justifiable to disallow her claim of exempt income u/s 10(38). In view of the submissions made by the appellant and her reliance on various case laws including decisions of jurisdictional ITAT under the identical facts eg. Sanjeev Jain vs ITO ITA No. 3381/Del/2017 etc. and that there is no direct evidence against the appellant is available I hereby delete the addition of Rs.1,60,98,447/- made by the AO and direct him to allow the claim of LTCG u/s 10(38). In the result, these grounds 1 to 4 are allowed.”

5. The Ld. D.R. relied upon the Order of the A.O. and submitted that the sale value was many times high as against the purchase value of the shares which clearly show that unaccounted cash is routed into the transactions which was rightly considered by the A.O. to be a ‘sham’ transaction. He has submitted that Investigation Wing of Kolkata has examined the issue in detail of the penny stock companies and rightly came to the conclusion that assessee is also involved in sham transactions which have been ignored by the Ld. CIT(A), therefore, the addition should not have been deleted. He has, therefore, prayed that the Order of the A.O. may be restored.

6. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that assessee produced all the documentary evidences before A.O. which are copy of documents for subscribing equity shares of M/s. Eins Eductech Ltd.,, copy of the Demat Account reflecting the preferential allotment of shares by M/s. Eins Eductech Ltd.,, copy of the contract notes for sale of the shares, copy of the Bank account and other relevant documents to show that assessee has purchased shares in earlier years and sold the shares in assessment year under appeal through BSE through their registered broker. All the payments are received through banking channel. The documentary evidences have not been doubted by the Assessing Officer. The Assessing Officer merely suspected the transactions by relying upon report of the Kolkata Wing which were never confronted to the assessee. Therefore, same cannot be read in evidence against the assessee. The Assessing Officer has not brought any material on record to rebut the documentary evidences filed by the assessee. The assessee is regularly trading in shares and purchase in earlier year have not been doubted. Therefore, initial onus upon the assessee to prove source of the sale proceeds have been explained through documentary evidences. Therefore, the Learned. Commissioner of income Tax (Appeals) has correctly deleted the addition. He has relied upon decision of the Delhi and Jaipur Tribunal in various cases, copies of which are filed in the paper book.

7. We have considered the rival submissions of both the parties and perused the material available on record. It is not in dispute that assessee has purchased preferential shares in preceding A.Y. 2014-2015 in July, 2013. The A.O. did not doubt the purchase of shares by assessee through banking channel. The assessee, thereafter, credited these shares to the Demat Account in November, 2013 i.e., in preceding assessment year. According to the impugned orders the shares were locked in by the Order of the SEBI till 15.10.2014 and thereafter the assessee sold the shares through the registered broker of the BSE at the BSE. The assessee paid STT on these transactions. The shares sold through recognized stock exchange through the SEBI registered stock brokers which have not been doubted by the A.O. The sale proceeds were received through registered broker of the SEBI through banking channel and BSE has issued stamped contract note to show that transactions were traded online at BSE. It is also not in dispute that assessee has been regularly trading in shares in earlier years as well as in assessment year under appeal not only in respect of the impugned transactions, but, also traded in respect of other unlisted companies. Thus, the assessee is regularly trading in the shares. Whatever inquiry was conducted at Kolkata at the back of assessee was not confronted to assessee and assessee was never allowed to cross-examine to such statement, if recorded during the course of investigation by the Kolkata Wing. The statement recorded of Shri Devesh Upadhayaya and others have not been confronted to the assessee and no right of cross-examination have been given. Even it is not clarified how the statement of Shri Devesh Upadhayaya or other were incriminating in nature against the interest of assessee because they never made any allegation against the assessee. Therefore, such evidence would not be relevant for the purpose of deciding the case of assessee. The assessee admittedly filed copy of the bank statement, contract note for sale of shares, documents of purchase of shares and Demat Account to show assessee genuinely entered into transaction which have not been doubted by the A.O. The A.O. merely suspected the transactions of the assessee because of the modus operandi of some of the brokers of penny stock companies who indulge in sham transactions. The A.O. did not make any independent inquiry into the matter. No evidence was collected against the assessee directly or indirectly for her involvement in sham transactions. The A.O. did not bring any material on record to prove as to how the assessee was involved in sham transactions. The A.O. merely proceeded on the basis of the low financials of the company for low purchase price to come to the conclusion that transactions were accommodation entries and thus sham transactions. The conclusion drawn by the A.O. that there were conversion of the unaccounted money by taking sham long term capital gains in this manner is entirely suspicion of the A.O. which is unsupported by any material on record. The assessee has explained before the authorities below that increase in the share price of a particular company on the stock exchange is not merely dependent on its financials. There are many reasons and that it is not possible to sale/purchase the shares of any company on the stock exchange in variance to the prevailing market price at any point of time. Therefore, the mere fact that shares were sold on high price would not be a ground to allege that assessee has converted someone’s unaccounted money through accommodation entry. The findings of the A.O. are merely based on conjectures and surmises without bringing any evidence on record. There is no other basis to doubt the transaction of the assessee for earning of long term capital gains which is exempt under Law. The ITAT, Delhi G-Bench, Delhi in the case of Shri Tapas Kumar Mallick, West Delhi vs., ACIT, Circle-32(1), New Delhi in ITA.No.8142/Del./2018 for the A.Y. 2015-2016 vide Order Dated 19.03.2021 considering identical issue in the light of recent Judgment of the Hon’ble Delhi High Court in the case of PCIT vs., Krishna Devi & Others Dated 15.01.2021 in paras 17 to 24 held as under :

“17. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing and the exparte Ad-Interim order of the SEBI. It can be seen that the entire assessment order has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the SEBI order without conducting any independent and separate enquiry in the case of the appellant.

18. It is provided u/s 142(2) of the Act that for the purpose of obtaining full information in respect of income of loss of any person, the Assessing Officer may make such enquiry as he considers necessary.

19. Similar facts were considered by the coordinate bench in the case of Smt. Karuna Garg ITA No. 1069 & 2772/DEL/2019, Smt Bindu Garg in ITA No. 1168 & 1169/DEL/2019, Smt Krishna Devi in ITA No. 1070/DEL/2019 and Har Dev Sahai Gupta in ITA No. 1264/DEL/2019. In these cases, the quarrel was in respect of scrip of M/s Esteem Bio Organic Food Processing Ltd, which is one of the four companies whose names are mentioned at Para 12 of this order.

20. In these cases also since the exparte interim order of the SEBI dated 29.06.2015 has named 239 persons and names of the appellants did not find place in the said lists and on the given facts, all these appeals were decided in favour of the assessee and against the revenue and order of the coordinate bench has been upheld by the Hon’ble High Court of Delhi in ITA No. 125/2020, 130/2020 and 131/2020 vide order dated 15.01.2021. The relevant findings of the Hon’ble High Court of Delhi read as under:

“11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.

12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.

13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.

14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.”

21. In our considered view, whether the assessee has discharged his onus cast upon him by provisions of section 68 of the Act or not is purely a question of fact and considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act. As mentioned elsewhere, the discharge of onus is purely a question of fact, the judicial decisions relied upon by the ld. DR would do no good on the peculiar plethora of evidences in respect of facts in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand except the decision of the coordinate bench discussed elsewhere because the same exparte Ad-Interim order of SEBI was considered and facts are mutatis mutandis same. We, accordingly, direct the Assessing Officer to accept the long term capital gain declared as such and delete the addition of Rs. 2,10,23,848/-.

22. Before parting, the ld. DR has supported his submissions by supplying print outs of the Metropolitan Stock Exchange and The Economic Times Markets, which we find that he must have searched from Google network wherein the ld. DR pointed out that SEBI now vide order dated WTM/SM/VD/D3/9896/2020-21 dated 22.12.2020 has issued the following directions:

‘Noticee nos. 2 and 3 (promoters of the Company) are directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order.

ii. BSE to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase.

iii. The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years.

iv. Noticee no. 2 and 3 are hereby restrained from holding post of director, any managerial position or associating themselves in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years.

v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns:

Sr.

No

 

 

Name of the

Noticee

 

PAN

 

Debarred

vide

interim
Order

Period

of

debarm
ent

 

1

HPC

Biosciences
Ltd

 

AABCH6762Q

Yes

 

Till

date of
this

order.

2 Shri. Tarun Chauhan AGXPC3049G Yes Till date of this
order
3 Ms. Madhu Anand AXTPA8813F Yes Till date of this
order
4 Goldline International Finvest Ltd. AACCG6377M Yes Till date of this
order
5 Shri. Madhukar Dubey & its Proprietorship firm viz. N V Sales Corporation, Magnum Industrial AIJPD7329J Yes Till date of this
order
6 Allia ce Traders

Shri. Satendra Kumar & its

Proprietorship firm viz. Nisha Traders

AWWPK8525E Yes Till date of this
order
7 Avisha Credit Capital Pvt. Ltd AAACA5715D Yes Till date of this
order
8 Shri. Sumit Kumar & its Proprietorship firm viz. Durga Prasad & Co. ARUPK1589P Yes Till date of this
order
9 Shri. Raj Kumar & its Proprietorship firm viz. Bright BNBPK2681L No 1 Year
10 Seurities Shri. Prakash Gupta & its Proprietorship firm viz. Shiv Traders ARVPG7849R Yes Till date of this
order
11 AMS Powertronic Pvt. Ltd AAECA8718H Yes Till date of this
order

23. This SEBI order is dated 22.12.2020 whereas the transactions which have been considered in this appeal took place in F.Y. 2014-15 and therefore, restrain after a gap of more than 5 years would do no good to the Revenue. This order has restrained named noticees from accessing security market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years.  Obviously, this restraint is
prospective.

24. In the result, the appeal filed by the assessee in

ITA No. 8142/DEL/2018 is allowed.”

7.1. The issue is, therefore, covered by the aforesaid Order of the Tribunal in favour of the assessee wherein the Tribunal followed the Judgment of Hon’ble jurisdictional Delhi High Court and has deleted the entire addition. The Tribunal has considered almost similar circumstances and do not find any allegation against the assessee for earning bogus long term capital gains under section 10(38) of the I.T. Act, 1961. The initial onus upon the assessee to prove source of the money credited in the Bank account of the assessee has been discharged by producing the documentary evidences and material on record. The A.O. did not rebut the documentary evidences furnished by the assessee. Therefore, the Ld. CIT(A) on proper appreciation of facts and material on record correctly deleted the addition. We, therefore, do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. In view of the above, appeal of the Department is dismissed.

8. In the result, appeal of the Department ITA.No.5204/Del./2019 dismissed.

ITA.No.8571/Del./2019 – Shri Dinesh Gupta – A.Y. 2016-2017 :

9. This appeal by Revenue has been directed against the Order of the Ld. CIT(A)-XXVI, New Delhi, Dated 16.08.2019, for the A.Y. 2016-2017, challenging the deletion of addition of Rs.12,92,40,482/- under section 10(38) of the I.T. Act, 1961.

10. Briefly the facts of the case are that the assessee is an individual and filed return of income declaring income of Rs.17,96,210/-. The assessee has shown income from business, capital gain and income from other sources. In assessment year under appeal the assessee has claimed long term capital gains as exempt under section 10(38) of the I.T. Act, 1961. The details of the same are as under :

“Capital gains

Long term capital gains

Shilpi Cable Technologies Ltd., (Exempt u/s.10(38)

Full Consideration Rs.15,26,38,102/-
Less: Cost of Acquisition Rs. 2,33,97,620/-
LTCG (Exempt u/s.10(38)) claimed Rs.12,92,40,482/-

10.1. The A.O. considered the capital gains claimed by the assessee to be bogus. The A.O. discussed the modus operandi of the persons arranging the bogus long term capital gains through entry provider and through exit providers. The A.O. found that assessee has purchased the shares of Shilpi Cable Technologies Ltd., in physical form and thereafter same have been converted into electronic mode. In such case off-market transactions, as per SEBI guidelines, a broker cannot issue a brokerage note containing time stamp of stock exchange, traded time even though the transactions are routed through stock exchange and such transactions are off-market transactions, the same are not inconformity with the regulatory guidelines. The A.O. relied upon certain decisions and made addition of Rs.12,92,40,482/-.

10.2. The assessee challenged the addition before the Ld. CIT(A). The assessee submitted before the Ld. CIT(A) that he has been making investment in equity shares from time to time in earlier years. During the instant year the assessee earned long term capital gains on sale of equity shares of various companies including the equity shares of 03 listed companies. The long term capital gains arising to the assessee on sale of equity shares of listed companies at recognised stock exchange on which STT was also paid and was claimed exempt. Thus, shares were sold at National Stock Exchange [“NSC”] and STT was paid which were held by the assessee for a period of more than one year, therefore, assessee fulfilled all the conditions for allowing exemption under section 10(38) of the I.T. Act, 1961. The inference of the A.O. that shares sold by assessee of Shilpi Cable Technologies Ltd., is a penny stock is wholly wrong, arbitrary and is not borne-out by any material on record. The assessee produced the documentary evidences in the form of audited financial data as well as stock exchange data of the company to show that shares of Shilpi Cable Technologies Ltd., cannot be said to be penny stock. It was further submitted that assessee had sold shares through online trading platform of NSE and time stamp contract note and bills of brokers were filed to show that assessee has sold the shares on open stock exchange and had realized the sale consideration from NSE. The stamp contract notes were issued by NSE. The shares were sold on existing market price at open stock exchange and sale proceeds were realized from the National Stock Exchange through account payee cheques issued by Member Brokers of NSE. The A.O. has not brought any evidence on record as to how Shilpi Cable Technologies Ltd., was a penny stock company. No material was confronted to the assessee in this regard. The aforesaid company was engaged in the business of manufacturing of specialized cables and had various manufacturing facilities as could be evident from the details of this company downloaded from internet. The audited financial data and other details would show that even Mutual Funds and Foreign Institutional Investors held shares of this Company. This company has also declared dividend to Investors. Shilpi Cable Technologies Ltd., is a company which was engaged in actual business of manufacturing of sale of specialized cable and its customers included reputed brand names like Vodaphone, Nokia, Tata, Videocon, ITI, Ashok Leyland, Eicher, TVS etc. The assessee purchased the shares of this company through account payee cheques in F.Y. 2012-2013 when the sales turnover of the company was to the tune of Rs.957.07 crores and the same increased to Rs.1752.94 in F.Y. 2013-2014. There was a quantum jump in sales turnover in F.Y. 2014-2015 when the turnover was reported at Rs.3212.93 crores and in F.Y. 2015-2016 it increased to Rs.3895.53 crores and then in F.Y. 2016-2017 it was reported at Rs.3840.48 crores. This company is doing actual business and has substantial revenue from the sale of products manufactured by it. Shilpi Cable Technologies Ltd., was consistently a profit making company as would be evident from the chart enclosed when profit before tax in F.Y. 2009-2010 was reported at Rs.16.28 crores, F.Y. 2010-2011 Rs.32.95 crores, F.Y. 2012-2013 Rs.70.09 crores, F.Y. 2013-2014 Rs.111.93 crores, F.Y. 2014­2015 Rs.177.86 crores and F.Y. 2015-2016 Rs.197.22 crores. This company was paying income tax consistently when it paid income tax of Rs.5.55 crores in F.Y. 2009-2010, Rs.7.7 crores in F.Y. 2010-2011, Rs.9.15 crores in F.Y. 2011-2012, Rs.11.22 crores in F.Y. 2012-2013, Rs.11.89 crores in F.Y. 2013-2014 Rs.17.88 crores in F.Y. 2014-2015 and Rs.31.58 crores in F.Y. 2015-2016. Shilpi Cable Technologies Ltd., on secured borrowals from the Financial Institutions and Banks had paid registration charges in respect of its various assets in Register of Companies as would be evident from the details downloaded from the ROC. The Financial Institutions were regularly lending the money to this company and it has substantial fixed assets, inventories and trade receivables. It has manufacturing facilities at two places in Rajasthan. The company had come-out with Public Issue of the shares in 2011 which were listed at Bombay Stock Exchange [“BSE”] and National Stock Exchange [“NSE”]. Thus, there were no basis for the A.O. to hold that it was a penny stock company. The assessee also submitted that even in the case of Shri Dinesh Gupta [HUF] investment was made in this company in A.Y. 2013-2014 and part of the shares were sold both in A.Y. 2015-2016 as well as A.Y. 2016-2017 under appeal and the long term capital gains earned by Shri Dinesh Gupta [HUF] was claimed as exempt under section 10(38) of the I.T. Act, 1961 and the A.O. accepted the same in scrutiny assessment under section 143(3) of the I.T. Act. The assessee, therefore, submitted that there were no basis for the A.O. to draw any adverse inference against the assessee or against Shilpi Cable Technologies Ltd.

10.3. The Ld. CIT(A) considered the issue in detail in the light of facts explained by the assessee and deleted the entire addition. The operative portion of the Order of the Ld. CIT(A) at pages 16 to 19 are reproduced as under:

“v. From a perusal of the same it is evident that Shilpi Cable Technologies Ltd. had operating revenue of Rs.248.29 crores in F.Y. 2009-10 which has increased to Rs.957.07 crores in FY 2012-13 when the assessee purchased the shares and has further increased to Rs.3895 crores during the instant year when the assessee has sold the impugned shares. Similarly the company is found to be earning a profit before tax of Rs.70.09 crores in assessment year 2013-14 when the assessee purchased the shares and its profit has risen to Rs. 197.22 crores in the instant year when the impugned shares were sold. It is also seen that Shilpi Cable Technologies Limited has been consistently paying income tax on its income right from assessment year 2010-11 to assessment year 2017-18. It is also seen that it has substantial fixed assets, long term borrowings from banks etc. It also has paid dividend to its shareholders in three years namely assessment year 2015-16 to assessment year 2017-18. I have also gone through the company profile available on Internet, copies whereof have been filed before me, according to which the company had two manufacturing units wherein various types of cables and wires were manufactured and the company claims to have customers like BSNL, MTNL, Vodafone, Nokia, Tata Motors, TVS etc. The shareholding pattern of that company also shows that even mutual funds and foreign institutional investors hold about 22 to 23% Equity of this company. In my considered opinion these are not traits of any penny stock company. The conclusion of the A.O. that the shares of Shilpi Cable Technologies ltd did not have fundamentals to support the premium it commanded is found to be incorrect and not based on any material on record. Rather, the comparative chart showing audited financial data of the aforesaid company points to the contrary. The company was engaged in manufacturing business of various types of cables in its two manufacturing units and had substantial sales turnover which has increased manifolds over the years since the assesse purchased its shares.

vi. It was contended that the details were filed before the AO. The AO has generalized the conclusions in this case. The appellant had acquired 1600000 Equity shares of Shilpi Cable Technologies Limited on 2.5.2012 at a price of Rs.20/- per share and the shares were credited in the demat account of the appellant with HDFC Bank on the same date. The first lot of shares were sold by the appellant in assessment year 2015-16 on 17.7.2014 & earned LTCG of nearly Rs.1.96 crores which was declared by him in his return of income. The appellant further sold part of the shares in assessment year 2017-18 when he earned a long term capital gain of Rs.6.20 crores which was also declared by him in his return of income. It has been pointed out that no adverse inference was drawn for AY 2015-16 or AY 2017-18 in respect of the sale of the shares of the same company. It was also submitted that the HUF of the appellant namely Dinesh Gupta (HIJF) also made investment in the shares of Shilpi Cable Technologies Ltd. and earned a long term capital gains amounting to Rs.1.47 crores in assessment year 2015-16 and Rs.13.86 crores in assessment year 2016-17, claimed exemption u/s 10(38) of the Act and the same were accepted u/s 143(3) of the Act in both the years. It is thus seen that the claim of exemption u/s 10(38) in respect of long term capital gains on sale of shares of Shilpi Cable Technologies Ltd. stands accepted in the case of the HUF of the assessee u/s 143(3) of the Act and in the case of the assessee also for the preceding and succeeding years. Further, the purchase of shares of Shilpi Cable Technologies Ltd. by the appellant fully verifiable from the payments made by him through account payee cheques as also from his demat account. The shares sold by the appellant during the instant year are on online trading platform of stock Exchange when the same were sold on NSE through SEBI registered broker and STT was paid by the appellant as per time stamped contract notes available on record. The payments have been realized from stock exchange through the member brokers and the shares sold have been delivered out from the demat statement of the appellant. The shares sold by the appellant during the instant year were held by him for more than three years, thus he fulfilled all the conditions for allowance of exemption u/s 10(38) of the Act.

vii. It is seen that none of these facts has been controverter by the AO. The AO has chosen to restrict himself to general modus operandi in the case of penny stocks without bringing on record any specific incriminating material that could link the shares of Shilpi Cable Technologies Etd. to any of such investigative reports. Thus there is no evidence on record to prove that the transactions carried out by the assessee were not genuine or that such documents furnished in support thereof were not authentic. Besides, it would not be out of place to mention here that no specific enquiry or investigation was conducted in this case or his broker by the AO during the course of assessment proceedings nor are any adverse observations on record from the Wing. It is also noteworthy that similar transactions of the appellant’s HUF in same company’s shares have been accepted while framing assessments u/s 143(3) and also no adverse inference has been drawn in the case of the appellant in the preceding and succeeding year when similar transactions were undertaken.

viii. The assessee in this case is a habitual investor as is evident from the demat statement with HDFC Bank as also the computation of income of the assessee where he has sold shares of various companies, which transactions stand duly accepted by the A.O.

ix. Having considered the facts and circumstances, I am of the view that the assessee has successfully discharged the onus cast upon him per provisions of section 68 of the I T Act and no addition could be made in respect of long term capital gains derived by the assessee from the sale of Equity shares of Shilpi Cable Technologies Ltd. during the instant year as the same is exempt u/s 10(38) of the Act in view of the specific facts as also in view of the decision of the AO in earlier and subsequent periods involving same equity holding in case of the appellant and the HUF as per record. The addition is accordingly directed to be deleted.”

11. The Ld. D.R. relied upon the Order of the A.O. and also reiterated the submissions made in the case of Smt. Sivani Gupta (supra) and also submitted that assessee purchased the shares in physical Form i.e., in off market which is not considered by the Ld. CIT(A) which were against the SEBI guidelines. The Ld. D.R. referred to assessment order in the case of M/s. Renu Proptech Pvt. Ltd., a connected company in which the case of Shilpi Cable Technologies Ltd., have been discussed. The Ld. D.R. submitted that it is case of a penny stock company and price have jumped many times. The Ld. D.R. referred to page-38 of the assessment order in the case of M/s. Renu Proptech Pvt. Ltd., in which it is mentioned that SEBI has suspended the share trading of Shilpi Cable Technologies Ltd., in the year 2017. The Ld. D.R. submitted that exit provider are also family members of Gupta Family and Touch Stone Holding Pvt. Ltd., is held by Shri S.K. Jain Group of cases who are accommodation entry providers which was ultimately purchased by the Gupta family. The Ld. D.R. relied upon the following decisions :

 

1

Order of ITAT, Nagpur Bench, Nagpur in the case of Shri Sanjay Bimalchand Jain, Nagpur vs., ITO, Ward-4(2), Nagpur in ITA.No.61/Nag/2013 Dated 18.07.2016
 

2

Order of ITAT, Chandigarh Bench in the case of Shri Abhimanyu Soin, Ludhiana vs., ACIT, Circle-VII, Ludhiana in ITA.No.951/Chd/2016 Dated 18.04.2018 reported in 2018-TIOL-733-ITAT-CHD.
 

3

Order of ITAT, Delhi SMC-Bench, Delhi in the case of Udit Kalra, New Delhi vs., ITO, Ward-50(1), New Delhi in ITA.No.6717/Del.//2017, Dated 08.01.2019.
 

4

Order of ITAT, Delhi B-Bench, New Delhi in the case of Shri Sanat Kumar, Delhi s., ACIT, Circle- 36(1), New Delhi in ITA.No.1881/Del./2018 & Stay No.233/Del./2019 Dated 14.06.2019 reported in 2019-TIOL-1296-ITAT-Del.

12. On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and relied upon the arguments made in the case of Smt. Shivani Gupta (supra).

13. We have considered the rival submissions and perused the findings of the authorities below. The A.O. in this case noted that assessee has sold the shares of Shilpi Cable Technologies Ltd., and claimed exempt under section 10(38) of the I.T. Act of the impugned amount. The A.O. merely declared this company to be penny stock company without bringing any evidence on record. Though the A.O. discussed in the assessment order that Investigation Wing as well as SEBI revealed that Shilpi Cable Technologies Ltd., is engaged in scam, but, no details have been brought on record as to how in assessment year under appeal this company was engaged in scam or indulged in price raise in shares. The Ld. D.R. referred to the assessment order in the case of M/s. Renu Proptech Pvt. Ltd., in which it is mentioned that SEBI has suspended the share transactions of this company in the year 2017. But, the assessment year under appeal is A.Y. 2016-2017, therefore, it would have no impact on the transactions carried-out by the assessee in assessment year under appeal. The A.O. thereafter did not bring any evidence on record as to how the transaction of the assessee was not genuine. The Ld. CIT(A) considering the details on record found that there is an increase in the turnover and profit of this company and this company has also declared substantial income and paid the taxes also. There were no basis for the A.O. to hold this company to be penny stock company. The Ld. CIT(A) also found that this company has declared dividend to the shareholders as well as have reputed customers. The assessee kept the shares for more than one year and sold the shares through recognized stock exchange on which STT is also paid. The assessee purchased the shares through banking channel as well as sold the shares through online trading platform of NSE. The payment is also received through banking channel. This company is actually engaged in manufacturing and has substantial assets also. The Ld. CIT(A) also found that in the connected case of the assessee i.e., Shri Dinesh Gupta [HUF], similarly investment was made in the shares of Shilpi Cable Technologies Ltd., and long term capital gains was claimed exempt under section 10(38) of the I.T. Act. Thus, no evidence has been brought on record by the A.O. as to how the assessee’s transactions were not genuine. It was also brought on record that assessee is a habitual investor as is evident from the Demat Statement with the Bank. Thus the issue is on better footing as against the case of Smt. Shivani Gupta (supra). Following the reasons for decision in the case of Smt. Shivani Gupta (supra), we do not find any justification to interfere with the Order of the Ld. CIT(A) in deleting the addition. The decisions relied upon by the Ld. D.R. are thus clearly distinguishable on facts. Accordingly, appeal of the Department is dismissed.

14. In the result, appeal of the Department ITA.No.8571/Del./2019 dismissed.

15. In the result, both the appeals of the Department are dismissed.

Order pronounced in the open Court.

Download Judgment/Order

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