Case Law Details

Case Name : Amit Jindal Vs ITO (ITAT Delhi)
Appeal Number : ITA No. 1547/DEL/2019
Date of Judgement/Order : 24/02/2022
Related Assessment Year : 2015-16

Amit Jindal Vs ITO (ITAT Delhi)

Facts- The assessee is an individual and derives income as partner in the firm Jindal Aluminum Company, income from capital gains and income from other sources.

The assessee had purchased 5000 shares of Esteem Bio Organic Food Processing Ltd. on 15.06.2012 for a consideration of Rs.50,000/-. Subsequently, the assessee was allotted bonus shares in the ratio 1:3 which resulted into 15000 shares. The shares were de-mated on 17.11.2017. Out of above 15000 shares, the assessee sold 11000 shares for a consideration of Rs.46,91,079/-. After deducting the cost of acquisition of Rs.50,000/-, the assessee declared Long Term Capital Gain of Rs.46,41,079/- which was claimed as exempt u/s 10(30) of the Act. AO rejected the claim of LTCG and exemption on the ground that share transactions are not genuine and that the assessee is not a regular investor in the share market and has not done any transaction in the share market.

Conclusion- Held that the Revenue has failed to comply to the direction of the Bench in furnishing any report from the AO as to in what manner, the investigation carried out by the Directorate of Investigation, Kolkata and report of SEBI has any link with the transactions carried out by the assessee, we allow the claim of Long Term Capital Gain on account of sale of shares of M/s Esteem Bio Organic Food Processing Ltd. and consequently the exemption claimed u/s 10(38) of the Act.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal filed by the assessee is directed against the order dated 30.11.2018 of the learned CIT(A)-19, New Delhi, relating to Assessment Year 2015-16.

2. Facts of the case, in brief, are that the assessee is an individual and derives income as partner in the firm Jindal Aluminum Company, income from capital gains and income from other sources. He filed his return of income 17.03.2016, declaring taxable income of Rs.3,62,440/- and claimed exempt income Rs.46,41,079/-.

3. During the course of assessment proceedings, the AO asked the assessee to furnish certain documentary evidences to strengthen his claim of Long Term Capital Gain on account of sale of shares of M/s Easteem Bio (Scrip Code-534927) on which the assessee has claimed exemption u/s 10(38) of the Act. The assessee filed certain details which the AO examined and held that the events are not simple or lucid as explained by the assessee. The AO noted that the Directorate of Investigation, Kolkata carried out a county wide investigation to unearth the organized racket of generating bogus entries of Long Term Capital Gain which is exempt from tax. The modus operandi adopted by the operators was to make the beneficiary buy some shares of a pre-determined Penny stock company controlled by them. These shares are transferred to the beneficiary at a very nominal price mostly off-line through preferential allotment or off-line sale. The beneficiary (an individual) holds the shares for one year, the statutory period after which LTCG is exempt u/s 10(38) of the Income tax Act, 1961. In the meantime the operators rig the price of the stock and gradually raise its price many time, often 500 to 1000 times. This is done through low volume transaction indulged in by the dummies of the operator at a pre-determined price. When the price reaches the desired level the beneficiary who bought the shares at a nominal price, is made to sell it to a dummy paper company of the operator. For this, unaccounted cash is provided by the beneficiary which is routed a few layers of paper companies by the operator and finally is parked with the dummy paper company that will buy the shares.

3.1. He noted that the Directorate of Investigation, Kolkata Investigated transactions in 84 such penny stock shares quoted on BSE and examined on oath a larger number of brokers, directors of companies that finally purchased the shares, the promoters of Penny stock companies, the entry operators who managed the dummy companies involved in price rigging. The money trail of transaction was also examined and in a large number of transactions trail right from cash deposit account to the beneficiaries account was unearthed. As a result of investigation individuals who had taken such entry of bogus LTCG amounting to several crores have been identified. The AO summarized the result of the investigation in brief which is as under:-

Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014.

i) Individuals throughout the country identified who have taken such bogus entries of LTCG amounting to several crores from 2010 to 2014.

ii) The result of the enquiry was also shared with SEBI and the SEBI after investigating 11 cases have found the allegation to be correct. The balance cases are still being investigated by SEBI.

iii) The TOP 25 groups under each investigation directorate of the country were confronted in course of further investigation. Almost all of them barring a few have accepted having taken the entries for a commission. A sum of crores has been voluntarily
surrendered by such assessees.

iv) In Kolkata, where this investigation was started some of the beneficiaries who had taken entries of nearly Rs. 40 crores have voluntarily surrendered it for taxation without any further enquiry.

v) Several assessees have filed revised return since the enquiry and have taken back their claim of exemption.

3.2.  He further noted that the Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG. SEBI considering the inputs from Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scripts. These actions include passing interim direction, suspending’ the trade, reducing the price band etc. Under this shadowed background the AO analyzed the circumstantial / direct evidences against the claim of LTCG.

3.3. He noted that the assessee has acquired shares of Esteem Bio (in Physical form) on 16.10.2012 by making payment through Avish Credit Capital Ltd. 25.06.2012 for 5000 shares. Assessee has furnished copy of bank statement showing debit entry on 18.10.2012 to this effect. This company was having market price of share at around Rs.1.62 for the share having face value of Re 1 in February, 2013. Thereafter, the price was jacked up to Rs. 52.49 from Rs 1.62 in 22 months that is till December, 2014. Thus, within 22 months the price was jacked up nearly 32 times. After that the price was maintained in the range of Rs. 36 to Rs. 52 so that the interested beneficiaries were able to book the long term gains. After that the price was made to fall freely so that interested beneficiaries who had booked at high market price can avail bogus short Term Capital Loss. Thereafter the prices have gone down to merely Rs.22.

3.4. The AO further noted that while LTCG is booked while the share price is going up, the downward journey is used by the operators for booking bogus losses. The LTCG beneficiary pays cash to exit entry provider or a person who wants to book a loss and in return gets the cheque. The operator deducts his commission from the cash. As prices crash the loss taking beneficiary sells these shares bought at high value for small value resulting in artificial loss.

3.5. He also analyzed the financial health of the company by taking it out from the data available in public domain and which is used by the investors which is as follows:-

(Amount in Crores)

F Y Share
capital
Gross Turnover Expenses PAT Earnings  Per Share
2009-10 0.05 0.90 -0.79 1.69 337.36
2010-11 NA NA NA NA NA
2011-12 NA NA NA NA NA
2012-13 14.92 6.43 3.94 2.55 2.51
2013-14 14.92 3.20 1.44 1.84 1.23
2014-15 24.86 3.40 2.32 1.23 0.07

3.6. The AO held that even though the net worth of the company and the business activity of the company is negligible the share prices have been artificially rigged by the group of operators including Shri Anil Agarwal of Mumbai to accommodate beneficiaries seeking long term capital gain and losses. According to him, no prudent businessman and particularly trader or investor in stock will invest in such penny scrip which is defunct and inoperative. Further, this company does not have any fixed assets. In spite of the above available public information i.e. a company with weak financials and reporting losses the assessee purchased the shares of this company through a physical transfer of shares. According to the AO, it is evident that this was a predetermined action with a specific intention. This is one of the circumstantial evidence leading to the conclusion that LTCG earned is not genuine one. The AO thereafter recorded the statement of the assessee u/s 131 of the Act in which the assessee has stated as under:-

> He has basic information about the share market and has not done many transactions.

> He is not a regular investor in shares

> He had no idea about the business activities carried on or the profit being made by company Esteem Bio at the time when he applied for the shares of this company.

> He came to know about Esteem Bio through your uncle.

> He had purchased shares of Esteem Bio in an off market transaction.

> He don’t know how did he receive share certificates.

3.7.  In view of the above and after recording following reasons, the AO held that the income arising from sale of shares of Esteem Bio Organic Food Processing will not be treated as LTCG.

a) The initial shares were purchased through off line trading and the assessee has invested his hard earned money in the shares of the company net worth was negligible and it was done solely on the suggestion of his uncle in anticipation of huge profits. This was also stated by the assessee during his statement recorded u / s 131 that the intention at the time of purchase was to earn huge profit.

b) The assessee had made investment m M/s Esteem Bio whose details were not known to the assessee. Considering the above, the transaction of sale and purchase of penny stock shares does not qualify to be called as a capital investment rather, these transactions are an adventure in the nature of trade.

c) This also come to conclude that the motive of the assessee’s investment in the penny stock companies was not to derive income by way dividend etc. rather, to earn huge profit.

d) The entry providers (as mentioned in para 6.2 above) in their statements have admitted that M/s Salasar Trading; M/s. Ganpati Enterprises; and M/s. Mahadev Traders; are the companies involved in providing accommodation entries. Thus, the above companies are exit provider in the case of the assessee.

e) The company in question whose shares were sold was not having healthy financial position. And despite not being a dividend paying company and suffering huge losses its shares were quoted at around Rs.400/- per share.

3.8. Rejecting the various explanation given by the assessee and relying upon various decisions, the AO made addition of Rs.48,33,944/- to the total income of the assessee by observing as under:-

“13. The detailed analysis of evidences available on record and the case laws quoted above provide enough support against the arguments of the assessee that his share transactions are genuine. Thus, in view of the elaborate discussion made above, I hereby hold the amount of Rs.46,93,198/- shows as sale of value of Esteem Bio shares during the financial year 2014-15 (AY 2015-16) stand disallowed u/s 69A and is added back to the total income. Further, it is typical that these transactions are carried out on a commission basis. From various statements, it is observed that commission @3% has been charged for providing arranged capital gain. Since assessee has received sale consideration of Rs.46,93,198/-, an amount of Rs.1,40,796/- (being 3% of Rs.46,93,198/-) is being added u/s 69C as unexplained expenditure. Accordingly, I am satisfied that the assessee has concealed his income, therefore, penalty proceedings u/s 271(1)(c) are initiated on the addition of Rs.48,33,994/-.”

4. In appeal, the ld. CIT(A) upheld the action of the AO.

5. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:-

1. Whether the Ld. CIT (A) was justified by upholding the Ld. A.O. order dt.20.12.2017,even without disputing the explanations and evidence on record, and which are totally based on a general information provided by investigation wing on suspicious LTCG but nothing to do or even a whisper or any tangible material towards the Appellant.

2. Whether the Ld. CIT (A) was justified in passing the order by dismissing the rightful claim of LTCG without appreciating the submissions\evidences on record in regard to the transfer of long term investment by way of equity shares resulting in long term capital gains

3. Whether the Ld. CIT (A) was justified in passing the unlawful order on surmises as well as used General in nature information accessible and available in the public realm by dismissing the Appeal even without considering the Facts and contention in respect of Admittedly being accepted the investment of Rs. 50,000/- as part of Assets in the past and those investment have also been added.

4. Whether the Ld. CIT (A) was justified to uphold the Ld. AO order which was based on the arbitrary and on surmises, by denying claimed LTCG on mechanical and irrelevant factors and moreover no adverse material on record to disapprove the evidence on record

5. Whether the Ld. CIT (A) was justified to uphold the Ld. AO order by way of not only denial of LTCG of Rs 46,41,079/-was claimed u/s 10(38) ,on transfer of shares ,but also added the purchase costs, on the suo-motto observations without establishing the full prove case or pointing out the entire chains of the transactions to justify bogus transactions.

6. Whether the Ld. CIT (A) was justified to uphold the Ld. AO order by way of denial of entire LTCG of Rs.46,41,079/-,and also cost of purchases , which was claimed u/s 10(38) on Transfer of shares and added under the Garb of section 69Aread with seetionll5BBE as well as suo-motto treated 3% as unexplained expenditure UNDER THE Garb of section 69C on the suo-motto observations without establishing the full prove case or pointing out the entire chains of the transactions to justify bogus transactions.

7. Whether the Ld. CIT (A) was justified to uphold the Ld. AO order who has wrongly arrive at a suo-motto conclusion solely based on various citations, by completely side tracking the evidence on record, which have nothing to do in the present matter which are totally contrary to law and a such the order suffers from patient illegality.

8. Whether the Ld. CIT(A) was justified to uphold the Ld. AO order on chargeability of interest in a mechanical way as well as initiation of penalty proceedings u/s 271(1)(c) of the Act.”

LTCG exemption allowed in absence of any link between assessee’s transaction & investigation carried out by DIT

6. The ld. counsel for the assessee submitted that the assessee, during the course of assessment proceedings, has filed following details before the AO as well as the Ld. CIT(A):-

Sl.
No.
Particulars Page No.
1 Copy of Letter dt.05.12.17 with
account copy Filed on Account of
5000 share purchase of M/s
Esteem Bio. dt. 15/06/2012 with
bank account with share certificate
1-5
2 Copy of letter of allotment with distinction no. as bonus(i.e. ratio of 1:3) resulting 15000 shares. With share certificate 6-7
3 Letter to AO dt.17/11/2017.with D- Mate account 8-11
4 Copy of letter to AO dt. 10/11/2017 12
5 Copy of statement of account and
sale bill, contract note for transfer
of 11,700 shares out of 15,000
shares.
13-17
6 Copy of bank acc. The amount
credited after realization from
broker.
18-19

6.1.  He submitted that the investigation by the Investigation Wing or SEBI does not link to the assessee or his broker so far as the instant transactions are concerned. Referring to the decision of the Tribunal in the case of Smt. Karuna Garg & Ors. Vs ITO in ITA No.1069/Del/2019 and batch of other appeals copy of which is filed in the paper book, he submitted that the Co-ordinate Bench of the Tribunal, after considering the various submissions made by the assessee and relying on various decisions has accepted the Long Term Capital Gain on account of sale of shares of M/s Esteem Bio Organic Food Processing Ltd. on the ground that the shares of the above company were suspended from trading in stock exchange but that was from 29.06.2015 which is date of the order of the SEBI. Further, the shares of the two companies were purchased by the assessee in the month of February 2013 and November, 2012 which were sold in the month of February/March 2014 and these transactions took place much before the report of the Investigation Wing and also before the order of the SEBI. The Tribunal had allowed the claim of the assessee of Long Term Capital Gain.

6.2. Referring to the decision of the Hon’ble Delhi High Court in the case of Smt. Krishna Devi & Ors. Vs ITO in ITA No.125/2020 & Ors, order dated 15.01.2021 and batch of other appeals, he submitted that the Hon’ble Delhi High Court in the said decision has upheld the order of the Tribunal and dismissed the appeal of the Revenue under identical circumstances. He submitted that identical decision has been rendered by the Co­ordinate Bench of the Tribunal in the case of Swati Luthra & Ors. in ITA No.6480/Del/2017 for AY 2014-15.

6.3. He submitted that despite opportunities granted by the Tribunal to substantiate as to in what manner investigations carried out by the Directorate of Investigations, Kolkata or the SEBI investigations have a link with the instant transactions entered into by the assessee, the Revenue has miserably failed till today to substantiate the same.

6.4. He submitted that the AO in the instant case, treated the genuine transactions of the sale of the shares of Esteem Bio Organic Food Processing Ltd. as ungenuine and thereby denying the benefit of Long Term Capital Gain claimed as exempt u/s 10(38) of the Act. He submitted that when the assessee has furnished all the requisite details and substantiated its claim of Long Term Capital Gain which is exempt u/s 10(38) of the Act, the ld. CIT(A) should not have rejected the claim of the assessee. He accordingly submitted that the order of the Ld. CIT(A) be set-aside and grounds raised by the assessee should be allowed.

7. The Ld. DR, on the other hand, heavily relied on the order of the AO and the Ld. CIT(A). He submitted that the AO has clearly brought on record the modus operandi adopted by certain persons in an organized manner for generating bogus entries for Long Term Capital Gain, and claiming the same as exempt from tax. He submitted that the financials of Esteem Bio Organic Food Processing Ltd. do not inspire confidence that the shares having the value of Rs.1 in February 2013 can go up to Rs.52.49 in the month of December, 2014 i.e. within a period of 22 months the price has gone up by nearly 32 times which is against human probabilities. He accordingly submitted that since the ld. CIT(A) has given justifiable reasons while upholding the actions of the AO, the same should be upheld and the grounds raised by the assessee should be dismissed.

8. We have heard the rival arguments made by both the sides, perused the orders of the A.O. and the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has purchased 5000 shares of Esteem Bio Organic Food Processing Ltd. on 15.06.2012 for a consideration of Rs.50,000/-. Subsequently, the assessee was allotted bonus shares in the ratio 1:3 which resulted into 15000 shares. The shares were de-mated on 17.11.2017. Out of above 15000 shares, the assessee sold 11000 shares for a consideration of Rs.46,91,079/-. After deducting the cost of acquisition of Rs.50,000/-, the assessee declared Long Term Capital Gain of Rs.46,41,079/- which was claimed as exempt u/s10(30) of the Act. We find the AO rejected the claim of Long Term Capital Gain and exemption u/s 10(38) of the Act on the ground that the share transactions are not genuine and that the assessee is not a regular investor in the share market and has not done many transaction in the share market. The assessee has also very limited information about Esteem Bio Organic Food Processing Ltd. and the company is having poor financial record. The assessee has purchased 5000 shares of Esteem Bio Organic Food Processing Ltd. when the company has no proven financial results which are an indicator of events to be occurring in the future. He also relied upon the report of the Investigation Wing and the order of SEBI, which has suspended the trading of above shares.

8.1. We find the assessment in the instant case, apart from other things, is based on report of the Directorate of Investigation, Kolkata and SEBI as mentioned by the AO at page 2 and 3 of the assessment order. We find when the case was fixed for hearing on 09.09.2021, the Bench vide order-sheet entry dated 09.09.2021 has passed the following order:-

“BENCH-A

ITA NO. 1547/Del/2019 (AY 2015 -16)
AMIT JINDAL VS. ITO WARD 59(3), NEW DELHI

09-09-2021

Present for the Assessee : Mr. V.K. Tulsian, Adv.

Present for the Department: Mr. V.K. Kataria, Sr. DR.

It is the say of the Ld. Representative that the assessment is based on the Report of the Directorate of Investigation, Kolkata with regard to the alleged racket of generating bogus entries of Long Term Capital Gains. The point made by the Ld. Representative is that the investigations do not link the assessee or his broker so far as the instant transactions are concerned. It is also his say that the decision dated 06.08.2019 of the Delhi Tribunal in the matter of Smt. Krishna Devi & Ors. vs. ITO in ITA No. 1070/Del/2019 (AY 2015-16) & Others covers the case of the assessee in as much as the facts discussed therein show that the dealings in the case before them were of similar scrip i.e. Esteem Bio Organic Food Processing Ltd. It is also his say that the said order of the Tribunal dated 6.8.2019 has been affirmed by the Hon’ble Delhi High Court in ITA No. 125/2020 & Ors. vide order dated 15.01.2021. Reliance is also similarly placed on the decision dated 28.6.2019 of the Coordinate Bench of the Delhi Tribunal in the case of Swati Luthra & Ors. In ITA No. 6480/Del/2017 (AY 2014-15) & Others. In both the precedents, our Coordinate Ld. Benches have recorded concurrent findings that the report of the SEBI which’ is the alleged basis of the Investigation report, was not adverse in nature against the assessee before them because the name of the assessee before them did not appear in the SEBI’s list of suspected concerns.

In this background, the Revenue is allowed an opportunity to call for a Report from the Assessing Officer as to in what manner the investigations carried out by the Directorate of Investigations, Kolkata or the SEBI investigations have a link with the instant transactions of the assessee. The Ld. Representative has pertinently pointed out that the Report of the SEBI is of 2015 whereas in the instant case assessee purchased the shares in off-market dealings in 2012 and sold the same in 2014 through stock exchange meaning thereby that the transactions are of a date prior to the date of SEBI Report.

The Ld. DR is directed to obtain the say of the Assessing Officer on the aforesaid assertions of the appellant within 04 weeks from today.

The Registry is directed to notify the case for further hearing on 20.10.2021. A copy of this order sheet be provided DASTI to both sides.

Sd/-
KUL BHARAT
JUDICIAL MEMBER

Sd/-
G.S. PANNU
PRESIDENT

9. However, despite lapse of almost four months from the date of direction given by the Bench, the Revenue could not file any document to substantiate that the Investigation carried out by the Directorate of Investigation of Kolkata or SEBI has any link with the instant transactions of the assessee. We further find the report of the SEBI is of 2015, whereas, in the instant case the assessee has purchased the shares in off market dealing in 2012 and sold the same in 2014 through stock exchange, meaning thereby that the transactions are of a date prior to the date of SEBI Report.

9.1. We find, identical issue had come before the Co- ordinate Bench of the Tribunal in the case of Smt. Karunga Garg & Ors. Vs ITO (supra) where the Tribunal while deciding the issue has allowed the claim of Long Term Capital Gain on sale of shares of M/s Esteem Bio Organic Food Processing Ltd. and consequently the claim of exemption u/s 10(38) of the Act. The relevant observation of the order of the Tribunal from para 19 onwards reads as under:-

“19. We have carefully considered the orders of the authorities below and the relevant documentary evidences brought on record in the form of paper book in the light of Rule 18 (6) of ITAT Rules. Whether or not a person has discharged the burden cast upon him by the provisions of section 68 of the IT Act is always a question of fact. All that has to be seen by us is whether the appellant has discharged the initial onus cast upon him by the provisions of section 68 of the IT Act.

20. 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.

21. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment 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 statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings.

22. Section 142 of the Act contains the provisions relating to enquiry before assessment.

23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and reaffirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry.

24. The report from the Directorate Income Tax Investigation Wing, Kolkata is dated 27.04.2015 whereas the impugned sales transactions took place in the month of March, 2014.

The exparte ad interim order of SEBI is dated 29.06.2015 wherein at page 34 under para 50 (a) M/s. Esteem Bio Organic Food Processing Ltd was restrained from accessing the securities market and buying selling and dealing in securities either directly or indirectly in any manner till further directions. A list of 239 persons is also mentioned in SEBI order which are at pages 34 to 42 of the order the names of the appellants do not find place in the said list. At pages 58 and 59 the names of pre IPO transferee in the scrip of M/s. Esteem Bio Organic Food Processing Ltd is given and in the said list also the names of the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Organic Food Processing Ltd – a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also.

25. As mentioned elsewhere the brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI.

26. There is no dispute that the statements which were relied by the Assessing Officer were not recorded by the Assessing Officer in the assessment proceedings but they were pre-existing statements recorded by the Investigation Wing and the same cannot be the sole basis of assessment without conducting proper enquiry and examination during the assessment proceedings itself. In our humble opinion, neither the Assessing Officer conducted any enquiry nor has brought any clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void.

27. Our above view is fortified by the decision of the Hon’ble Delhi High Court in the case of Fair Invest Limited reported in 357 ITR 146. The relevant findings of the Hon’ble Jurisdictional High court of Delhi read as under :-

“6. This Court has considered the submissions of the parties. In this case the discussion by the CIT(/4ppeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the Directors, Form 2 filed with the ROC by such applicants confirmations by the applicant for company’s shares, certificates by auditors etc. Unfortunately, the assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the assessing officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of Section 68.”

28. The DR heavily relied upon the judgment of Hon’ble High Court of Delhi in the case of Udit Kalra Vs. ITO in ITA No.220/2019. We have carefully perused the order of the Hon’ble High Court and on going through the said judgment we find that no question of law was formulated by the Hon’ble High Court of Delhi in the said case and there is only dismissal of appeal in limine as the Hon’ble High Court found that the issue involved is a question of fact.

29. As mentioned elsewhere the shares of M/s. Esteem Bio Organic Food Processing Ltd were suspended from trading in the stock exchange but that was from 29.06.2015 which is date of the order of the SEBI. The shares of two companies were purchased by the assessee in the month of February 2013 and November, 2012 which were sold in the month of February/ March 2014 and these transactions took place much before the report of the Investigation Wing and also before the order of the SEBI.

30. 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, such discharge of onus is purely a question of fact and therefore the judicial decisions relied upon by the DR would do no good on the peculiar plethora of evidences in respect of the facts of the case 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.

31. We accordingly direct the Assessing Officer to accept the long term capital gains declared as such.

32. As mentioned elsewhere the facts of all the appellants are identical, the companies whose shares have been purchased / sold giving rise to long term capital gain are same, though the quantum may differ. For our detailed discussion here in above, the appeals of all the appellants are allowed with the direction to accept the long term capital gain declared as such. 33. Since we have accepted the long term capital gains we do not find any merit in the additions on account of alleged payment of commission to the brokers and, therefore, additions made on this account is also directed to be deleted. 34. In the result, all the appeals filed by the different assessee’s are allowed.”

10. In view of the above decision of the Tribunal in the case of Smt. Karuna Garg cited (supra) and since the Revenue has failed to comply to the direction of the Bench in furnishing any report from the AO as to in what manner, the investigation carried out by the Directorate of Investigation, Kolkata and report of SEBI has any link with the transactions carried out by the assessee, we allow the claim of Long Term Capital Gain on account of sale of shares of M/s Esteem Bio Organic Food Processing Ltd. and consequently the exemption claimed u/s 10(38) of the Act. The grounds raised by the assessee are accordingly allowed.

11. However, to protect the interest of the Revenue we hold that the Revenue is at liberty to file appropriate application before the Tribunal as per law for recalling of the order in case the AO has any information in his possession before completing the assessment regarding any link between the transaction of shares of M/s Esteem Bio Food Processing Ltd. entered into by the assessee and the Investigation carried out by the Directorate of Investigation, Kolkata or Report of the SEBI.

12. In the result, the appeal filed by the assessee is allowed.

Order was pronounced in the open court on 24/02/2022.

Download Judgment/Order

Author Bio

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Income Tax

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2022
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930