Penny stock: Addition not sustainable, in absence of adverse finding against Assessee

Smt. Rachna Agarwal Vs ITO (ITAT Kolkata)

Facts- The sole/main grievance of the assessee is against the action of the Ld. CIT(A) confirming the order of the AO making the addition on account of Long Term Capital Gains (LTCG) of Rs.77,78,476/- which the assessee derived from sale of scrip known as M/s. GCM Securities Ltd.

The AO further noted that during the relevant assessment year the assessee had traded the scrip by the name of GCM Securities Ltd. which according to him was a ‘penny stock’, which has been used for generating bogus LTCG. According to AO, the unaccounted cash of beneficiaries (like assessee) is utilized to purchase shares at a low price and thereafter, in collusion the price of the scrips are artificially inflated and sold it is shown as LTCG and according to the AO, the scrip GCM Securities Ltd. is also a penny stock and, therefore, the AO was pleased to add u/s. 68 of the Act Rs.77,78,476/- as unexplained cash credit. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed it. Aggrieved, the assessee is in appeal before us.

Conclusion- In the present case we find that the entire addition is on the basis of some investigation report, the relevant portions of which is also not cited in the show cause or the assessment order, there is nothing against the assessee and no inquiry whatsoever has been done by the AO or the Ld CIT (A). In such circumstances the assessee having discharged her onus and nothing adverse being found against her, the addition cannot be sustained.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the assessee against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 13.08.2021 for AY 2015-16.

2. The sole/main grievance of the assessee is against the action of the Ld. CIT(A) confirming the order of the AO making the addition on account of Long Term Capital Gains (LTCG) of Rs.77,78,476/- which the assessee derived from sale of scrip known as M/s. GCM Securities Ltd. (hereinafter referred to as “GCM”). Brief facts of the case are that the AO noted that the assessee had filed her original return of income for AY 2015-16 on 28.08.2015 declaring total income of Rs.4,83,980/-. The AO noted that the case was selected for complete scrutiny as per CASS. The AO noted that the assessee had derived her income from sale of shares and commodities and income from other sources. The AO further noted that during the relevant assessment year the assessee had traded the scrip by the name of GCM Securities Ltd. which according to him was a ‘penny stock’, which has been used for generating bogus LTCG. According to AO, the unaccounted cash of beneficiaries (like assessee) is utilized to purchase shares at a low price and thereafter, in collusion the price of the scrips are artificially inflated and sold it is shown as LTCG and according to the AO, the scrip GCM Securities Ltd. is also a penny stock and, therefore, the AO was pleased to add u/s. 68 of the Act Rs.77,78,476/- as unexplained cash credit. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who confirmed it. Aggrieved, the assessee is in appeal before us.

3. We have heard rival sub missions and gone through the facts and circumstances of the case. We note that the assessee has purchased 12,000 number of shares of GCM Securities Ltd. The assessee has purchased shares of Rs.2,40,000/- (12,000x 20) vide Cheque No. 035983 dt. 08.02.2013by Initial Public Offer by the said company made in conformity with the provisions of the Companies Act, 1956 and SEBI regulations. The payment of Rs.240,000 has been duly reflected in the assessee’s Axis Bank Account no. 9120100639. A copy of bank account for the period from 01.04.2012 to 31.03.2013 is found placed at page 5 to 11 of paper book. The shares are duly credited to the de-mat account of the assessee with Ashika Stock Broking Ltd and the copy of the demat statement is found placed at page 41 of the paper book. The said shares were subsequently split from face-value of Rs.10/- per share to Rs.1/- per share and hence the number of shares increased by 10 times and the shares available with the assessee after the split was 1,20,000 shares, this is apparent from the demat statement and the copy of the demat statement is found placed at page 45 of the paper book. We therefore note that the shares in question were acquired by the assessee by way of subscription made for equity shares, which were offered for subscription to the public at large by issue of prospectus. It was thus not a case where the shares were acquired through private purchase / off market where there could be an allegation for manipulation. The A/R of the assessee that the assessee is just an investor and as she received some suggestion for investment and she chose to investment based on these market tips/suggestions and had taken a calculated risk and had gained in the process and that she is not party to any alleged scam etc.

4. We further note that the assessee has sold the shares through stock-broker, M/s. Ashika Stock Broking Limited, a member of the Bombay Stock Exchange, SEBI Registration No. INB010833433 and Trading Code No. H408R7677. We note that the assessee has sold 1,20,000 nos. of shares of GCM Security Ltd on the Bombay Stock Exchange from 30/10/2014 to 26/02/2015. The details of shares are as under:

5. The copy of contract notes along with bank statement where sale proceed of shares has been deposited in found placed in the paper book Pages 37 to 67. We also note that the assessee has sold the share after one year of time from the time of its purchase. Clause 38 [w.e.f. 01.10.2004] has been inserted in section 10 of the Act, which envisages that income arising out of transfer of long Term Capital Asset being an equity share in a company on which STT is paid is exempt from tax. Since the equity shares of the company [GCM Securities Ltd.] has been held by the assessee for more than a year and later sold on recognized stock exchange on which STT has been paid, the income becomes exempt u/s.10(38) of the Act.

6. We note that before the AO the copies of contract notes, demat statement, broker’s ledger, bank statements etc. evidencing the sale of shares was duly submitted by the assessee. Thereafter the assessee was in receipt of a show cause notice dated 14/11/2017 (issued on 28/11/2017) the show cause notice is available on page 68 of the paper book requiring her to explain as to why the gain derived from sale of shares of M/s.GCM Securities Limited should not be treated as in-genuine. In reply thereof, the assessee furnished a detailed submission along with supporting documents. The AO, however did not accept the same and denied the benefit of exemption u/s 10(38) of the Act claimed in respect of the gain of Rs.77,78,476/- derived in the scrip of M/s GCM Securities Limited and added the same to her total income.

7. On careful scrutiny of the assessment order under appeal we note that the assessee has submitted all her evidences in support of her purchase and sale of the shares and the other relevant supporting documents. In the assessment order the Assessing Officer has only issued a show cause notice in which he has merely reproduced a summary of the finding of the investigation wing of Income Tax Department at Kolkata and the said show cause does not even contain any basic information on whom the action was taken by the Department, was the action in the nature of search or survey or any other proceedings, who all were covered in such proceedings, what was stated by these persons, how such statement were connected with the assessee case, what material was unearthed against the assessee, what were the evidences leading to a cash trail from the assessee to such entry operators, which stock brokers were involved, was the assessee stock broker involved etc. It is evident from the show cause notice and the assessment order that the assessing officer did not make any basic inquiry in this case. It appears from the assessment order that the assessing officer has not even issued any notices to any of the parties concerned, nor has the assessing officer found any adverse material against the assessee in the investigation material. It is well settled in law by various decisions of the Apex Court and various High Courts that a Show Cause Notice is more than a notice. It gives an opportunity to the Department of leading evidence in support of its allegations and equally it gives an opportunity to the assessee charged with, to make representation and adduce evidence against the allegations or charges made out against them. Therefore,

(i) The Show Cause Notice should be issued only after proper inquiry/investigation i.e. when the facts used are ascertained and allegations are justified.

(ii) The Show-Cause Notice should not be an exercise in deliberate ambiguity. It should be specific and un-ambiguous.

(iii) It should be clear on facts and legal provisions. Violation of the provisions of law should be clearly brought out in the Show Cause Notice.

(iv) The charges should be specific. They should not be vague or contradictory.

(v) Copies of the relied up on documents should be listed in seriatim as per the references made in the Show-Cause Notice and given as Annexures to the Notice.

8. From plain reading of the assessment order and the show cause notice we find that none of the above was done. There is nothing contained in the show cause notice save and except some vague details of finding of investigation department, which in no way can be understood to be linked to the case of the assessee. Therefore, we find that the AO did not bring on record any tangible material on the basis of which he could hold that the appellant’s transaction in M/s GCM Securities Ltd was bogus or sham. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. The Assessing Officer has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, the transaction of purchase and sale of shares were duly supported by contract note, demat account and payments were made through banking channel. We find that no enquiry let alone worthwhile enquiry was conducted by the AO before drawing adverse inference against the appellant. We also note that even though the shares were sold through registered stock broker no attempt to make enquiries from the said broker was made by the AO but based on suspicion & surmise prompted by the material/report of Investigation Wing in transactions of M/s. GCM Securities Ltd, the AO presumed that the appellant’s transactions in shares of M/s GCM Securities Limited was also bogus. We therefore find that there was no independent and objective application of mind by the AO in respect of the appellant’s transactions in the shares of GCM Securities Limited and the ultimate disallowance was prompted solely based on the facts discussed by the AO in respect of transactions in M/s GCM Securities Limited shares. We find that both the AO and the Ld CIT (A) did not make any independent inquiry in this case and there was nothing found in the course of the assessment proceedings to hold that the appellant’s transactions in shares of M/s GCM Securities Limited was bogus

9. We also find that in the appellate proceedings, the Ld. CIT(A) rejected the appellant’s claim for exemption u/s 10(38) only because in his opinion the AO finding was correct and also that as per the Ld CIT(A) as the price of the shares were high and the onus was on the assessee to prove why such share prices were high. Further as per the Ld. CIT(A) once the AO issued a show cause notice it was the assessee to prove that the transaction was genuine. Thus we note even at the first appellate stage there was no objective enquiry in respect of the contemporaneous transactional documents and evidences, which the appellant had furnished in support of her share transactions. From the paper book filed we note that before the lower authorities as well as before us the assessee had filed requisite documents to substantiate the claim of exemption made u/s 10(38) upon sale of shares of M/s GCM Securities Limited.

The assessee had furnished the following documents:

(i) Copy of IPO Application Form

(ii) Copy of Bank Statement showing payment for IPO

(iii) Copy of DEMAT statement showing allotment of shares;

(iv) Copy of DEMAT statement showing sub division of shares;

(v) Copy of contract notes issued by Stock Broker showing sale of shares

(vi) Copy of Bank Statement showing receipt of sale proceeds;

(vii) Copy of DEMAT statement showing transfer of shares on sale;

10. We note that the aforesaid documents filed by the assessee before the lower authorities in order to substantiate sale of listed shares has not been found to be false, fabricated and fictitious. The appellant had furnished the copies of contract notes, Demat statement, Bank Statement, broker’s ledger. The transactions in listed shares took place through a registered share broker, namely M/s. Ashika Stock Broking Pvt Ltd. The purchase of shares was acquired through public offer by way of direct subscription in Initial Public offering. The sale of shares took place on screen-based trading platform of Bombay Stock Exchange. The transaction was settled by making / receiving payment by account payee cheques through proper banking channel. The assessee had paid securities transaction tax (STT) on sale of shares. The transaction took place at the price prevailing on stock exchange on respective transaction dates and there is no adverse finding by the lower authorities in respect to the documents produced by the assessee to substantiate the sale of M/s GCM Securities Limited. In the light of the documents filed as afore-stated, the assessee has discharged the onus to prove the genuineness of the long-term capital gain derived on sale of shares. There is no evidence to show that the documents filed by the assessee before the AO are false and fabricated.

11. We also note that in the investigation report of the Department in the case of M/s GCM SECURITIES LIMITED much emphasis has been placed on the fact that the company’s financials as well as net worth did not at all justify the prices at which the shares were transacted on stock exchange. With reference to the financial results of M/s GCM SECURITIES LIMITED as well as making reference to the financial track record as well as dividend declaration history, it was opined that the prices at which the shares were transacted were unreal, fictitious or manipulated. At the time of hearing the Ld. AR placed before us the copy of the audited financial accounts of M/s GCM Securities Limited for the FY 2014-15. On scrutiny of these accounts, we note that during the year under consideration the turnover of the assessee was Rs 3,31,90,405/-. It was also noted that the profit disclosed by the company for the FY 2014-15 was Rs 1,36,18,752/- which was more than 1266% in comparison to last year’s profit of Rs 10,75,155/-. In its Profit & Loss Account had made provision for tax of Rs 29,06,964/-.

12. The Ld. AR also drew our attention to the Schedule 2.10, which contained details of investments held by the company, which primarily consisted of blue chip securities inter alia including Reliance Industries Limited, Power Grid Corporation of India Ltd, Tata Steel Limited, Bharti Airtel Limited, Coal India Ltd etc.. The fixed assets of the company were to the order of Rs 1,87,48,523/-. The Ld. AR finally drew our attention to the fact that during the financial year ended 31st March 2015, M/s GCM Securities Limited had proposed and paid interim dividend at the rate of 4% to its shareholders. From the foregoing facts and figures it cannot be said that M/s GCM Securities Limited was a company not having requisite financials as compared with the facts in the case of M/s GCM SECURITIES LIMITED. We therefore find sufficient merit in the Ld. AR’s argument that merely because the share transactions of M/s GCM SECURITIES LIMITED were doubted by the Revenue authorities for lack of adequate financial results could not ipso facto be applied in the case of M/s GCM Securities Limited. We find that even though in the impugned order the AO referred to the financials of M/s GCM Securities Limited the figures discussed pertained to FYs 2013-14, 2012-13 &2011-12 which had no bearing with the assessee’s transaction in shares during FY 2014-15 which were based on the price movements prevailing on the Bombay Stock Exchange during the relevant period. As is well known the price movements on the stock exchange are based on the financials of the company for the relevant period and are not influenced by the past financial results of the company. In view of these foregoing facts therefore we hold that no adverse inference could be drawn against the appellant.

13. Sec. 68 of the Act places the burden of proof on the tax payer, to explain the nature of source of any credit but not the source of the source. Hence when an assessee gives evidences of identity of the payer, source of the credit, evidences of the transactions to prove the genuineness, the assessee is said to have discharged his initial burden. In view of the above, we are of the view that the assessee has explained and submitted evidences to prove identity, nature and source of the cash credit on account of sale proceeds credited / received in the bank account of the assessee and also furnished all evidences comprising contract notes, brokers, banking details in support of the genuineness of the transactions. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. The AO did not produce any evidence whatsoever to prove the allegation that unaccounted money changed hands between the assessee and the broker or any other person including the alleged exit provider nor proved that the assessee has taken any type of accommodation from any person or so called exit providers to introduce unaccounted money into books by way of LTCG. With the purchase and sale transactions of shares of GCM are proved genuine by third parry evidences – bank, broker; DP-demat account, and in the absence of any material to prove cash changing hands in the transaction, the addition made by the AO under section 68 of the Act, by treating the sale consideration as unexplained, sham, non-genuine is baseless. The addition under section 68 of the Act made merely of the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine or sham or demonstrating appellant’s involvement in any kind of manipulation is illegal and cannot sustain. The findings of investigation & modus operandi in other cases narrated by the AO and also CIT(A) nowhere prove any connection with the assessee nor the assessee’s involvement or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc. For making the addition, it is necessary to bring on record evidence to establish ingenuity in transactions or any connection of the assessee or its transaction with any of the alleged parties. The assessee has discharged his onus by establishing the identity of the payer, source of the credit and genuineness of the transactions.It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before her and she is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submissions of the assessee is that the assessee is just an investor and as she received some suggestion for investment and she chose to investment based on these market tips/suggestions and had taken a calculated risk and had gained in the process and that she is not party to any alleged scam or illegal trades etc. has to be controverted by the revenue with evidence when a person claims that she has done these transactions in a bona fide manner, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are many beneficiaries of LTCG. Each case has to be assessed based on principles of legal import laid down by the Courts of law.

14. The Ld Counsel also brought to our notice that once the assessee has furnished all evidences in support of the genuineness of the transactions, the onus to disprove the same is on revenue. He referred to the judgment of Hon’ble Supreme Court in the case of Krishnanand Agnihotri vs. The State of Madhya Pradesh [1977] 1 SCC 816 (SC). In this case the Hon’ble Apex Court held that the burden of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon’ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence.

15. In our view, just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon’ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT [1959] 37 ITR 151 (SC) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) (SC) the Hon’ble Supreme Court held that, the onus to prove that the apparent is not real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising interference to that effect. The Hon’ble Supreme Court in the case of Umacharan Shaw & Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale prices are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisation. Courts of law are bound to go by evidence.

16. But in the present case, we noted that the assessing officer has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. The assessing officer has not brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a pan of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such findings how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making Investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter would be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any findings specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, the AO at best could have considered the investigation report as a starting point of Investigation. The report only Informed the AO that some persons may have misused the scrip: for the purpose of collusive transactions. The AO was duty bound to make inquiry from all concerned parties relating to the transactions and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. However, the AO has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. The Hon’ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon’ble Court held:

“Adverting to the various probabilities which weighed with the ITO might be observed that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by ‘S’ and the notoriety achieved by ‘D’ as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the ITO and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,-this also was a pure conjecture or surmise on the part of the ITO. As regards the disclosed volume of business in the year under consideration in the head office and in branches the ITO indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about ₹ 45,000. The ITO indicated the probable source or sources from which the appellant could have earned a large amount in the sum of ₹ 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the ITO was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of ₹ 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of ₹ 1,000 each.”

17. The observations of the Hon’ble Apex Court are equally applicable to the case of the assessee. The AO and CIT(A) both, having failed to bring on record any material to prove that the transactions of the assessee were collusive transactions could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department and hence under these circumstances nothing can be implicated against the assessee.

18. In this regard we may gainfully reference to the decision in the following cases:

(a) When the Assessing officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon’ble Rajasthan High Court in case of CIT vs. Smt. Pooja Agarwal (2017  (9) TMI 1104 – RAJASTHAN HIGH COURT) has upheld the finding of the Tribunal on this issue in para 12 as under: –

“12. However, counsel for the respondent has taken us to the order of CIT (A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under: –

“Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee’s account with P. K. Agarwal & Co. share broker, company’s master details from registrar of companies, Kolkata were filed.

Copy of depository a/c or demat account with ALankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat A/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellant’s account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The A.O. has discussed modus operandi in some sham transactions which were detected in the search case of B.c. Purohit Group. The A.O. has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or wastaxable at a lower rate. As the appellant’s case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purohit and Co. group. The AR made submission before the A.O. that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P.K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The A.O. has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The A.O. has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohit. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish the transactions made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain made by he appellant before the A.O. is not approved. The A.O. is therefore, directed to accept claim of short term capital gain as shown by the appellant.”

(b) The Hon’ble High Court of Rajasthan and ITAT, Jaipur have given judgment in the case of PCIT Vs. Pramod Kumar Jain & Others (DB Appeal No. 209/2018 dated 24-07-2018 (Raj) which are directly on the issue. In this case the ITAT after relying on the decision of Hon’ble Rajasthan High Court in case of CIT Vs Smt. Pooja Agarwal and various other decisions deleted the addition made by the AO by holding as under:-

“ In view of the above facts and circumstances of the case , we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought back all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly, we delete the addition made by the AO on this account. “

(c) The Delhi High Court of Delhi in the decision of PCIT Vs Smt. Krishna Devi (ITA No. 125/2020 Dated 15-01-2021) held that:-

“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 https://itatonline.org ITA 125/2020 and connected matters Page 8 of 10 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 Page 9 of 10 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 SumatiDayal 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 SumatiDayal 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.

(d) The Hon’ble Gujarat High Court in the case of PCIT Vs Pr. CIT vs. Parasben Kasturchand Kocharhas dismissed the appeal filed by the Revenue by holding as under:

“1. This appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act 1961″) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench dated 20-2-2020 in the ITA NO.549/AHD/2018 for the A.Y. 2014-15. The Revenue has proposed the following question of law for the consideration of this Court:-

“Whether the Appellate Tribunal was right in law and on facts in deleting the addition of ₹ 9,70,468/- made on account of LTCG claimed as exempt u/s. 10(38) of the Act without appreciating the fact that the transaction was prearranged as well as sham and was carried out through penny scripts companies / paper companies?”

2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain C/TAXAP/204/2020 ORDER through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:-

“9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.

10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.

11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA NO.62/AHD/2018 in the matter of Mohan PolyfabPvt. Ltd. Vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee.”

3. Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income Tax authorities and the Tribunal also took notice of the fact that some of the shares also remained in the account of the appellant.

4. We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under Section 260- A of the Act, 1961.

We further find that the order of Hon’ble Gujarat High Court was challenged by the Department by filing S.L.P. and vide order dated 02.08.2021 in S.L.P. (C) No. 6782/2021 the Hon’ble Supreme Court has dismissed the petition.

(e) Hon’ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 179 wherein has held as under:-

“The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in that year. It was also placed before the relevant AO as well as before the Tribunal that the sale proceeds have been accounted for in the accounts of the assessee and were received through account payee cheque. The Tribunal was right in rejecting the appeal of the Revenue by holding that the assessee was simply a shareholder of the company. He had made investment in a company in which he was neither a director nor was he in control of the company. The assessee had taken shares from the market, the shares were listed and the transaction took place through a registered broker of the stock exchange. There was no material before the AO, which could have lead to a conclusion that the transaction was simplicitier a device to camouflage activities, to defraud the Revenue. No such presumption could be drawn by the AO merely on surmises and conjectures. In the absence of any cogent material in this regard, having been placed on record, the AO could not have reopened the assessment. The assessee had made an investment in a company, evidence whereof was with the AO. –Therefore, the AO could not have added income, which was rightly deleted by the CIT(A) as well as the Tribunal. It is settled law that suspicion, howsoever strong cannot take the place of legal proof. Consequently, no question of law, much less a substantial question of law, arises for adjudication.– C. Vasantlal& Co. vs. CIT (1962) 45 ITR 206 (SC), M.O. Thomakutty vs. CIT (.1958) 34 ITR 501 (Ker)) and Mukand Singh vs. Sales Tax Tribunal (1998) 107 STC 300 (Punjab) relied on; Umacharan Shaw &Bros. vs. CIT (1959) 37 ITR 271 (SC) Applied; Jaspal Singh vs. CIT (2006) 205 CTR (P & H) 624 distinguished”

19. Useful reference in this regard may also be made to the following judgments of the Hon’ble jurisdictional Calcutta High Court involving similar facts as involved in the present case.

(a) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) – In this case the AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss out of prearranged transactions so as to reduce the quantum of income liable for tax might have been the view expressed by the ld AO but he miserably failed to substantiate that. The High Court held that the transactions were at the prevailing price and therefore the suspicion of the AO was misplaced and not substantiated.

(b) CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 com 439 (Cal) – In this case the Hon’ble Calcutta High Court held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence on record, it is difficult if not impossible, to hold that the transactions of buying or selling of shares were colourable transactions or were resorted to with ulterior motive.

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

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

(e) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) – In this case the Hon’ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine.

(f) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] – In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon’ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal of the revenue was summarily dismissed by High Court.

(g ) The Hon’ble High Court of Calcutta in the case of ALPINE INVESTMENTS ITA 620 of 2008, dated 26thAugust 2008, held as follows:“It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried out through recognized stockbroker of the Calcutta Stock Exchange and all the payments made to the stockbroker and all the payments received from stockbroker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the Tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore, we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA No.620 of 2008 is dismissed.”

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

“4. We have heard both the side and perused the materials available on record. The ld. AR submitted two papers books. First book is running in pages no. 1 to 88 and 2nd paper book is running in pages 1 to 34. Before us the ld. AR submitted that the order of the AO is silent about the date from which the broker was expelled.

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

4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However, we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence.”

(i) In the case of CIT vs. Dhawan Investment and Trading Company Ltd. (1999) 238 ITR 486(Cal.) it was held as follows:

“7. In appeal the Commissioner of Income-tax (Appeals) has also agreed with the action adopted by the Income-tax Officer. According to the Commissioner of Income-tax (Appeals) it appears that dealings in shares are bogus. He pointed out that the assessee has deliberately sold, 7,000 shares at a lower rate to incur the loss.

8. In appeal before the Tribunal, the Tribunal on examination of the facts found that the findings arrived at by the Income-tax Officer and the Commissioner of Income-tax (Appeals) do not appear to be correct. The transactions effected are doubtless and it is apparent that a lot of evidence requires to be considered. The transactions were made through registered share brokers. The rates quoted of the said shares were found to be correct from pages 48 to 82 of the paper book. The transactions are also found place in the said quotations.

9. When the share transaction was made through the registered broker of stock exchange, the quotations of shares were found correct as per the record of the stock exchange. Whether the assessee sold 7,000 or 70,000 shares does not make any difference. It is the assessee’s concern how to run the business. The claim of loss should not be disallowed on conjectures and surmises such as that there is a practice in Calcutta to claim bogus loss in share dealings. The Tribunal being the final fact-finding body had found the fact on the basis of the materials on record that the assessee has suffered the loss in share dealing to the tune of ₹ 49,210. These findings cannot be said to be perverse on the basis of the materials considered and discussed in the order of the Tribunal.

10. In the result so far as the question relates as to whether the finding of the Tribunal is based on materials on record we answer it in the affirmative, that is, in favour of the assessee and against the Revenue. So far as the question raised as to whether the finding is perverse, we answer it in the negative, that is in favour of the assessee and against the Revenue. Similarly, we answer question No. 2 relating to share loss of ₹ 49,210 in the affirmative, that is, in favour of the assessee and against the Revenue.”

(j) The Calcutta High Court in the case of CIT vs. Currency Investment Ltd. (2000) 241 ITR 494 (Cal.) it was held as under:

“The learned Tribunal has concluded that in view of the facts of this case, the assessee has made out a case of a genuine loss in share transactions. Whether the shares were sold or not and for how much the shares were purchased and for how much the shares were sold, is basically a question of fact. The identity of the parties through whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions.

Summons can be issued under section 131 to compel them to appear before the ITO or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on 9-11-1982, when the sale was on 22-10-1982.

Merely because of the fact that all shares were delivered after 10/15 days from the date of sale also does not affect the claim of the assessee regarding the genuineness of sale of shares by the assessee and when there is no evidence on record that the shares are not purchased by the assessee, there is no justification to disallow the loss only on the ground that delivery of shares has been taken on the same date, when the shares are delivered to purchaser.

Whether the assessee suffered loss on account of the share transactions in question is basically an issue based on finding of fact and on the given facts, it cannot be said that the finding of the Tribunal is perverse. Even when two opinions are possible and if one view possible is taken by the Tribunal, that cannot be said as perverse.”

(k) The Calcutta High Court in the case of CIT vs. Carbon Industrial Holdings Ltd. (2000) 244 ITR 422 (Cal.) the Court held as follows:

“Therefore, seeing these details, it cannot be said that the purchase and sale are on the same date. It is true that the transactions are with some brokers, but in the share transactions, the purchase and sale are normally through some broker. Payment by account payee cheque has not been disputed. Payment on purchase and sale and payment received by account payee cheque was on two different dates. If the share broker, even after issue of summons, does not appear, for that reason, the claim of the assessee should not be denied, specially in cases when the existence of the broker is not in dispute nor the payment is in dispute. Merely because some broker failed to appear, the assessee should not be punished for the default of a broker and we are in full agreement with the Tribunal that on mere suspicion the claim of the assessee should not be denied.”

(l) The Calcutta High Court in the case of Commissioner of Income Tax Versus Emerald Commercial Ltd. and Another 250 ITR 539 the Court held:

“The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt arc by account payee cheque. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue.”

(m) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. 263 ITR 626 the Court held:

“We may deal with the loss in share transaction first. The grounds disallowing share loss by the AO affirmed by the Commissioner of Income Tax(Appeals) were those that out of the four blocks of shares delivery of three blocks were received after five months and the price was also paid after five months, but were immediately sold at a loss. The other grounds were that the share broker only in respect of one group was produced but the other share brokers did not appear despite notice. The books of accounts of the share broker, who appeared, also show some discrepancies in the entries made. On these grounds this transaction was held to be ingenuine.

Whereas the Tribunal had found that all relevant documents relating to contract notes, bills, the quoted price and other materials were produced. The transactions were made through cheques. All the shares related to the reputed companies and were quoted shares in the stock exchanges and were purchased and sold at the prevalent quoted market rates, which was verified from the statement of the stock exchanges. On these basis, the learned Tribunal found that the Commissioner of Income Tax(Appeals) had proceeded on the basis of suspicion that there might be some ingenuinity in the transactions. On the basis of the materials produced, the learned Tribunal came to a finding of fact, which in our view does not seem to be perverse.

Whether the share could be sold immediately on the date of purchase or not was a question of business expedience. Whether the decision was correct or wrong cannot be a question, which can be a subject-matter of decision in such a case. In order to find out whether the transaction is genuine or ingenuine, it is neither the expedience or correctness of the decision nor the business expertise of the person to be considered. It is to be considered on the basis of the materials that there was no such transaction and that these share transactions were paper transactions. The suffering of loss could not be a factor for such purpose.

Mr. Khaitan had relied on the decisions in CIT v. Emerald Commercial Ltd. and Anr. where a Division Bench of this Court has held that non-production of share broker by the assessee did not disentitle the assessee from claiming loss in genuine transaction of shares. In this case the learned Tribunal having come to a finding on the basis of the materials that the transaction was genuine, sitting in reference, unless it is found perverse, this Court cannot intervene. In the said decision, it was further found that the findings of the ITO and the CIT(A) were based on presumption and not warranted by facts of the case as in the present case. Mr. Khaitan then relied on the decision in CIT v. Dhawan Investment & Trading Co. Ltd. . In the said case the shares were transacted through noted share brokers at the rates quoted in the stock exchange.

The claim of the assessee was accepted. Such, an acceptance was found favour by this Court in the said decision. Mr. Khaitan had then relied on the decision in CIT v. Currency Investment Co. Ltd. In this case, it was held that merely because the assessee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse.

Having regard to the proposition of law as discussed above and the facts and circumstances of the case, we find that in the present case, the view taken by the learned Tribunal cannot be said to be erroneous or perverse. Therefore, we answer the question No. 3 in the negative in favour of the assessee.”

20. We therefore note that since the purchase and sale transactions are supported and evidenced by confirmations, Contract Notes, Demat statements and bank statements etc., , the same could not be treated as bogus simply on the basis of some report of the Investigation Wing and/or the orders of SEBI in case of entirely different scrip. Moreover it was submitted before us by Ld AR that the Ld. CIT(A) was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares. The Ld AR referred to the following judgments in support of this contention wherein under similar facts of the case it was held that the AO was not justified in refusing to allow the benefit under section 10(38) of the Act and to assess the sale proceeds of shares as undisclosed income of the assessee under section 68 of the Act. We note that in order to create a tax liability in a case of this nature, the AO has to prove and establish the cash trail and the allegations, particularly in respect of the appellant, which is yet to be proved in the instant case. Similar view has been pronounced by Hon’ble Delhi High Court in the case of Pr. CIT vs Jatin Investment (P) Ltd. (2017 (2) TMI 342 – DELHI HIGH COURT) wherein it was observed “A transaction cannot be treated as fraudulent if the appellant has furnished the documentary proof and proved the identity of the purchaser and no discrepancy is found. The AO has to exercise his powers u/s 131 & 133(6) of the Act to verify the genuineness of the claim and cannot proceed on surmises.In the case of CIT vs. Lavanya Land Pvt Ltd (Income Tax Appeal No. 72 of 2014, Income Tax Appeal No. 114, 122, 124, 225, 226, 423, 425, 426 of 2014) the Hon’ble Bombay High Court ruled that the allegations made by the authorities have to be supported by actual cash passing hands or actually has changed hands. We find that in this case the AO and the Ld CIT A has not brought any such findings on record.

21. We further note that the Ld. D.R. except relying heavily on the orders of the lower authorities could not bring to our attention any material to show that the documents placed before us were sham, bogus or there was any factual infirmity therein. The Ld. D.R. also could not controvert the Ld. A.R’s submissions that the disallowance was made solely on the basis of the report of the Investigation Wing in the shares of M/s GCM. The ld. D.R. could not bring to our attention any material or evidence from which one could infer that the transactions in shares of M/s GCM Securities Limited were either manipulated or sham or that any enquiry was conducted either by the Investigation Wing or by the AO in respect of assessee’s transactions in shares of M/s GCM Securities Limited.

22. We may gainfully refer to the decision of the Hon’ble Supreme Court in the case of CIT Vs Odeon Builders Pvt Ltd 418 ITR 315 wherein the Hon’ble Court upheld the deletion of the disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO. In this case it was held:

“We have perused the review petition and find that the tax effect in this case is above ₹ 1 crore, that is, ₹ 6,59,27,298/-. Ordinarily, therefore, we would have recalled our order dated 17th September, 2018, since the order was passed only on the basis that the tax effect in this case is less than ₹ 1 crore.

However, on going through the judgments of the CIT, ITAT and the High Court, we find that on merits a disallowance of ₹ 19,39,60,866/- was based solely on third party information, which was not subjected to any further scrutiny. Thus, the CIT (Appeals) allowed the appeal of the assessee stating:

“Thus, the entire disallowance in this case is based on third party information gathered by the Investigation Wing of the Department, which have not been independently subjected to further verification by the AO who has not provided the copy of such statements to the appellant, thus denying opportunity of cross examination to the appellant, who has prima facie discharged the initial burden of substantiating the purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and the fact of payment through cheques, & VAT Registration of the sellers & their Income Tax Return. In view of the above discussion in totality, the purchases made by the appellant from M/s. Padmesh Realtors Pvt. Ltd. is found to be acceptable and the consequent disallowance resulting in addition to income made for ₹ 19,39,60,866/-, is directed to be deleted.”

The ITAT by its judgment dated 16th May, 2014 relied on the self same reasoning and dismissed the appeal of the revenue. Likewise, the High court by the impugned judgment dated 5th July, 2017, affirmed the judgments of the CIT and ITAT as concurrent factual findings, which have not been shown to be perverse and, therefore, dismissed the appeal stating that no substantial question of law arises from the impugned order of the ITAT.“

23. Similarly in the Hon’ble Supreme Court in the case of PCIT vs. Teju Rohit Kumar Kapadia (2018 (7) TMI 590 – SC) order dated 04.05.2018 upheld the following proposition of law laid down by the Hon’ble Gujrat High Court as under:

“ It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises.”

24. In the present case we find that the entire addition is on the basis of some investigation report, the relevant portions of which is also not cited in the show cause or the assessment order, there is nothing against the assessee and no inquiry whatsoever has been done by the AO or the Ld CIT (A). In such circumstances the assessee having discharged her onus and nothing adverse being found against her, the addition cannot be sustained.

25. For the reasons set out in the foregoing therefore we hold that both the lower authorities were not justified in not allowing the appellant’s claim for exemption u/s 10(38) amounting to ₹77,78,476in respect of the profit derived by the appellant on sale of 120,000 shares of M/s GCM Securities Limited. We accordingly set aside the order of Ld. CIT(A) and direct the AO not to treat the long term capital gain as bogus and delete the consequential addition and the AO is directed to allow the exemption u/s 10(38) of the Act as claimed by the assessee.

26. In the result, appeal of the assessee is allowed.

Order is pronounced in the open court on 8th April, 2022.