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Mukta Gupta vs. ITO (ITAT Delhi)

COURT:
CORAM:
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL: ,
DATE: November 26, 2018 (Date of pronouncement)
DATE: February 22, 2019 (Date of publication)
AY: 2014-15
FILE: Click here to download the file in pdf format
CITATION:
S. 10(38) Bogus LTCG from Penny Stocks: Capital gains cannot be treated as bogus solely on the basis that the price of the shares has risen manifold and the reason for astronomical rise is not related to any fundamentals of market. If the transactions are duly proved by trading from stock exchange and the documentation is proper, the gains cannot be assessed as unexplained credit or as unexplained money

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “SMC” NEW DELHI
BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER
I.T.A. No.2766/DEL/2018
Assessment Year: 2014-15
Mukta Gupta,
Akhilesh Kumar, Adv.,
Chamber No.206-207,
Ansal ‘Satyam’, RDC Raj
Nagar,
Ghaziabad.
v. ITO, Ward-1(4),
Ghaziabad.
TAN/PAN: AHGPG 4685R
(Appellant) (Respondent)
I.T.A. No.2767/DEL/2018
Assessment Year: 2014-15
Mohan Lal Agarwal (HUF),
Akhilesh Kumar, Adv.,
Chamber No.206-207,
Ansal ‘Satyam’, RDC Raj
Nagar,
Ghaziabad.
v. ITO, Ward-1(4),
Ghaziabad.
TAN/PAN: AAJHM 8433Q
(Appellant) (Respondent)
Appellant by: S/Shri Akhilesh Kumar, Adv. &
Pushkar Pandey, Adv, .
Respondent by: Shri S.L. Anuragi, Sr.D.R.
Date of hearing: 12 11 2018
Date of pronouncement: 26 11 2018
O R D E R
PER AMIT SHUKLA, J.M.:
The aforesaid appeals have been filed by the assessee
against separate impugned orders of even date, 16.01.2018,
passed by ld. CIT (Appeals), Ghaziabad for the quantum of
assessment passed u/s. 143(3) for the Assessment Year
I.T.A. No.2767/DEL/2016 2
2014-15. Since facts involved in assessee’s appeals are
common, therefore, same were heard together and are being
disposed of by way of this consolidated order. In the grounds
of appeal, the assessee has challenged the disallowance of
exemption claimed u/s.10(38) for Rs.24,60,241/- being Long
Term Capital Gain on sale of listed equity shares in the name
of Mohan Lal Agarwal (HUF) and similar disallowance of
Rs.19,31,075/- in the case of Mukta Gupta.
2. We will first take up the appeal in the case of Mohan Lal
Agarwal (HUF), wherein the brief facts are that the assessee is
a HUF which carried out business of trading in iron and steel.
The assessee has claimed exemption u/s.10(38) of
Rs.24,60,241/- on Long Term Capital Gain resulting on sale
of shares of M/s. CCL International Ltd. which was
purchased for Rs.97,800 on 11.05.2009 and was sold on
12.12.2013 for Rs.26,06,548/- in the assessment year 2014-
15. Learned AO observed that assessee had purchased
10,000 shares of M/s. CCL International Ltd. on 11.05.2009
@ Rs.16.30 per share though face value of the shares were
Rs.10 each and these were locked for a period of one year ten
months as per SEBI Regulation and trading of the shares
started from 28.11.2011. Thereafter he has quoted the price
of the said scrip in the Bombay Stock Exchange from
06.02.2010 to 19.12.2016. The moment of the share price for
each day starting from 6th February, 2010 to 19th December,
2016 has been incorporated in the impugned order and from
the trend of share price moment, he held that the price of
these shares had risen manifolds and thereby inferred that
I.T.A. No.2767/DEL/2016 3
the reason for astronomical rise was not related to any
fundamentals of market. Without any material or information
on record that the assessee had done any bogus transaction
or has received any accommodation entry or assessee’s name
has been cropped as a beneficiary of accommodation entry in
any of the investigation, has held that there are various
instances whereby entry providers arrange accommodation
entry for bogus Long Term Capital Gain. Pages after pages AO
has referred to modus operandi as to how the accommodation
entry is provided by the entry operators. A statement on oath
of the Karta of the HUF was also recorded by him on
19.12.2016 which has been incorporated in the impugned
order and on the basis of the statement he has deduced
following points.
“1. That the karta of the HUF only started dealing in share transaction
at the time when he purchased these shares and got a D-mat account
only in the year 2010.
2. The company whose shares the assessee dealt in split the shares
in F.Y. 2011-12 and the total number of shares held by the assessee
increased to 50000 shares from 10000 shares of which the assessee
sold 30000 shares in F.Y. 2013-14 for Rs. 87/- per share.
3. The assessee only dealt in these shares of M/s CCL International
Ltd. and has neither purchased nor sold any other share which again
leads to suspicion.
4. The shares of the company were purchased on the advice of his
accountant.
5. The assessee didn’t watch the price of the shares purchased/sold
and only used to enquire about it once in a while.
6. The aforesaid facts clearly indicate that the transaction is a sham.”
I.T.A. No.2767/DEL/2016 4
3. After referring to various judgments and general
discussion about how this minus of bogus accommodation
entry prevailing in the country, he held that the entire sale
consideration received from sale of scrip is to be added
u/s.69A and thereby made addition of Rs.26,05,548/-
4. Ld. CIT (A) too has confirmed the said addition and
made observations that no evidence in support of
genuineness of purchase of shares and justification of
purchase price of the share has been submitted by the
assessee. Further, M/s. CCL International Ltd. has been
found to be penny stock by DIT (Investigation) Kolkata. After
discussing various case laws, he has confirmed the addition
after concluding as under:
“5.1.14 Considering that the purchase of shares has not been made
online on stock exchange. There are no proper bills supporting the
purchase price. The details submitted by the appellant failed to
substantiate the genuineness of transactions in so far as purchase of
shares is concerned. The shares transferred by the appellant reflect
such a huge price rise in the shares of a defunct company without
corresponding fundamentals, corroborated by information received
from Investigation Wing of Department that the shares have been
traded violating the SEBI’s guidelines. In view of these facts it cannot
be said that appellant has discharged the primary onus of proving the
genuineness of transactions. However, it is noted that AO has added
the entire sale consideration u/s 69A however, actual money
introduced by the appellant in books of accounts during the year is
long term capital gain i.e. Rs. 26,05,548/- (-) Rs. 1,63,000/- i.e. Rs.
24,42,548/- is the addition confirmed u/s 69A r.w.s 115BBE. Hence,
these grounds of appeal are partly allowed while confirming action of
I.T.A. No.2767/DEL/2016 5
AO of making an addition on account of bogus long term capital gain
claimed u/s 10(38).”
5. Before us, ld. counsel for the assessee submitted that
Assessee had purchased 10,000 shares on 11.05.2009 @
16.30 per share for a total amount of Rs.1,63,000/- out of
which Rs. 20,000/- was paid in cash and balance
Rs.1,43,000/- through cheque. Later on, said shares were
sub divided into 50,000/- shares in August, 2011. Said
shares were purchased from the direct allottee, Mr. Himanshu
Pokhariyal and as such shares were transferred directly from
the d-mat a/c of Himanshu to the Demat of assessee with
Allied Services Private Limited through e-transfer. Out of
50,000 shares 20,000 shares were sold in previous year and
balance 30,000/- sold on 12.12.2013 i.e. in the relevant year.
Said sale is duly declared in return. Sale under question is
supported with following evidences/details:-
a) Contract note giving date, time settlement details etc
b) STT is paid on transaction
c) Transaction is through Trustline Securities
d) Sale is made on online market of Bombay Stock
Exchange
e) Consideration is received electronically in bank
through RTGS
f) Shares are transferred from Demat Account.
6 Shares were purchased on 11.05.2009 and were sold
on 12.12.2013, and therefore, holding period of shares was
more than 4 years and 7 months. Even after entering in
I.T.A. No.2767/DEL/2016 6
Demat of assessee holding period was 3 years and 8 months.
He further submitted that rate of the said scrip at BSE on
06.02.2010 to 09.06.2016 was as per the trading norms and
cap permitted by SEBI and the said scrip was regularly traded
for six years. During the period, the highest rate was over
Rs.600/-, however when the assessee sold it was Rs.87/- per
share on 12.12.2013. The Assessing Officer has not found
any material/ information against the assessee nor against
the company, M/s. CCL International Ltd. Besides, there is no
allegation/statement of any party that the said transaction or
even dealing in shares of the company was for bogus capital
gain. Neither the said company has been blacklisted by SEBI
nor has it been named in the list of Shell Company uploaded
by SEBI on net. In the statement recorded by the Assessing
Officer, assessee has given all the details as asked and no
adverse inference can be drawn from the said statement. He
also pointed out that the Income Tax Department itself has
accepted the transaction of Long Term Capital Gain/Short
Term Capital Gain in the case of M/s. CCL International Ltd.
not only in the current year but also in the previous years in
several cases in scrutiny proceedings. Thus, without any
material on record, simply by general observation and
conjectures, no adverse inference could have been drawn. He
also filed various judgments of this Tribunal and also
assessment records and the assessment order in the case of
other assessees, wherein similar scrip has been accepted qua
the same assessment year or subsequent assessment year.
I.T.A. No.2767/DEL/2016 7
7. On the other hand, learned Department Representative
has strongly relied upon the order of the Assessing Officer
and ld. CIT (A) and submitted that such a huge rise in the
price itself shows that everything was not right and in some of
the case, Investigation Wing Kolkata has found that scrip of
M/s. CCL International Ltd. were used for providing
accommodation entries by the brokers. Thus, the order of the
Assessing Officer and ld. CIT (A) needs to be confirmed.
8. We have heard the rival submissions and also perused
the relevant findings given in the impugned orders as well as
mater referred to before us. As discussed above, assessee has
purchased 10,000 shares on 11.05.2009 @ 16.30 per share
for total amount of Rs.1,63,000/- out of which Rs.20,000/-
was paid in cash and balance amount of Rs.1,43,000/-
through cheque which was duly reflected in the statement of
affairs in the return of income filed for Assessment Year
2010-11. Later on, the said shares were sub-divided into
50,000 shares in August, 2011. These shares were stated to
be purchased from the direct allottee, Mr. Himanshu
Pokhariyal and such shares were transferred directly from
Demat account of the said person to the Demat account of the
assessee through e-transfer with Allied Services Pvt. Ltd. Out
of 50,000 shares, 20,000 shares were sold in previous year
and balance amount of 30,000 shares have been sold in the
relevant Assessment Year. It has not been brought on record
I.T.A. No.2767/DEL/2016 8
that the sale of similar shares in the earlier Assessment Year
has been doubted or not. It is not in dispute that, in so far as
purchase of shares through cheque is concerned the same
were duly reflected in the bank account of the assessee and
shown in the earlier years and the sale consideration is also
supported by following evidences:-
a) Contract note giving date, time settlement details etc
b) STT is paid on transaction
c) Transaction is through Trustline Securities
d) Sale is made on online market of Bombay Stock
Exchange
e) Consideration is received electronically in bank
through RTGS
f) Shares are transferred from Demat Account.
9. Apart from that, it is not in dispute rather both
Assessing Officer and ld. CIT (A) in their exhaustive order
have incorporated the price movement of the said scrip right
from 06.02.2010 to 09.12.2016 and on perusal of the same it
is seen that there has been increase and decrease in the
shares prices like a normal scrip and it is also not in dispute
that the said shares were traded in all the years under the
stock exchange. Before us, learned counsel has also placed
the assessment orders for the Assessment Year 2013-14 and
2014-15 in the case of M/s. CCL International Ltd. passed
u/s.143(3) to show that this company is genuine and
regularly assessed to tax by the Department. From the
perusal of the entire assessment order and ld. CIT (A) order, it
I.T.A. No.2767/DEL/2016 9
is seen that, nowhere there is any reference to any material or
information so as to suggest that;
• Firstly, assessee has been found to be beneficiary of any
bogus or accommodation entry in any of the
investigation/searches carried out anywhere;
• Secondly, there is no material that any action has been
taken by the SEBI against this company and such an
action of black-listing this company had attained finality
and;
• Lastly, it is also matter of record that the Department in
other cases under scrutiny proceedings has accepted
similar transaction of sale of shares of M/s. CCL
International Ltd.
10. Nowhere the evidences filed by the assessee has been
rebutted or any inquiry whatsoever has been conducted by
the Assessing Officer or by the ld. CIT(A) to prove that
assessee was involved in any clandestine manner for routing
its own unaccounted money. If the assessee has filed the
entire evidences relating to purchase which is mostly through
cheque shown in the earlier years and also filed all the details
of sale transactions and the shares which have been routed
through Demat account and sold through stock exchange on
a quoted price on that date, then onus shifts upon the
Department to prove that all these evidences are only make
believe documents and certain minimal inquiry is required to
rebut all these evidences. As stated above, nowhere it has
been found that assessee was in any manner found to be
I.T.A. No.2767/DEL/2016 10
beneficiary of any accommodation entry under any inquiry or
investigation. Once all these transactions are duly proved by
trading from stock exchange, then to hold the sale of shares
as unexplained credit or as unexplained money cannot be
upheld. Accordingly, we hold that the money credited in the
account of the assessee is from the sale of shares and
accordingly benefit of Long Term Capital Gain on sale of such
listed equity shares have to be given.
11. In the result, the appeal of the assessee is allowed.
12. In the case of Mukta Gupta similar facts are
permeating in this year also for the sale of similar shares.
There is another additional factor that in this case a direction
was issued by the learned Joint Commissioner of Income Tax,
Range-2, Ghaziabad to accept the said transaction. The
learned JCIT vide his direction dated 29.02.2016 has sought
the Assessing Officer’s report and has given following finding:-
“2. The application of the assessee has been examined and the A.O.
vide this office letter dated 23 12.2016 was required to furnish his
comment and the report submitted by the AO as under :
During proceeding of the case, it has been found that the assessee has
purchased the shares of Rs. 24,000/- by Account payee cheque No.
077429 dated 04.03.2013(Punjab National Bank] from the broker M/s
Karvy Stock Broking Limited, C-7, Lohia Nagar, Ghaziabad. The shares
have been sold after holding the shares for one year through SEBI
Registered broker. The payment of Rs. 9,84,516/- has been received by
RTGS after payment of STT. The assessee has claimed Exemption u/s
I.T.A. No.2767/DEL/2016 11
10(38] for the above transaction made also refer the various judgments
pronounced by the courts’.
3. Assessee has filed his D-MAT statement from where it is
observed that assessee is a regular investor & holds shares in many
companies. The sale & purchase is through account payee cheque and
immediately on purchase of shares in March, 2013, the same were
reflected in his D-MAT account as on 31.03.2013 with M/s Karvy Stock
Brokings.
4. All the details as per AO’s questionnaire dated 02.12.2015 has
been filed by the assessee. All documents filed appears to be genuine.
The assessee has shares of many other companies as on 31.03.2013,
the estimated market value as per D-MAT statement is 11.15 lacs.
5. The assessee has also filed price chart of the share company
namely Effingo Textiles based on 30th Annual Report and price range
of this company as reported is Rs. 56 to 102 between April, 2014 to
Jan,2015. The SEBI has as a matter of surveillance stopped the trading
of shares of this company w.e.f. 07.01.2015 but no adverse order has
been passed by SEBI on this company for this manipulation.
6. In any case, even the AO has reported no adverse report in this case,
therefore, AO is directed to treat the gain earned by him as genuine
and allow exemption u/s 10(38) of the I.T. Act for which the
transactions are carried out on which STT has been paid as per law.”
13. The aforesaid direction of the JCIT to the Assessing
Officer clearly clinches the issue in favour of the assessee in
both the cases. Thus, the addition made by the Assessing
Officer by disallowing the Long Term Capital Gain and
treating as unexplained money is deleted.
I.T.A. No.2767/DEL/2016 12
14. In the result, the appeals of both the assessees are
allowed.
Order pronounced in the open Court on 26th November, 2018.
Sd/-
[AMIT SHUKLA]
JUDICIAL MEMBER
DATED: 26th November, 2018
PKK:

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