IN THE INCOME TAX APPELLATE TRIBUNAL \u201cSMC\u201d BENCH : KOLKATA<\/p>\n
[Before Hon\u2019ble Shri J.Sudhakar Reddy, AM]<\/p>\n
I.T.A No. 2394\/Kol\/2017<\/p>\n
Assessment Year : 2014-15<\/p>\n
Prakash Chand Bhutoria -vs- ITO, Ward-35(1), Kolkata<\/p>\n
[PAN: ADIPB 4624 L]<\/p>\n
(Appellant) (Respondent)<\/p>\n
For the Appellant : Shri Miraj D Shah, AR
\nFor the Revenue : Smt. Ranu Biswas, Addl. CIT<\/p>\n
Date of Hearing : 18.04.2018
\nDate of Pronouncement : 27..06.2018<\/p>\n
ORDER<\/p>\n
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-10, Kolkata [ in short the ld CITA] dated 16.08.2017 against the order passed by the ITO, Ward-35(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 13.12.2016 for the Assessment Year 2014-15.<\/p>\n
2. The assessee is an individual and has income from ‘business and other sources’. He filed his return of income for the assessment year 2014-15 on 22.07.2014 declaring, a net taxable income of Rs. 2,10,190\/-. The assessee claimed exempt income u\/s 10(38) of the Act on sale of shares of M\/s Unno Industries Ltd. amounting to Rs. 30,60,379\/-. The AO for the reason cited at para 6 and 7 of his order treated the receipt of sale consideration on sale of shares as unaccounted income and made an addition u\/s 68 of the act. On appeal, the ld. First Appellate Authority confirmed the same. Aggrieved the assessee is in appeal before us.<\/p>\n
3. We have heard Shri Miraj D Shah, ld. counsel for the assessee and Smt. Ranu Biswas, the ld. Additional CIT DR on behalf of the revenue.<\/p>\n
4. On a careful consideration and facts and circumstances of the case, perusal of papers on record, and orders of the lower authorities below as well as case law cited I hold as follows.<\/p>\n
5. In response to the queries raised by the assessing officer on the issue of the fact that the assessee received Rs. 31,62,372\/- from sale of once scrips i.e. ‘Unno Industries Ltd.’ the assessee submitted the following facts:<\/p>\n
“Details of Purchase of share for Long Term capital Gain F.Y.2013-14 (A.Y.2014-15):<\/em> 1. I state that I had purchased 100 equity shares of Pinnacle Vintrade Ltd. on<\/em> 20.01.2012 from Uniglory Developers Pvt. Ltd. Pinnacle Vintrade Ltd. was merged<\/em> with Unno Industries Ltd. and there was change of management and control of<\/em> Unno Industries ltd. pursuant to scheme of arrangement sanctioned by the Hon’ble<\/em> High Court at <\/em>Bombay<\/em>.<\/em><\/p>\n 2. Payment for the purchase of aforesaid 100 equity of Pinnacle Vintrade Ltd. was<\/em> made by Account Payee Tamilnad Mercantile Ltd. Bank Cheque no. 736027.<\/em><\/p>\n 3. Bank statement of Tamilnad Mercantile Ltd. Bank reflecting payment (cheque no.<\/em> 736027) for purchase of the said investment in equity shares of Pinnacle Vintrade<\/em> Ltd. is enclosed (highlighting the said entry). <\/em>Annexure-I.<\/em><\/strong><\/p>\n 4. The equity shares of Unno Industries Ltd. were allotted pursuant upon merger of<\/em> Pinnacle Vintrade Ltd. with Unno Industries Ltd. pursuant to sanction of scheme of<\/em> arrangement by the Hon’ble High Court at <\/em>Bombay<\/em>, I was issued 91000 equity<\/em> shares of Unno Industries ltd. in lieu of my shareholding in Pinnacle Vintrade Ltd.<\/em> The relevant gist of the scheme of arrangement sanctioned by the Hon’ble High<\/em> Court was communicated by the company to the <\/em>Bombay<\/em> Stock Exchange vide letter<\/em> dated <\/em>12<\/em>th <\/em>February, 2013<\/em>. A copy of the said letter downloaded from BSE website<\/em> is enclosed for your ready reference. I also enclose Unno Industries Ltd. letter dated<\/em> 12<\/em>th <\/em>February, 2013<\/em> and <\/em>7<\/em>th <\/em>March, 2013<\/em> communicating the issuance of shares in<\/em> lieu shares of Pinnacle Vintrade Ltd. upon sanction of scheme of arrangement by<\/em> the <\/em>Hon’ble Court<\/em>. <\/em>Annexure II<\/em><\/strong><\/p>\n 5. As the equity shares of Pinnacle Vintrade ltd. purchased were not listed, hence no<\/em> Contract Notes were issued. However, copy of bill indicating purchase of said<\/em> equity shares is enclosed. <\/em>Annexure III<\/em><\/strong><\/p>\n 6. Equity shares of Pinnacle Vintrade Ltd., were directly purchased from Uniglory<\/em> Developers Pvt. Ltd. 209, Vireshwar Chambers, M.G. Road, Nera Shan Talkies Vile<\/em> Parle (E), Mumbai, Maharashtra-400057.<\/em><\/p>\n 7. Equity shares of Pinnacle Vintrade Ltd. were purchased in Physical Form.<\/em><\/p>\n 8. I have three Demat Accounts as follows:<\/em><\/p>\n a) Name of DP- <\/em>Ashika Stock Broking Ltd. (DP ID No. 12034500)<\/em><\/strong> Demat account No. 1203450000003128<\/em> Address of DP-Trinity, 7<\/em>th <\/em>Floor, 226\/1, <\/em>A.J.C. Bose Road<\/em>, Kolkata-700020.<\/em> DP Account opened on-31.08.2004<\/em><\/p>\n b) Name of DP- <\/em>Guiness Securities Ltd. (DP ID No. IN302898)<\/em><\/strong> Demat account No. 10350406<\/em> Address of DP-Guiness House, 18, <\/em>Deshpriya Park Road<\/em>, Kolkata-700026.<\/em> DP A\/c opened on-25.05.2013<\/em><\/p>\n c) <\/em><\/strong>Name of DP- <\/em>Tamilnad Mercantile Bank ltd. (DP ID No. IN303069)<\/em><\/strong> Demat account No. 10051996<\/em> Address of <\/em>DP-Pearl<\/em>Towers<\/em> DPS Cell, AC 16, III Floor, <\/em>II Avenue<\/em>, Anna<\/em> Nagar West, Chennai-600040.<\/em><\/p>\n 9. <\/em><\/strong>Demat Statements of M\/s Ashika Stock Broking Ltd. and Guiness Securities Ltd. for<\/em> f.y. 2013-14 and 2014-15 in respect of long term capital gains are enclosed.<\/em> Annexure IV.<\/em><\/strong><\/p>\n 10. The Equity Shares of M\/s Unno Industries Ltd. were submitted for dematerialization<\/em> on 01.04.2013 and credited to my Demat A\/c No. 1203450000003128 with M\/s<\/em> Ashika Stock Broking Ltd. (DP ID No. 12034500) on 12.04.2013 (91000 shares).<\/em> Details of <\/em>Sale<\/em> of Share for Long Term Capital Gain financial year 2013-<\/em> 14(A.Y.2014-15):<\/em><\/p>\n 1. The equity shares of M\/s Unno Industries Ltd. are listed at <\/em>Bombay<\/em> Stock<\/em> Exchange (BSE), a recognized Stock Exchange of <\/em>India<\/em> since last so many years<\/em> and even during the time of sale by me. The security code of the said equity<\/em> shares at BSE is 519273 and ISIN No. is INE 142N01023.<\/em><\/p>\n 2. Equity shares of Unno Industries Ltd. were sold on <\/em>Bombay<\/em> Stock Exchange<\/em> through SEBI registered stock broker Ashika Stock Broking Ltd. and Guiness<\/em> Securities Ltd. whose details are as under:<\/em><\/p>\n a) Name: <\/em>Ashika Stock Broking Ltd.<\/em><\/strong> Address: Trinity, 7<\/em>th <\/em>Floor, 226\/1, <\/em>A.J.C. Bose Road<\/em>, Kolkata-700020.<\/em> Contact No. 033 22839952.<\/em><\/p>\n b) Name: <\/em>Guiness Securities Ltd.<\/em><\/strong> Address: Guiness House, 18, <\/em>Deshpriya Park Road<\/em>, Kolkata-700026<\/em> Contact No. 033 30015555.<\/em><\/p>\n 3. Contract Notes issued regarding sale of equity shares of Unno Industries Ltd. on<\/em> Bombay<\/em> Stock Exchange by SEBI registered brokers- Ashika Stock Broking Ltd.<\/em> and Guiness Securities ltd. are enclosed. <\/em>Annexure V.<\/em><\/strong><\/p>\n 4. The relevant Demat Account statements of Ashika Stock Broking Ltd. and<\/em> Guiness Securities Ltd. reflecting the debit of shares of Unno Industries Ltd.<\/em> upon sale are enclosed. (entries highlighted). <\/em>Annexure VI<\/em><\/strong>.<\/em><\/p>\n 5. The Ledger of the brokers of Ashika Stock Broking Ltd. and Guiness Securities<\/em> Ltd. for the financial year 2013-14 are enclosed. <\/em>Annexure <\/em><\/strong>VII<\/em><\/strong>.<\/em><\/strong><\/p>\n 6. Tamilnad Mercantile Ltd. bank Statement reflecting the receipts of sale<\/em> consideration from the SEBI registered stock brokers (highlighting the said<\/em> entries) is enclosed. <\/em>Annexure VIII.<\/em><\/strong><\/p>\n 7. Out of sale consideration money of Rs. 3151423.00 from Unno Industries Ltd. a<\/em> sum of Rs. 3150000.00 has been invested in equity shares of Glow Diam<\/em> Designs Pvt. Ltd.<\/em><\/p>\n All the evidences were attached as annexures as stated above.<\/p>\n 6. The Assessing Officer in his order did not refer to any of these evidences. Instead at para 6 and 7 he concluded held as follows:<\/p>\n “6. The details of purchase and sale of this particular scrip i.e. ‘Unno Industries Ltd.’<\/em> (hereinafter referred as The Scrip) were examined in which shares were sold in<\/em> June\/August, 2013 at the price of Rs. 31,62,379\/- and purchased Rs. 1,00,000\/- i.e. a<\/em> humongous rise of over 3100% over a very short period of just 24 months. These facts<\/em> demanded a deeper study of the price movements and share market behavior of the<\/em> entities involved in trade, of the scrip as the share price movements and the profit<\/em> earned by the beneficiaries were beyond human probabilities. Thus a deeper study was<\/em> needed to ascertain whether the transactions were genuine investment transaction of<\/em> sham ones and colorable device only to convert the unaccounted cash into tax exempt.<\/em><\/p>\n 7. Apart from this, the directorate of income tax, Kolkata various enquiries have<\/em> been made on project basis, which has resulted into the unearthing of huge syndicate of<\/em> entry operators, share brokers and money lender involved in providing bogus<\/em> accommodation entries of Long Term Capital gain and short term capital loss. It has<\/em> come to the light that large scale manipulation has been done in market price of shown<\/em> of certain companies listed in the BSE by certain beneficiary is utilized to purchase<\/em> shares of such company at a very high artificially inflated market price. Some of the<\/em> listed companies directly or in directly owned by operators and whose shares price<\/em> have been apparently manipulated by the syndicate of operators. Out of the above<\/em> enquiry made by DIT(Inv.), Kolkata has established that one of the main manipulated<\/em> company which you had availed is also under this syndicate. Hence, it is crystal clear<\/em> that Sharp Trading Company is one of the main manipulated company (Penny listed) to<\/em> convert unaccounted cash of beneficiary through long term capital gain with claim a<\/em> certain percentage of commission.”<\/em><\/p>\n 7. Thereafter the AO made an addition under 68 of the Act. Aggrieved the assessee carried the matter an appeal. The ld. First appellate authority confirmed the action of the AO on the ground that, the transaction in question comes within the ambit of ‘Suspicious Transaction’ and therefore, the rules of ‘Suspicious Transaction’ would apply to the case. He further stated that the payments through bank of processing of transaction through stock exchange and other such features are only apparent features and that the real feature are the manipulation and abnormal price raise and the sudden dip thereafter. Based on surrounding circumstances and circumstantial evidence and the order of the Tribunal in the case of “Bhag Chand Chabra (HUF) vs. ITO”, in I.T.A. No. 3088& 3107\/2007 dated 31.12.2010, the addition made by the AO was confirmed. Aggrieved the assessee is in appeal before us.<\/p>\n 8. A perusal of the order of the AO demonstrates that this addition was made merely on “suspicion” and in a routine and mechanical manner. This is clear from the fact that the AO refers to some ‘Sharp Trading Compnay’ as one of the main ,manipulated company and whereas the assessee sold scrips in Unno Industries Ltd. The AO refers to various enquiries made by “The Directors of Income Tax” , Kolkata on project basis and that this resulted into unearthing of a huge syndicate of entry operators and share brokers and money lenders involved in providing of bogus accommodation entries. The report as the so-called project and the evidence collected by the DIT (Inv.), Kolkata etc have not been brought on record. It is well settled that any document relied upon by the AO for making an addition has to be supplied to the assessee and an opportunity should be provided to the assessee to rebut the same. In this case, general statements have been made by the AO and the addition is made based on such generalizations. The assessee has not been confronted with any of the evidence collected in the investigation done by the DIT(Inv.), Kolkata. Evidence collected from third parties cannot be used against the assessee without giving a copy of the same to the assessee and thereafter giving him an opportunity to rebut the same.<\/p>\n 9. The AO further relies on the shop increase of 31000% of the value of shares over the period of 2 years. Though this is highly suspicious, it cannot take the place of evidence. The Hon’ble Supreme Court has stated that suspicion however strong cannot be the basis for making an addition. The evidence produced by the assessee listed above proves his case and the AO could not controvert the same by bringing on record any evidence. The evidence said to have been collected by the DIT (INV.), Kolkata and the report is not produced before this Bench.<\/p>\n 10. I now discuss the case law on the subject. The Hon’ble Calcutta High Court in the case of CIT, Kolkata-III vs. Smt. Shreyashi Ganguli reported in [2012] (9) TMI 1113 held as follows:<\/p>\n “1. Whether on the facts and circumstances of the case, the order of the Ld.. Tribunal is<\/em> perverse in law as well as on facts in deleting the addition made by the Assessing<\/em> Officer as unexplained cash credit under section 68 of the Income Tax Act, 1961, by<\/em> ignoring the facts on record.<\/em><\/p>\n The ld. Tribunal after considering the material and hearing came to a fact finding<\/em> which is as follows:<\/em><\/p>\n The Assessing Officer has doubted the transaction since the selling broker was<\/em> subjected to SEBI’s action. However, the demat account given the statement of<\/em> transactions from 01.04.2004 to 31.03.2005 i.e. relevant for the assessment year<\/em> under appeal (2005-06) are before us. There cannot be any doubt about the<\/em> transaction as has been observed by the assessing officer. The transactions were<\/em> as per norms under controlled by the Securities Transaction Tax, brokerage<\/em> service tax and cess, which were already paid. They were complied with. All the<\/em> transactions were through bank. There is no iota of evidence over the above<\/em> transactions as it were through demat format. Hence, we agree with the given<\/em> findings of the ld. Commissioner of Income Tax (Appeals) in accepting the<\/em> transactions as genuine too.<\/em><\/p>\n In view of the fact findings we cannot reappreciate, recording is such, cannot be said to<\/em> be perverse as it is not fact finding of the ld. Tribunal alone. The commissioner of<\/em> Income Tax came to the same fact finding. Concurrent fact finding itself makes the story<\/em> of perversity, unbelievable.”<\/em><\/p>\n The “D” Bench of the Kolkata Tribunal in the case of Gautam Kumar Pincha vs. ITO, in I.T.A. No. 569\/Kol\/2017 dated 15.11.2017 at para 19 onwards held as follows:<\/p>\n (i) M\/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) – <\/em><\/strong>In this<\/em> case the ld AO found that the formal evidences produced by the assessee to support huge losses<\/em> claimed in the transactions of purchase and sale of shares were stage managed. The Hon’ble<\/em> High Court held that the opinion of the AO that the assessee generated a sizeable amount of<\/em> loss out of prearranged transactions so as to reduce the quantum of income liable for tax might<\/em> have been the view expressed by the ld AO but he miserably failed to substantiate that. The<\/em> High Court held that the transactions were at the prevailing price and therefore the suspicion of<\/em> the AO was misplaced and not substantiated.<\/em><\/p>\n (ii) <\/em>CIT V. Lakshmangarh Estate & Trading Co. Limited [2013] 40 taxmann.com 439<\/em><\/strong> (<\/em><\/strong>Cal<\/em><\/strong>) – <\/em><\/strong>In this case the Hon’ble <\/em>Calcutta<\/em> High Court held that on the basis of a suspicion<\/em> howsoever strong it is not possible to record any finding of fact. As a matter of fact suspicion<\/em> can never take the place of proof. It was further held that in absence of any evidence on record,<\/em>