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Judgment
PER S.RIFAUR RAHMAN,AM:
This appeal is filed by the assessee against the order passed by the ld. ADDL./JCIT (A)-2, Mumbai [for short ‘ld. CIT (A)] dated 29.01.2026for the Assessment Year 2015-16 raising following grounds of appeal :-
“That on the facts and in the circumstances of the case and in law the Authorities erred in :
(i)Adding a sum of Rs.44,13,450/- u/s 68 of the Income Tax Act, 1961 (Act) by construing the transaction as construed merely due to its being in that of a penny stock company;
(ii)Adding a sum of Rs.44,135/- u/s 69C of the Act even though no such expenditure was ever incurred;
(iii)Ignoring the purchase cost of the said shares and thereby omitting to grant deduction for the same.
(iv)Invoking section 69 of the Act and applying Section 115BBE of the Act thereto for taxation purposes;
(v)Omitting to consider cogent and irrefutable evidence submitted with regard to all of the above points.
At the time of hearing, ld. AR of the assessee brought to my notice the relevant facts and his submissions are as under. He submitted that the assessee filed his return of income on 03.09.2015 declaring an income of Rs.3,73,370/-. The assessment was completed by the ITO, Ward 70(4), New Delhi on an income of Rs.48,30,955/- after making two additions i.e. (i) under section 68 of the Income-tax Act, 1961 (for short ‘the Act’) for long term capital gains and (ii) for commission expenses u/s 69C of the Act. The grounds taken in appeal relate to those additions which were made in assessment.
He submitted that the first ground pertains to the addition made by the AO denying exemption u/s. 10(38) of the Act for long term capital gains earned on the sale of shares by the assessee. The AO invoked Section 68 of the Act for making the addition after denying the claim for exemption u/s 10(38) of the Act as having been contrived. He brought to our notice the operative part of the Assessment order, placed at para 11 page 24 of the assessment order and the ld. JCIT(A) discussed this issue in the various sub-paras 5 of the impugned order on pages 28 to 29 therein and confirmed the findings of the AO.
Ld. AR further submitted that the basic facts of the case are on receipt of input from various sources that the assessee had participated in the Initial Public Offer of HPC Biosciences Ltd. and had also noticed the advertisement in the Economic Times. The payment for the subscription to the shares was mode through account payee cheque by the assessee from his bank account No.65141413775 in State Bank of Patiala. He submitted that a sum of Rs.2,80,000/- being the application money, stands debited to that account. The letter of allotment for the shares to the assessee which was received from the Registrar to the issue, is dated 18.03.2013. The assessee was allotted 8000 shares which were credited to his Demat A/c 00032746 with DP Id No. 12051200.
He submitted that the shares so allotted were retained by the assesseefor a period of more than a year in his demat account and thereafter, they were set to sales on different dates. He submitted that on 09.05.2014 the assesseesold 7800 shares for Rs.43,11,450/-. Lastly on 25.07.2014, assessee sold the balance 200 shares. The entirety of the sale of shares was debited to the Demat Account of the assessee and all sales were invariably at the rates prevailing on the stock exchange on the transaction date.
He submitted that both the purchase and sale of shares are fully documented and are not only transparent but are also at arms length. There should, therefore, be no cause for either any suspicion or any complaint.
He submitted that during the assessment proceedings, the AO had verified the fact that the purchase of shares was through an IPO. In other words, the AO confirmed that the purchase transaction was in public domain and was direct and so had to be considered beyond any suspicion, misgiving or any blemish. However, the AO has taken an unnecessary objection to the fact that some of the shares of this Company which were involved in the deal were noted by SEBI as a market marker. He further submitted that even if such observation is to be assumed to be correct yet it is of no significance unless it is established that the subject transaction was also coloured and executed as a deal member. In the absence of any evidence to that effect, there is no logical ground for the AO to take any valid Objection. The purchase transaction for all IPOs is invariably routed through accredited brokers of the stock exchange. All brokers act as the market markers for the public issues handled by them in an IPO. The AO failed to appreciate that all IPOs require a robust support and a vigorous push in the share market to get it fully subscribed. It is for generating such a push in the public domain that the Companies appoint several brokers for the IPO. To prevent anything untowards, underwriters are appointed to safeguard against unforeseen eventualities.
He further submitted that the AO also takes objection to the fact that the assessee's sole purchase was of the shares of HPC Biosciences Ltd. That objection has no sense for there is nothing in law or in commercial practice or human conduct and behaviour which would make it imperative for any investor to invest in shares of multiple companies so as to qualify the investments as genuine.
He submitted that the AO concedes that the assesseewas an amateur investor. However, in the same breadth, the AO states that the assesseehad invested in a company with extremely poor financials which had no history of its price performance. While so asserting, the AO fails to consider the propensity of an amateur investor. An amateur investor would choose and act just in the manner in which the assesseehad done as in this case - selectively and with due restraint. There is thus nothing unusual in it.
He submitted that the AO then draws various charts and diagrams in the order to build his case with the objective to demonstrate that the transaction of sale was abnormal or contrived. That averment is made by the AO on the basis of data contained in a template which has been widely circulated by the Department to generally assist the AOs in assessment. Such data in the first place is not only non-specific but also too general and being totally ambiguous is unworthy of adoption. The template itself is drawn out of an ignorance of the basic fact that share transactions are known not to be based on any empirical formula or statistical derivation but are majority ruled by the contemporary trends and prevalent sentiments on the share market. That is a time honoured principle evolved over the ages which fact has been totally overlooked by the AO.
It is submitted that the AO also refers to the SEBI report on the share values of certain selected companies including HPC Biosciences Ltd. The conclusions drawn by the AO on reading the SEBI reports is selective and one-sided and, therefore, superfluous and perverse. The main SEBI report candidly notes that the transactions in the shares of these companies were indeed an admixture of genuine and contrived deals. The AO cites this fact from the SEBI report which opines that 29.88% of the dealings in the shares of these companies could be said to be estimated to be afflicted with a grey tinge. The relevant observation is to be found on page 13 of the assessment order. The majority of the share transactions i.e. 70.12%, have after investigation, been cleared as normal by SEBI itself.
He further submitted that the AO fails to note that in the absence of tangible evidence of any manipulation or subterfuge, no stigma can be attached to the instant share transactions. The subject transactions fell in the untainted block of 70.12%. The AO has no evidence in his possession to even remotely indicate that the subject transaction was irregular or otherwise infected.
He submitted that this assessee himself has never been marked or stigmatised in any manner by SEBI. This Assessee had participated directly and independently in the IPO. The shares were allotted as per the mandatory approval of the Stock Exchange. It is those shares allotted to him in the IPO which were sold later in the subject year through screen trading. Both at the time of purchase of shares and at the time of sale of shares there was never any one-to-one contact with the other party to the deal. Both the transactions of purchase and sale were not only anonymous but were instant and entirely at arms length. Ex consequenti, the Authorities below were wrong in ascribing motives to the transactions and stigmatising them.
He further submitted that the other objection of the AO that the Assessee has not been investing regularly and so this set of transactions cannot be said to be genuine is based on hunches and private opinion of the AO. Being so, it does not deserve any consideration but must be ignored.
Ld. AR further submitted that the ld. CIT(A) has passed a mechanical and non-speaking order in the case of the assesseeafter ignoring vital and basic facts related to the case. The reliance by the AO and the Ld. CIT(A) on the several case laws as mentioned in the impugned orders is misplaced for they are all totally distinguishable on facts.
He further submitted that the assesseein the subject case had purchased the shares directly in the IPO and paid for the shares through bank. The allotment of shares to the assessee was post the IPO. The assesseewas in no way a preferential allottee of the shares. He submitted that the assesseewas not a part of any funding or trading group of the HPC Biosciences Ltd. There was no transposition of the funds in the transactions of purchase or sales of shares. There is absolutely no material on record to hint any irregularity or impropriety. H submitted that in the absence of any material specific to the assessee, the allegations of the Authorities made on generality merits to be discarded.
He further submitted that the name of the assesseedoes not appear in any of the charge-sheets or reports of SEBI. He placed on record the copies of SEBI reports and orders to these submissions in proof of the fact that in the transactions of both purchase and sale, SEBI had not noted any deficiency, shortcoming or discrepancy. In the complete absence of any such finding, the genuineness of the transactions could not at all have been impeached. The transactions were genuine, regular and verifiable to the core. They had all emanated out of a demat account which account had been loaded with allotment of shares in the preceding year out of an IPO. The purchases were neither off-market nor were they for cash. The sales were conducted on the screen and with complete anonymity. The sale consideration was received through bank transfers in favour of the assessee’sbank account nominated for demat purposes. He submitted that therefore, without any adverse or even dubious material indicating the transaction as contrived, the AO could not have taken any rational or sustainable objection whatsoever either to their authenticity or to their genuineness. The AO's objection is clearly based on pure suspicion and extraneous factors of an irrelevant nature.
He submitted that cases involving capital gain on the sale of shares has come up for consideration before different Courts on various occasions. The final position in law now is that where the purchases of shares is not off-market and is through banking channels and the sale of shares is through screen-trading and the sale consideration is received through banking channels, the transaction cannot be held to be either spurious or as a make-believe. In this regard, he relied on the authority of the decision of the Apex Court in the cases of Pr. Commissioner of Income Tax v. Tejua Rohitkumar Kapadia (2018) 256 Taxman 213(SC); PCIT v. Parasben Kasturchand Kochar (2021) 282 Taxman 301 (SC); PCIT v. Kishore Kumar Mohapatra (2025) 475 ITR 198 (SC); PClT v. Kuntala Mohapatra (2024) 466 ITR 50 (SC), where they have confirmed the orders of the Hon'ble Orissa & other High Courts on similar points.
He submitted that ITAT, "G" Bench, New Delhi had an occasion to consider the nature of the transactions in the IPO of the shares of HPC Biosciences Ltd. in the ITA No. 8142/De1/2018 by a similar investor namely, Sh. Tapas Kumar Mallick and placed on record a copy of that order. He submitted that a perusal of the order of the ITAT would show that the transactions leading to the subscription in the shares of HPC Biosciences Ltd. by the investors in the IPO (public issue) has been examined meticulously and in good detail and depth. The Hon'ble Tribunal found that the subscriptions by general investors, so long as they were unrelated to the funding group or trading group or preferential allottees or those otherwise connected with the management of the said Company, could not be held as contrived or manipulated in the absence of tangible evidence. In this connection, he submitted that the ITAT examined the SEBI Order Nos. WTM/RKM/ISD/54/2015 dated 29.06.2015, WTM/RKA/ISD/07/2016 dated 04.01.2016, WTM/RKA/ISD/163/2016 dated 27.10.2016 and WTM/SR/SEBI/EFD-DRA2/70/09/2017 dated 06.09.2017 (placed at pages 1 to 115 of the Compilation of SEBI Orders) to understand and identify the vitiated entities and their obnoxious acts and deeds. After so doing, the Tribunal ruled that so long as the investors had participated in the IPO directly and subscribed through banking channels and the shares were allotted to their DEMAT account which later on were sold by them through screen trading on the Stock Exchange and the sale consideration was received through banking channels, no valid objection could be taken to the genuineness of those transactions. The Tribunal also abided by three decisions of the Delhi High Court in the case of Pr. CIT vs. Smt. Krishna Devi ITA No.125/2020 & Pr. CIT vs. Hardev Sahai Gupta ITA No. 130/2020 & also Pr. CIT vs. Smt. Bindu Garg ITA No. 131/2020 dated 15.01.2021 in similar cases. Relying on the ratio of those cases, the Tribunal was pleased to delete the addition proposed by the lower Authorities in that case.
He further submitted that recently the ITAT, Delhi 'F' Bench in ITA No. 2607/Del/2019 dated 13.03.2026 held that the transaction in the shares of HPCL Bio-tech cannot be held to be either vitiated or contrived in the absence of specific evidence or material to substantiate their view. Copy of the order is also annexed.
He further submitted that also of particular importance is the recent decision of the Delhi 'F' Bench of the Tribunal In the case of Sh. Vaneet Aggarwal, ITA No.2607/Del/2019 where Identical transaction of shares in HPC Biosciences Ltd. has been held to be regular and valid. In so doing, the Tribunal placed reliance on the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Ziauddin A. Siddigui ITA No.2012 of 2017 dated 04.03.2022 and a copy of that order is placed on record, which Is self-explanatory and is relied upon.
He submitted that be that as it may, the objection by the Revenue Authorities has been taken in the ground not only for denying the exemption u/s. 10(38) of the Act for the long term capital gains but also by the invocation of Section 68 of the Act for foisting the addition. The said Section could have been invoked if only the explanation offered by the assessee as to the receipt of the sale consideration for the shares was a debt owned by him to another person. In the subject case, the sale consideration received for shares is undeniably through screen-trading and is entirely for the benefit and ownership of the assessee. The sale proceeds have been credited directly to the bank account of the assessee relating to the old demat account. That sale itself became possible on account of the debit of those shares from the demat account of the assessee. The shares themselves were admittedly acquired by the assesseein the preceding year. The acquisition of the shares in the preceding year by the assessee is beyond denial which in fact the AO also concedes when he traces their origin as emanating from the IPO. The sale of shares at the prevailing market rate on the date of sale is also beyond denial for it is a screen-trade where the buyer and seller can never confront each other. The sale rates are supported by the quotation of that date. In this way both the acquisition of the shares and the receipt of sale consideration therefor, on their sale have been explained more than satisfactorily with cogent and incontrovertible evidence by the assessee. The rejection of the same by the AO without adducing an iota of evidence to the contrary, is thus arbitrary and incorrect. Section 68 of the Act can have no application to the subject transactions in the circumstances in which they were carried out. The invocation of the said Section by the AO is, therefore, superfluous, erroneous and unwarranted.
On the other hand, ld. DR of the Revenue heavily relied on the orders of the lower authorities and relied on the following decisions, namely.,
a. CIT vs Suman Poddar (2019) 112 taxmann.com 330 (Delhi HC)
b. PCIT vs Bikram Singh (2021) 439 ITR 552 (Delhi HC)
c. Swati Bajaj vs CIT (2021) 436 ITR 1 (Calcutta HC)
d. Sangeeta Devi Juhnjhunwala (2023) 152 taxmann.com 348 (Delhi Tri)
Considered the rival submissions and material placed on record. I noticed that the assessee had purchased the shares from the company in IPO subscriptions and sold the shares in the open market through his demat account. The facts in the present appeal is similar to the facts in the ITA No. 2607/Del/2019 Sh. Vaneet Aggarwal (supra), the relevant findings are as under :
“10.Considered the rival submissions along with the case law relied upon and material placed on record. The Assessing Officer observed that assessee had made huge profit out of this investment because of this, it makes the script as suspicious and penny stock. We observed that the assessee had invested in the shares out of IPO, which were launched as public issue, which were approved by the ROC and SEBI as well as BSE. The investors will invest based on the policy documents which are approved and no objections were there at the time of investment. The assessee had invested in good faith and subsequently sold the shares, we cannot agree to the observation of the AO, merely because of huge profit, it does not make the script a penny stock. Further, it is fact on record that the financials of the company may not be commensurate with the purchase and sale price in the market. The assessee has purchased the shares from authorized dealers, subsequently, sold the same in the stock exchange. However, there is no discrepancies in the documents filed by the assessee claiming the deductions u/s 10(38) of the Act. At the same time, even though all the characteristics of the penny stock exists in the present case, still the Revenue has not brought on record any materials linking the assessee in any of the dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiaries in these transactions merely as an investor who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without there being any material against the assessee. We observed that similar issue was considered by the coordinate bench in the case of Shri Tapas Kumar Mallick (supra) and decided on the issue of same script and considered the findings in the SEBI investigation on the same script, for the sake of brevity, we are reproducing the same below:
“17.A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing and the exparte Ad-Interim order of the SEBI. It can be seen that the entire assessment order has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the SEBI order without conducting any independent and separate enquiry in the case of the appellant.
18.It is provided u/s 142(2) of the Act that for the purpose of obtaining full information in respect of income of loss of any person, the Assessing Officer may make such enquiry as he considers necessary.
19.Similar facts were considered by the coordinate bench in the case of Smt. Karuna Garg ITA No. 1069 & 2772/DEL/2019, Smt Bindu Garg in ITA No. 1168 & 1169/DEL/2019, Smt Krishna Devi in ITA No. 1070/DEL/2019 and Har Dev Sahai Gupta in ITA No. 1264/DEL/2019. In these cases, the quarrel was in respect of scrip of M/s Esteem Bio Organic Food Processing Ltd, which is one of the four companies whose names are mentioned at Para 12 of this order.
20.In these cases also since the exparte interim order of the SEBI dated 29.06.2015 has named 239 persons and names of the appellants did not find place in the said lists and on the given facts, all these appeals were decided in favour of the assessee and against the revenue and order of the coordinate bench has been upheld by the Hon'ble High Court of Delhi in ITA No. 125/2020, 130/2020 and 131/2020 vide order dated 15.01.2021. The relevant findings of the Hon'ble High Court of Delhi read as under:
“11.On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
12.Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13.The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
14.In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.”
21.In our considered view, whether the assessee has discharged his onus cast upon him by provisions of section 68 of the Act or not is purely a question of fact and considering the vortex of evidences, we are of the considered view that the assessee has successfully discharged the onus cast upon him by provisions of section 68 of the Act. As mentioned elsewhere, the discharge of onus is purely a question of fact, the judicial decisions relied upon by the ld. DR would do no good on the peculiar plethora of evidences in respect of facts in hand and hence the judicial decisions relied upon by both the sides, though perused, but not considered on the facts of the case in hand except the decision of the coordinate bench discussed elsewhere because the same exparte Ad-Interim order of SEBI was considered and facts are mutatis mutandis same. We, accordingly, direct the Assessing Officer to accept the long term capital gain declared as such and delete the addition of Rs. 2,10,23,848/-.
22.Before parting, the ld. DR has supported his submissions by supplying print outs of the Metropolitan Stock Exchange and The Economic Times Markets, which we find that he must have searched from Google network wherein the ld. DR pointed out that SEBI now vide order dated WTM/SM/VD/D3/9896/2020-21 dated 22.12.2020 has issued the following directions:
'Noticee nos. 2 and 3 (promoters of the Company) are directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order.
ii.BSE to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase.
iii.The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. iv.
Noticee no. 2 and 3 are hereby restrained from holding post of director, any managerial position or associating themselves in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years.
v.The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns:
23.This SEBI order is dated 22.12.2020 whereas the transactions which have been considered in this appeal took place in F.Y. 2014-15 and therefore, restrain after a gap of more than 5 years would do no good to the Revenue. This order has restrained named notices from accessing security market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years. Obviously, this restraint is prospective.”
11.Further, there is no evidence with the AO involvement of the assessee in any of the dubious transactions linking the assessee, merely because the script under consideration is under investigation by the SEBI, he presumed. We observed that Hon’ble Bombay High Court in the case of Pr. CIT v. Ziauddin A Siddique in Income Tax Appeal No. 2012 of 2017 dated 04/03/2022 held as under: -
“1.The following question of law is proposed: "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was justified in deleting the addition of Rs.1,03,33,925/- made by AO u/s 68 of the I.T. Act, 1961, ignoring the fact that the shares were bought/acquired from off market sources and thereafter the same was demated and registered in stock exchange and increase in share price of Ramkrishna Fincap Ltd. is not supported by the financials and, therefore, the amount of LTCG of Rs.1,03,33,925/- claimed by the assessee is nothing but unaccounted income which was rightly added u/s 68 of the I. T. Act, 1961?"
2.We have considered the impugned order with the assistance of the learned Counsels and we have no reason to interfere. There is a finding of fact by the Tribunal that the transaction of purchase and sale of the shares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL.
3.Therefore we find nothing perverse in the order of the Tribunal.
4.Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different.
5.In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.
6.The appeal is devoid of merits and it is dismissed with no order as to costs.”
12.Further, Hon’ble Delhi High Court in the case of Pr. CIT v. Smt. Krishna Devi in ITA 125/2020 dated 15.01.2021 held as under: -
“8.Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that the AO made sufficient independent enquiry and analysis to test the veracity of the claims of the Respondent and after objective examination of the facts and documents, the conclusion arrived at by the AO in respect of the transaction in question, ought not to have been interfered with. In support of his submission, Mr. Hossain relies upon the judgment of this Court in Suman Poddar v. ITO, [2020] 423 ITR 480 (Delhi), and of the Supreme Court in Sumati Dayal v. CIT, (1995) Supp. (2) SCC 453.
9.Mr. Hossain further argues that the learned ITAT has erred in holding that the AO did not consider examining the brokers of the Respondent. He asserts that this holding is contrary to the findings of the AO. As a matter of fact, the demat account statement of the Respondent was called for from the broker M/s SMC Global Securities Ltd under Section 133(6) of the Act, on perusal whereof it was found that the Respondent was not a regular investor in penny scrips.
10.We have heard Mr. Hossain at length and given our thoughtful consideration to his contentions, but are not convinced with the same for the reasons stated hereinafter.
11.On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent’s unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that “There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels.” The above noted factors, including the deficient enquiry conducted by the AO and the lack of any independent source or evidence to show that there was an agreement between the Respondent and any other party, prevailed upon the ITAT to take a different view. Before us, Mr. Hossain has not been able to point out any evidence whatsoever to allege that money changed hands between the Respondent and the broker or any other person, or further that some person provided the entry to convert unaccounted money for getting benefit of LTCG, as alleged. In the absence of any such material that could support the case put forth by the Appellant, the additions cannot be sustained.
12.Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumati Dayal v. CIT (supra) too turns ITA 125/2020 and connected matters on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue.
13.The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
14.In this view of the matter, no question of law, much less a substantial question of law arises for our consideration.
15.Accordingly, the present appeals are dismissed.”
13.Therefore, we respectfully follow the ratio of the above decisions. In this case also, the Assessing Officer and Ld. CIT(A) has applied the concept of Human probabilities and held the above said scrip to be a penny stock without bring on record how the assessee is involved in any of the scrupulous activities or directly linked to one of the person who has involved in manipulation/rigging of share prices, entry operator or exit provider as observed by the Hon’ble Bombay High Court in the case of Ziauddin A Siddique (supra). Therefore, there is no material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the grounds raised by the assessee. Accordingly, the grounds raised by the assessee are allowed.”
Respectfully, following the above decision, I am inclined to allow the grounds raised by the assessee. The case law relied by the Ld DR are distinguishable to the facts in the present case. Therefore, the ground raised by the assessee is allowed.
With regarding to Ground No.2 against the action of the Assessing Authority in adding a sum of Rs.44,135/- on account of alleged commission payment made u/s. 69C of the Act, he submitted that there is virtually no discussion in the assessment order on this issue, except for the fact that in the table computing the income, commission expenses u/s. 69C @ 3% is worked out at Rs.44,135/-. He submitted that the Ld. CIT(A) banks on the practice to charge commission ranging from 0.25% to almost 5%, so he held that the AO has correctly estimated commission at Rs.1.42,208/- and has done so u/s. 69C of the Act.
Ld. AR submitted that on facts, the transactions in question were through the demat account. Whatever charges were leviable were stated in the demat account. Nothing beyond that was ever charged or paid. The estimate by the AO and the averment by the Ld. CIT(A) are both whimsical and capricious. Both the authorities have failed to appreciate or understand that u/s. 69C there has to be proof of expenditure for the section to be invoked. The proof of expenditure is required to be provided by the AO. No such material has been placed on record by the AO. Consequently both the authorities below erred in assuming commission in a sum of Rs.1,42,208/-. He submitted that the same is superfluous and unwarranted and must be deleted.
On the other hand, ld. DR of the Revenue relied on the findings of Ld CIT(A)/AO.
Considered the rival submissions and material placed on record. This issue is closely connected with the main issue decided in the ground no.2 raised. Since, the issue under consideration is decided in favour of the assessee, the consequential commission payments on the alleged bogus purchases/sale of the penny stock are also decided in favor of the assessee. Accordingly, the addition of commission u/s 69C is deleted.
The other grounds raised are consequential, hence not adjudicated.
In the result, appeal filed by the assessee is allowed.