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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals)-24, New Delhi [hereinafter referred to as ‘ld. CIT(A)]dated 20.01.2025 for the Assessment Year 2013-14 raising following grounds of appeal:-
“1.That the Ld. CIT(A) erred in taw and on facts by confirming the addition of Rs.73,79,750 on account of Long Term Capital Gain (LTCG) claimed as exempt u/s 10(38) of the Income Tax Act, 1961.
2.The Ld. CIT(A) erred in upholding reassessment proceedings initiated under Sections 147/148 r.w.s.144B despite being barred by limitation, and ignoring that the appellant had disclosed all material facts during the original assessment.
3.The Ld. CIT(A) erred in sustaining reassessment proceedings initiated solely for reappraisal of material already examined in the original assessment under Sections 153A/143(3), constituting an impermissible change of opinion, hereby violating the settled legal principle that reassessment cannot be initiated on the same set of facts.
4.The Ld. CIT (A) failed to appreciate that the reasons recorded for reassessment were based on borrowed satisfaction from third party investigations and lacked independent application of mind by the AO. Further, the approval granted under Section 151 was mechanical rendering the reassessment proceedings void ab initio.
5.The Ld. CIT (a) failed to consider that reassessment was initiated based on incorrect assumptions, particularly stating that LTCG was not disclosed, whereas the same had been duly declared in the return, thereby vitiating the reassessment proceedings entirely.
6.The Ld. CIT (A) erred in confirming the addition without considering that the AO failed to dispose of the appellant's objections through a reasoned and speaking order, violating established procedural norms and principles or natural justice,
7.The Ld. CIT (A) gravely erred in sustaining the addition despite the AO's failure to provide the investigation wing's report, statements of witnesses including Mr. Ra] Kumar Modi, and other relied-upon material, violating principles of natural justice and rendering the reassessment unsustainable.
8.The Ld. CIT(A) wrongly concluded that no prejudice was caused by the AO's failure to supply the investigation report and denial of cross-examination of Mr. Ra] Kumar Modi, whose statement was extensively relied upon in framing the addition.
9.The Ld. CTT(A) erred in holding that cross-examination was unnecessary. despite the explicitly relying on Mr. Raj Kumar Modi's statement, thereby contravening the principles of natural justice and established judicial precedents.
10.The Ld. CIT(A) erred in confirming the additions based on the retracted statement of Mr. Raj Kumar Modi, which was made under coercion. pressure, and undue influence, contrary to CBDT Instructions dated 10/03/2003 and 18/12/2014, which mandate that no additions should be made solely based on uncorroborated statements.
11.The Ld. CIT(A) erred in sustaining the addition without any direct evidence implicating the appellant in alleged cash transactions or involvement in accommodation entries, making the addition purely conjectural.
12.The Ld. CIT(A) failed to appreciate that reassessment should have been initiated under Section 153C, as the material relied upon was seized from third-party premises, making the Section 147 reassessment proceedings jurisdictionally invalid.
13.The Ld. CIT (A) erred in confirming the addition based on alleged price rigging in the scrip of M/s PMC Fincorp Ltd., despite no defects identified in the appellant's documentary evidence and disregarding the findings of the Securities Appellate Tribunal (SAT), Mumbai, which negated price manipulation allegations.
14.The Ld. CIT (A) erred in sustaining the addition under Section 68, despite the settled legal position that a bank passbook does not constitute books of accounts, making the addition legally unsustainable.
15.The Ld. CIT(A) erred in confirming the AO's treatment of the legitimate purchase cost of Rs.3,00,000 as zero, despite clear evidence of payments made through banking channels and shares being held in DMAT accounts, demonstrating that the transactions were genuine.
16.The Ld. CIT (A) erred in sustaining the interest levy under Section 234B, which is unjustified and merely consequential, warranting deletion.
17.Without prejudice, the Ld. CIT(A) erred in confirming penalty proceedings under Section 271(1)(c), despite the absence of any factual or legal basis, making the initiation of penalty proceedings arbitrary and unwarranted.”
At the time of hearing ld. AR of the assessee has not pressed grounds no.4, 6, 7, 8, 9, 12 & 14, hence the same are dismissed as not pressed.
Brief facts of the case are, the assessee is an individual deriving income from house property, business and profession and other sources. The assessee filed return of income for the year under consideration declaring income of Rs.7,21,590/- and assessment under section 153A r.w.s. 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) was completed on 20.12.2018 at assessed income of Rs.7,21,590/-.
In this case, AO received informationfrom internal sources, based on the information availableand enquiry conducted by the AO, the reason to believe for reopening u/s 148 was recorded and after obtaining approval u/s 151 of the Act, the notice u/s 148 was issued to the assessee on 05.03.2021. Based on available information, AO found that a search & seizure action was conducted u/s 132 in the case of PM Fincorp Group (formerly known as Priti Mercantile Company Limited) on 11.01.2018 registered address l3-10, VIIP Colony, Civil lines Rampur, UP. AO observed that the above company was shown to have involved in the business of manufacturing basic iron and steel. However, during the course of investigation, it was found that there was no business activity carried out at the given registered address and the company was not involved in any business related to manufacturing or basic iron or steel. Further, during investigations, it was found that the company was listed in Bombay Stock Exchange (BSE) and it has facilitated bogus LTCG to the tune of Rs.1328 Crores. AO gathered information from the investigation report and found that this scrip was being controlled and managed by Mr. Raj Kumar Modi who became director of the company from January, 2003 and he is Managing Director cum Operator of M/s PMC Fincorp Limited. Also managing a number of other bogus Companies/concerns for providing accommodation entries in the form of LTCG/STCL, Unsecured loan, Share Capital etc. in lieu of commission. In post search proceedings, Mr. Raj Kumar Modi, admitted on oath u/s 132(4) of the Act that the scrip price was rigged & managed by him to provide accommodation entry of long Term Capital Gain to various beneficiaries in lieu of commission. He further admitted that when the shares of the company were transferred the amount was received by cheque which was returned in cash and at the time of liquidation, the beneficiary would provide cash which was then routed back to him as sale proceeds of the shares through entities controlled by him. AO observed from the investigation report that in the meanwhile, i.e. between purchase of shares by the beneficiary and later at the time of liquidation, the shares were artificially rigged so as to increase the price of the shares in order to give maximum benefit to the beneficiaries. As per the report of the Investigation Wing, AO observed that the shares of PMC Fincorp Limited were traded on the exchange for the first time on 13.03.2012 and it was found that the pre-split & bonus adjusted price as on 01.04.2013 was Rs.6.61/-. Thereafter, the price started rising and reached a maximum of Rs.108.6 on 27.10.2014 i.e. an increase of 1643% in Just within one and half year period. Further, AO observed that even though its trade chart for four years shows that it had a tendency of trading on a low rate with low volume, then through circular trading it started rising slowly with low volume. After a high rate, it started falling heavily with very huge volume. He further observed that the analysis of the share trading pattern also revealed that the shares were sold in small quantities so as to rig the prices as per the requirements of the beneficiaries. He observed that these are the typical indicators of a penny stocks involved in providing bogus accommodation of ITCG. AO observed that the assessee has been shown to be one of the beneficiaries of bogus LTCG. As per the trading data of the script obtained from the BSE, AO observed that the assessee has sold 20000 shares of PRITI MERC (now known as PMC Fincorp Ltd.) worth Rs.73,79,750/- from 11.10.2012 to 15.10.2013. For the same, AO reproduced the relevant portion of the statement of the concerned person i.e. Shri Pardeep Jindal in the assessment order. The AO further reproduced the statement of Shri Raj Kumar Modi, Director-cum-Operator of PMC Fincorp Ltd. in detail.
AO further observed that as per the BSE data, the vitals of the script were examined over period FY.2011-12 to 2016-17 and the details of facts about M/s PM Fincorp Group and the Meteoric Rise in Prices are given in detail in the assessment order. From that, AO observed that there are unrealistic returns on investments and further he analyzed the price movement of shares of M/s. Priti Mercantile Ltd.
AO vide notice u/s 112(1) of the Act asked the assessee to furnish the amount invested in shares during the year, source of the payment, mode of payment contract note, bank statement, demat statement ledger copy of share broker and purchase agreement. In response, the assessee furnished the same. Further AO asked the assessee as to why the LTCG claimed by him should not be rejected and added back to the income. In response the assessee filed reply dated 14.03.2022 wherein the assessee gave details of decision regarding purchase of shares, monitoring the price movement of the company and decision to sell the shares, which was reproduced by the AO in the assessment order. From that, the AO observed that the aforesaid transaction was a pre-determined arrangement which proves that the transactions done are not genuine and are done to deceive the authorities.
Accordingly, the AO observed that shares of this penny stock are controlled by a group of people viz promoter/operator/brokers and all purchases of shares were arranged by them in assurance of booking bogus LTCG in favour of the assessee. He further observed that it is a fact from the statement of several people recorded u/s 131 by the Investigation Wing that they have arranged the sale of shares to the assessee but also arranged for sales of shares through their entities and by paying certain amount of commission to them. Therefore, AO observed that generation of LTCG through the process from purchase to receipt of cheque is totally arranged and actually no capital gain arose, but assessee's own cash has been routed through different entities and ultimately reached to his/her hand by cheque in the disguise of sale proceeds of listed security. Therefore, AO rejected the reply of the assessee and observed that it is clear that the huge capital gains earned by him within a very short period of time by investing in a penny stock was neither the result of a coincidence nor of a genuine investment activity but were created through well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrips worked in tandem to achieve the pre-determined objectives.
AO observed that accordingly, from the trading pattern of assessee and the way the share prices have been manipulated, AO was of the view that the assessee in connivance with certain entry operators have misused the stock exchange system to generate fictitious LTCG and thereby have avoided payment of legitimate taxes and the entire transaction is a sham and the genuineness of the transaction is thus disproved. Hence, the amount of Rs.73,79,750/- i.e. the sale consideration so received from the sale of shares was added back to the income of the assessee as unexplained credits u/s 68 of the Act
Aggrieved assessee preferred an appeal before the ld. CIT (A) and filed detailed submissions. Ld. CIT (A) after going through the submissions of the assessee sustained the additions.
Aggrievedwith the above order, assessee is in appeal before us.
At the time of hearing, ld. AR of the assessee brought to our attention the relevant facts of the case and his submissions and also filed written submissions which are reproduced below :-
1.The Appellant is in appeal before this Hon’ble Tribunal against the addition of INR 73,79,750/- made u/s 68 of the Act on account of sale of shares of M/s PMC Fincorp Limited allegedly considered as bogus scrips by the Ld. AO.
2.The Ld. AO had made the said addition vide order dated 26.03.2022 passed u/s 147 of the Act. The said impugned addition is based on the following contentions of the Ld. AO which was further upheld by the Ld. CIT(A) vide order dated 20.01.2025:
a)During search conducted on M/s PMC Fincorp Ltd. on 11.01.2018, Mr. Raj Kumar Modi, director of the said entity, had allegedly admitted on oath u/s 132(4) of the Act that, the shares of the said entity was rigged & managed by him to provide accommodation entry of LTCG. (Pg 1 of AO).
b)The appellant purchased the shares of the said entity when the entity was not having any profit and this indicates that the LTCG earned by the appellant is not a genuine one. (Pg. 13 of AO)
c)The Ld. AO contended that as per the investigation wing report, the shares of the said entity were traded @ INR 6.61/- on 01.04.2013 &, thereafter, the price started rising and reached a maximum of INR 108.6 on 27.10.2014 which indicates that the scrip was a penny stock. (Pg. 2 of AO).
Our Submission
1.Documentary evidences already placed on record substantiating the genuineness of the transaction without any negative inference drawn by the Ld. AO or CIT(A).
a)Copy of bank statement of the appellant depicting purchase of said scrips through banking channel. (Pg no. 263 of PB)
b)Copy of bank statement of the appellant depicting receipt of sale proceeds through proper banking channel. (Pg no. 265-268 of PB)
c)Copy of DMAT account of the appellant showing date-wise movement of shares.( (Pg no. 260-262 of PB)
d)Copy of contract notes issued by the broker registered with BSE evidencing sale of shares on recognized stock exchange and payment of STT. (Pg no. 253-259 of PB)
e)Copy of financial ledger issued by share broker evidencing sale of shares and sale consideration. (Pg no. 252 of PB).
In view of the aforesaid documentary evidence already placed on record, the Appellant has clearly discharged the onus cast upon him under the Act to establish the genuineness of the impugned share transactions. Despite this, the Ld. AO has completely disregarded these documents and has solely relied upon the statement of Mr. Raj Kumar Modi, Director of M/s PMC Fincorp Ltd., recorded during search, without appreciating the fact that the same has already been retracted by him vide retraction letter dated 22.10.2018.(Pg. no. 242-244 of PB).
2.The scrip of M/s PMC Fincorp Limited continues to remain listed and actively traded on the recognized stock exchanges. The continued listing and trading status of the said scrips clearly establishes the legitimacy of the transactions undertaken by the appellant in the ordinary course of investment. There is no adverse action by SEBI or stock exchange declaring the entity as penny stock operator or restricting trading in the said scrips. In the absence of any such regulatory finding, the transaction carried out by the appellant on the stock exchange, through registered broker after payment of STT cannot be treated as non-genuine transaction. The current trading status of the said scrips can easily be verified from the below snippet:
3.Issuance of Rights shares in Oct 2024 by M/s PMC Fincorp limited demonstrates continued regulatory compliance and establishes genuineness of the said entity.
It is submitted that M/s PMC Fincorp Ltd. has recently undertaken a Right issue in October 2024, which could not have been carried out without undergoing stringent scrutiny and compliance checks mandated by SEBI and the stock exchange. The successful completion of the Rights Issue clearly indicates that the company is active, operational, and in good regulatory standing and the scrip continues to be regarded as a legitimate security eligible for public subscription.
This fact goes to the root of the allegation made by the Ld. AO. A company that is actively complying with contemporary SEBI norms and successfully completing a Rights Issue cannot simultaneously be treated as a bogus or shell entity.
4.Reliance by CIT(A) on SEBI penalty order that has already been quashed by the Hon’ble Securities Appellate Tribunal Mumbai vide order dated 28.08.2023.
It is submitted that, the while confirming the present addition, the Ld. CIT(A) had relied upon the penalty order of SEBI whereby a penalty was imposed on the seller who sold the said shares to the appellant i.e. M/s Seabird Vincom Pvt Ltd. for alleged price rigging in the shares of M/s PMC Fincorp Ltd. However, the Ld. CIT(A) has failed to consider that the said penalty order has already been quashed by the Hon’ble Securities Appellate Tribunal Mumbai vide order dated 28.08.2023. The relevant portion of the order is reproduced below:
“14.Buying shares from the stock exchange platform is no crime. Continuous buying of shares at increased price is also no crime and such action in our opinion does not violate any provisions of the SEBI laws and especially the PFUTP Regulations. The fact that they accounted for 45.76% of the total buy quantity in 3 years or have acquired 52.5% of the total shareholding does not make their purchases illegal or tainted.
18.In view of the aforesaid, in the absence of any cogent motive being proved, we are of the view, that the action of the appellants in continuously buying the shares at increasing prices and then holding on to these shares may create an artificial demand in the scrip of the Company but that by itself is not violative of any fraudulent activity under Regulation 3 and 4 of the PFUTP Regulations.
19.Consequently, we are of the opinion that the material on record does not establish any violation of Regulations 3 and 4 of the PFUTP Regulations by the appellants through their trading in the scrip of the Company. The impugned order is accordingly quashed. The appeals are allowed with not order as to costs.”
5.Holding period of over 1.5 years establishes investment intent and justifies price appreciation.
The appellant had purchased the said scrip in Aug’2011 at a price of Rs.30/- per share and sold the same in Oct’ 2012 at price of Rs.511.75/- and in Feb’2013 at an average price of INR 223/-, thereby holding them for a period of more than 1.5 years. The appreciation in share price over such period is a reasonable outcome in equity market and cannot be termed as abnormal or suspicious itself. Hence, the gain is a result of market-driven factors over a reasonable period and not due to any artificial or sudden hike. The details of the shares sold are as under:
Dates Particulars Scrip No. of shares Amount (In INR)
05.08.2011 Off market PMC Fincorp Ltd. 10,000 3,00,000/- (30/- per purchase share)
05.09.2011 Shares transferred PMC Fincorp Ltd. 10,000 3,00,000/- (30/- per to DMAT A/c share)
25.10.2011 Bonus shares and PMC Fincorp Ltd. 10,000 Nil & splitting of shares
16.02.2013
Total No. of shares held by appellant 20,000/-
Oct’2012 Sale of shares PMC Fincorp Ltd. 10,000 51,17,518/- (511.75/-per share)
Feb’2013 Sale of shares PMC Fincorp Ltd. 10,000 22,37,108/- (223.70/-per share)
6.The issue concerning the LTCG u/s 10(38) relating to the scrip of M/s PMC Fincorp Ltd has already been examined in detail by the Hon’ble Amritsar Tribunal in the case of Rama Mittal vs ITO, bearing ITA no. 26/Asr/2024 dated 03.06.2024 wherein it was held as under:
“7.It is admitted and undisputed fact on record that no investigation or enquiry was conducted against the assessee either by the AO or by the CIT(A) but it was conducted against the companies and the persons who were involved in the trading of the shares of the companies which were all classified as dummy stocks companies. Further, when the assessee was not directly named in the report, and the assessee makes the genuine claim of exemption u/s 10(38) in its returns as per provisions of law, then how the assessee’s claim could be rejected without disproving the source of investment and genuineness of transactions done by him based upon the valid documentary evidence.
11.From the record, it is found that the addition made by the AO and upheld by the CIT(A) was solely based on the premise of alleged price rigging in the PMC Fin Corp script. However, this allegation is negated by the Securities Appellate Tribunal Mumbai, in its order dated August 28, 2023, by explicitly dismissed these allegations. The tribunal's ruling stated that there is no supporting material on record to substantiate the accusation of the company's involvement in price inflation. Moreover, the order emphasized that purchasing shares from the stock exchange platform is not unlawful, and continuous buying of shares at increased prices does not contravene any provisions of SEBI laws.
17.Considering the factual matrix of the case and judicial precedents, we hold that the decision of the Ld. CIT(A) is infirm and perverse to the fact on record. We hold that there was no reason to add capital gains as unexplained cash credit under section 68 of the Act. Accordingly, the addition of Rs.66,56,020/- is deleted.”
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. We observed that the AO had made the addition on the basis of search conducted on the PMC Fincorp Ltd and based on the material found and statement recorded by Mr. Raj Kumar Modi, director, who had admitted on oath u/s 132(4) of the Act that he has rigged and managed the prices and also provided accommodation entries. We noticed that the assessee had also purchased the shares from the off market and sold the same in the stock market. Meantime, the AO had heavily relied on the increase of price during the period, and the investigation report cameto conclusion that the scrip dealt with by the assessee is penny stock and the same is deserved to be added as income of the assessee. However, the assessee has filed all the relevant documentation to prove that all, including purchase and sale, the transactions are conducted through the banking channel along with the contract notes. The AO had merely presumed that the assessee had obtained the accommodation entry on the basis of statement of director of the PMC Corpfin.. Without there being any material found nor he had brought on record any material linking the assessee with any of the people who had been involved in the price rigging or entry or exit operator. When there is no direct material linking the assessee in the above said scrupulous activities, merely relying on the statement of a director, without direct connection or in the statement wherein he gave specific information about the assessee, in our view, the statement given which is unspecific and relating to conduct of entry provider himself, will not have any documentary value. In our considered view, the AO had merely applied presumption based on the statement of third party, he has presumed that the assessee had involved in the above transaction is beyondcomprehension.
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 exist in the present case, still the Revenue has not brought on record any materials linking the assessee to 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 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.”
15 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 Page 10 of 10 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.”
16 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 bringing 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.
17 In the result, appeal filed by the assessee is allowed.