Sneha Bhardwaj vs Income Tax Officer, Ward 1(4), New Delhi

“12.

We find that a statement on oath was recorded from the assessee on 28-11-2016 wherein a specific query was put by the learned AO to the assessee as to how he came to know about the shares of Unno Industries Limited. In response, the assessee submitted that depending upon the net worth and the profitability of Unno Industries Limited and the merger policy thereon. he was made known about the shares of that company during the professional discussions. Further, he had also stated that he had during discussions with the financial advisor, came to know about the preferential allotment of shares being made by Unno Industries Limited. Specifically, vide Question No. 13, a query was raised to the assessee stating that investigation wing had unearthed the price manipulation of the scrip dealt by assessee for earning fictitious long-term capital gain and accordingly, it was queried as to why the sale proceeds of shares should not be treated as income from undisclosed sources of the assessee. In response thereto, the assessee had categorically stated that he does not know the directors of the company and he does not have any connection with the directors of the company. He had also stated that if the investigation wing had found any direct evidence against him, he is ready to face the music. Further, in response to the final Question No. 15 raised by the learned AO on the assessee, the assessee responded that he is a regular investor in shares and all his transactions are genuine and if there is any other document that is required, he is ready to submit. This goes to prove that assessee had merely entered into the investment of shares of Unno Industries Limited as a gullible investor by taking advice from the financial advisor and the market news that was getting circulating. The assessee, of course, had also taken cognizance of the profitability and net worth of the said company and the merger policy that is being elaborated supra. Hence, по malice or malafide could be attributed on the purpose of assessee venturing into investment in shares of Unno Industries Limited.

Moreover, the payment for purchase of those shares, though allotted to him on preferential allotment basis, had been made by account payee cheque and share certificates to that effect were physically received and duly dematted with the registered depository participant.

Further, the shares were purchased in assessment year 13-14 after obtaining the approval of the Hon'ble Bombay High Court approving the merger. No action whatsoever or adverse inference drawn on the assessee in the year of purchase of shares. When those shares are kept in demat account which were sold by the assessee in the open market after duly suffering STT, the same cannot be doubted by the revenue. These facts have been taken due cognizance by the Hon'ble Jurisdictional High Court in the case of Pr. CIT v. Smt Krishna Devi [2021] 126 taxmann.com 80/279 Taxman 148/431 ITR 361 (Delhi). The relevant observations in that regard are reproduced hereinbelow:-

"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 preplanned 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 Comparry. 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, fictitioux. 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 behaviour 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 case (supra) and Sumati Dayal case (supra) is of no assistance. Upon examining the judgment of Suman Poddar case (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 (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.

15.

Accordingly, the present appeals are dismissed"

13.

We find that the Learned DR vehemently relied on the decision of Hon'ble Calcutta High Court in the case of Pr. CIT v. Swati Bajaj [2022] 139 taxmann.com 352/288 Taxman 403/446 ITR 56 (Calcutta) which is an elaborate decision rendered after considering various decisions of various High Courts on the subject. In the said decision, it was held that assessee had to establish the genuineness of rise of price of shares within a short period of time that too when general market trend was recessive. But we find that when there is a decision of Hon'ble Jurisdictional High Court as stated supra which is already in favour of the assessee, the same would prevail over this Tribunal and this Tribunal need not take cognizance of the Hon'ble Non-Jurisdictional High Court. The law is very well settled by the Hon'ble Supreme Court in the case of Union of India v. Kamalakshi Finance Corporation Ltd 1991(55) ELT 43 (SC) that the decision of Hon'ble Jurisdictional High Court would have higher precedence value than the decision of Hon'ble Non-Jurisdictional High Court on the Tribunal. The Hon'ble Supreme Court emphasized therein that the orders of the Tribunal should be followed by the authorities falling within its jurisdiction so that judicial discipline would be maintained in order to give effect to orders of the higher appellate authorities. The Hon'ble Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. Hence we deem it fit and appropriate to follow the decision of Hon'ble Jurisdictional High Court referred supra wherein the impugned issue is decided in favour of the assessee. Moreover, when there are two conflicting decisions of various High Courts, the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd [1973] 88 ITR 192 (SC) had held that Construction that is favourable to the assessee should be adopted. Hence by following this principle, the decision of Hon'ble Calcutta High Court relied upon by the Learned DR before us, need not be followed by this Tribunal in the peculiar facts and circumstances of the instant case.” [Emphasis added]

“9.

It is relevant to state that LDPL, now known as Arihant Multi Commercial Ltd, is not a paper company nor a shell company. In F.Y. 2013-14, the Revenue from operations were at Rs. 40,85,02,313/- and total assets were at Rs. 32,79,07,684/- which included investment, trade receivables, cash and cash equivalent, short term loans and advances and tangible assets. The share capital and reserves and surplus were of Rs. 3,62,40,000/- and Rs.17,65,16,912/- respectively during the corresponding period. These financials go to show that LDPL is not a shell company. It is not the case of the AO, nor there is any evidence on record to show that SEBI has declared all transactions done in scrip of LDPL prior to the suspension as null and void. Usually when the SEBI looks into irregular movements in share prices, it warns investors against any such unusual increase in share price however, no such warning was issued by SEBI with respect to dealing in LDPL.

10.

It is also a matter of fact that neither which is borne out from the assessment order itself that the assessee nor his brokers were referred anywhere as illegitimate beneficiaries of bogus long term capital gain in any of the alleged statements of the operators/broker or reports/orders of the SEBI or the Investigation Wing as relied upon by the AO. ….

14.

The Co-ordinate bench of Delhi Tribunal in the case of Anoop Jain (supra) and later in the case of Ritu Jain Vs. ACIT reported in 124 Taxmann.com 440 has held the LTCH form the sale of shares of LDPL as genuine.

15.

In view of above discussion and by respectfully following the aforesaid judgements of Hon’ble Apex Court, Hon’ble Jurisdictional High Court and Co-ordinate Bench of Tribunal, we hold that Ld. CIT(A) has rightly deleted the additions, more particularly, when the opportunity of cross-examination was also not provided to the assessee despite of specific request and without rebutting the overwhelming evidences filed by the assessee to prove the transaction of sale of shares of LDPL as genuine….”