By TIOL News Service

KOLKATA, NOV 08, 2018: THE ISSUE IS - Whether merely based on unexpected price movement the purchase and sale transaction in shares can not be held as bogus when all relevant evidence in the form of bills, contract notes, demat statement and bank account are furnished to prove the genuineness of the transactions resulting in long term capital gain. - YES IS THE VERDICT.

Facts of the case

The assessee an individual, had filed his return of income for the relevant AY. During the course of assessment proceedings, the AO observed that the assessee had shown Long Term Capital Gain on sale of scrips of M/s. Esaar India Ltd., which were exempt u/s 10(38) of the Act. On the basis of documents submitted during the course of assessment proceedings and the data available on various stock market website in respect of the scrip, the AO concluded the fact that the transactions by the assessee in the scrip transaction were rigged. The AO issued a show cause notice on the assessee in respect of LTCG transactions in the scrips of M/s. Essar India Ltd. and in response to the notice the assessee stated that the transactions were carried out through BSE and banking channels and could be verified by AO. The assessee further stated that STT were deducted on the sale of said scrips. However, the AO was not convinced with the assessee's contention. Instead the AO relied on his fundamental analysis, human conduct and preponderance of probabilities, and concluded the transactions to be sham and bogus. The AO added back the entire amount of sale proceeds of Rs. 11,49,425/- as unexplained cash credit u/s 68 of the Act. Aggrieved, the assessee preferred an appeal before the CIT(A) which was dismissed. Aggrieved, the assessee filed appeal before Tribunal.

Tribunal held that,

++ the assessee had purchased 25000 shares of M/s. Essar India Private Limited on 22.03.2012 from a recognized stock broker M/s. R. L. Agarwala Capital Market Ltd. through the BSE. These shares were held in the demat account of the assessee and ultimately these shares were sold through M/s. R. L. Agarwala Capital Market Ltd. through the BSE and on such sale, Security Transaction Tax was duly paid. Payments were duly received in the bank account of the assessee. The transactions were all through a registered broker and through BSE since the scrips of M/s. Essar India Pvt. Ltd. was a listed company in BSE backed by a contract note and shares were credited in the de-mat accounts and duly reflected in the books of account. Thus the purchase and sale of shares per-se cannot be held to be bad;

++ it was noted that the transactions of capital gains as claimed by the assessee was duly backed by relevant facts and documentary evidences. The transactions of sale of shares by the assessee was duly backed up by material/evidence including contract notes, demat statement, bank account reflecting transactions, the shares having been sold on the online platform of the stock exchange and each trade of sale of shares were having unique trade number and trade time. It is not the case of the AO that the shares which were sold on the date mentioned in the contract note were not the traded price on that particular date. The AO doubted the transactions due to the rise in the stock price (the assessee purchased for a share at Rs.10.82 and sold it for Rs.46/- per share after 20 months for a profit of Rs. 36/- per share) and for that the assessee cannot be blamed unless there was any material/evidence to prove that the assessee or any one on his behalf has rigged the stock price. It should be noted that the Stock Exchange and SEBI are the statutory authorities appointed by the Govt. of India to ensure that there is no stock rigging or manipulation. The AO has not brought any evidence on record to show that these agencies have alleged any stock manipulation against the assessee or the brokers or the company in question. In absence of any evidence to back the conclusion of AO/CIT(A), it cannot be said that merely because the stock price moved sharply, the assessee was to be blamed for bogus transitions. It is also pertinent to note that the assessee has purchased the stocks through BSE and through registered brokers and thereafter the assessee has sold the shares through the registered share/stock brokers with Bombay Stock Exchange, and is supported by valid contract notes;

++ there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). It was noted that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. The assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the CIT(A) to be false or fictitious or bogus nor the AO had issued any notice to the brokers for confirmation. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. Thus CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. It was decided to direct the AO to delete the addition. In the result, the appeal of assessee is allowed.

(See 2018-TIOL-2059-ITAT-KOL)