INCOME TAX APPELLATE TRIBUNAL, JAIPUR
DCIT vs SAURABH MITTAL ITA No. 6/JP/2018
DATE: 29/08/2018
This appeal by the
revenue is directed against the order dated 09/10/2017 of ld. CIT(A), Alwar for
the A.Y. 2014-15. The revenue has raised following grounds of appeal:
“1. On the facts and
circumstances of the case and in law, the ld. CIT(A) erred in deleting the
addition of Rs. 2,60,17,995/- made by the A.O. on account of unexplained cash
credit U/s 68 r.w.s. 115BE of the I.T. Act, 1961 without appreciating the
material facts of the case.
2. On the facts and
circumstances of the case and in law, the ld. CIT(A) erred in deleting the
addition of Rs. 10,68,720/- made by the A.O. on account of unexplained
commission expenses U/s 69C of the IT Act, 1961.”
a). Ground No. 1 of the
appeal is regarding the addition made by the Assessing Officer on account of
unexplained cash credit U/s 68 of the Income Tax Act, 1961 (in short the Act)
as against the long term capital gain on sale of shares exempt U/s 10(38) of
the Act. The assessee is an individual and derives income from salary, house
property, capital gains and income from other sources. The assessee filed his
return of income on 31/7/2014 declaring total income of Rs. 17,97,890/- after
claiming long term capital gain on sale
of shares as exempt U/s 10(38) of the Act. During the course of assessment
proceedings, the Assessing Officer proposed to treat the transaction of long
term capital gain as accommodation in nature and not genuine. The Assessing
Officer has referred to the investigation conducted by the department,
therefore, Directorate of Investigation (DIT), Kolkata wherein an organized
racket of generating bogus long term capital gain was unearth. The Assessing
Officer discussed the modus operandi adopted by the operators was to make
beneficiary to buy some shares of a pre-determined penny stock company
controlled by them. The shares are transferred to the beneficiaries at a very
nominal price in off-market transactions, sometimes through preferential
allotments. The Assessing Officer has also made reference to the Securities and
Exchange Board to the orders passed by the Securities and Exchange Board of
India (SEBI) on the issue of manipulation of share market for providing
accommodation entries to bogus long term capital gain. The shares of Kailash
Auto Finance Limited, which the assessee traded, was also been put under
surveillance measure by the SEBI. Thus, the Assessing Officer noted that the
assessee is one of such beneficiaries who has taken the entry of Rs.
2,67,17,995/- during the assessment year 2014-15 and therefore, should not be
viewed in isolation but as one of the beneficiary in the larger scheme of
providing bogus long term capital gain. In response, the assessee furnished the
submissions as well as relevant documentary evidence comprising of bank
statement, purchase bills, merger of the company with another company and
subsequently allotment of shares by merging company, order of Hon'ble High
Court approving the scheme of merger, dematerialization of shares in the DEMAT
account, books of account showing holding
of shares as on 31/3/2013, sale bill, progress note and proof of payment
of STT on the transactions of sale.. The Assessing Officer did not accept the
contention and explanation of the assessee and referred to the statements of
one Shri Devesh Upadhaya and Shri Pankaj Agarwal recorded by the DDIT (Inv.),
Kolkata. The Assessing Officer also referred the statement of Shri Anil Kumar
Khemka recorded U/s 131/133A of the Act by the DDIT(Inv.), Kolkata wherein they
have admitted in providing accommodation entries in the shares of the companies
controlled by them including the shares of Kailash Auto Finance Limited. The
Assessing Officer finally held that the claim of capital gain of Rs.
2,60,17,995/- is entirely unaccounted income which is rooted back to the
assessee but camouflaged as long term capital gain. Hence, the Assessing
Officer treated the same amount of Rs. 2,60,17,995/- as cash receipt and added
the same to the income of the assessee U/s 68 read with Section 115BBE of the
Act.
3. The assessee
challenged the action of the Assessing Officer before the ld. CIT(A) and
referred to the evidence produced by the assessee before the Assessing Officer
to establish the genuineness of the transactions. The assessee specifically
contended that the Assessing Officer has made addition on behalf of the
statements recorded by the DDIT(Inv.), Kolkata whereas there was no allegation
or any admission in those statements that the assessee was one of the
beneficiaries of the alleged transaction of accommodation entries. The assessee
also relied upon the various decisions. The ld. CIT(A) on consideration of the
evidence produced in support of the claim as well as the various judicial
precedents on the issue, hold that the share transaction resulting in capital
gain is valid transaction and subject to the provisions of Section 10(38) of
the Act. Accordingly, the ld. CIT(A) has deleted the addition made by the
Assessing Officer.
4. Before us, the ld DR
has submitted that the assessee has claimed to have purchased three lacs shares
of Careful Advisory Ltd. @ Rs. 1 per share from a broker in off-market
transaction and four lacs shares of Panchshul Marketing Ltd. @ Rs. 1 per share
from the same broker in a similar off-market transaction, thus it is clear that
the assessee has claimed to have acquired these shares as penny stocks and
within the short span of time, the assessee has claimed long term capital gain
of Rs. 2,60,17,995/- as against the purchase price of Rs. 7,00,000/-. Thus, the
transactions itself show that there is extra ordinary and abnormal profit
claimed by the assessee which is not possible in any normal transaction of
purchase and sale of shares within such a short period of one year. The ld. DR
has further contended that since the transaction of purchase was off-market,
therefore, the assessee failed to prove the genuineness of the transaction of
the purchase and the subsequent sale of the shares from the DEMAT account is
nothing but was an eyewash and giving a colour of genuineness to a bogus
transaction of accommodation entries. It is highly improbable to have such a
huge and many fold increase in the sale price within a short period of one
year. The ld DR has submitted that the Investigation Wing of Kolkata has
carried out the enquiries and investigations in cases of operators of providing
accommodation entries of bogus capital gain through penny stocks. The
DDIT(Inv.), Kolkata recorded statements of Shri Anil Kumar Khemka, Shri Pankaj
Agarwal and Shri Devesh Upadhaya, who are the stock brokers and have
admitted/indulged in giving accommodations entries through penny stocks of various companies including Kailash
Auto Finance Limited. Thus, the Assessing Officer has brought on record the various
facts discovered by the Investigation Wing during the proceedings carried out
by the DDIT(Inv), Kolkata and unearth a racket involved in providing
accommodation entries of bogus capital gain which is claimed exempt U/s 10(38)
of the Act. Thus, the entire modus operandi in dealing in scripts of the
companies controlled by the said group shown as sold at a nominal price and
then claimed to have been sold at exceptionally high price to create an
artificial capital gain exempt U/s 10(38) of the Act. The investigation Wing
has given all the relevant facts and modus operandi as to how these operators
are giving accommodation entries by making bogus back date entries of purchase
of penny stocks and sale just after one year. The transaction is so arranged to
give colour of earning the long term
capital gain. Thus, the ld DR has submitted that when the shares were purchased
off-market in physical form and just before sale, the same were dematerialized
which is part of the entire scheme of providing accommodation entries of bogus
capital gain. The Assessing Officer has already referred to the order of the
SEBI dated 29/3/2016 in respect of Kailash Auto Finance Limited suspending the
trading in the said script till the investigation was pending. The ld DR has relied
upon the order of the Assessing Officer.
5. On the other hand,
the ld AR of the assessee has submitted that the assessee purchased three lacs
shares of Careful Projects Advisory Ltd. (CPAL) @ Rs. 1 per share from M/s
Sanskriti Vincom Pvt. Ltd. on 12/3/2012 vide share purchase bill, which is
placed at page No. 5 of the paper book. He has referred to the bank statement
of the assessee to show that the payment of Rs. 3.00 lacs was made from the
bank account of the assessee on 14/3/2012. Similarly, the assessee purchased
four lacs shares of M/s Panchshul Marketing Ltd. (PML) @ Rs. 1 per share from
M/s Sanskriti Vincom Pvt. Ltd. on 12/7/2012 vide purchase bill, which is placed
at page No. 8 of the paper book. The payments for purchase consideration was
also made from the bank account on 05/7/2012. The ld AR has referred to the
bank statement of the assessee and submitted that in both the cases, the
payment was made through the bank account at the time of purchase of these
shares, therefore, when the assessee has produced purchase bills alongwith the
bank statement of the assessee showing the payment of purchase consideration
through bank then the transactions of purchase cannot be doubted. Subsequently
in pursuant to the scheme of amalgamation sanctioned by the Hon’ble Allahabad
High Court and Hon’ble Bombay High Court on 09 & 10/05/2013, these two
companies were amalgamated in the company M/s Kailash Auto Finance Limited the
assessee was allotted 7 lacs shares of M/s Kailash Auto Finance Ltd. in lieu of
total shares held by the assessee in Careful Project Advisory Ltd. and
Panchshul Marketing Ltd. The ld AR has thus submitted that the assessee has
shows these investments in the balance sheet as on 31/3/2012 as well as
31/3/2013 respectively and thereafter when the assessee was allotted shares of
equal numbers in the amalgamated company which is listed in the stock exchange.
These shares were duly dematerialized as per DEMAT account, details placed at page Nos. 12 to
69 of the paper book. Hence, the holding of shares by the assessee cannot be
doubted when the assessee has purchased all the relevant records and supporting
evidences. He has submitted that a careful reading of the assessment order
shows that the entire impugned addition has been made merely by referring to
various statements recorded during the course of some investigation (Shri Anil
Kumar Khemka, Devesh Upadhyay, Pankaj Agarwal). However, no clinching evidences
have been brought on record directly supporting the suspicion raised by the AO
and falsifying the genuine claim of the LTCG made. The impugned order is full
of suspicion, surmises & conjectures, presumptions and assumptions, drawing
inferences and is also full of repetitions. The only purpose of writing a
thesis type of order running into 30 pages, by itself goes to show the serious
lack of direct evidences in favor of AO to support the impugned addition. But
even then there is no substance in his allegations and the discussion made at
many places shall be found irrelevant, in the sense that it was not shown to be
directly related to the assessee. Not only there is a serious lack of contrary
evidences and other supporting material but even the direct cogent evidences
admittedly submitted and available before him, could not be have not at all been
(successfully) adversely commented upon what to talk of disproving or rebutting
or falsifying the same. The ld. AO also unsuccessfully tried to take support of
the various case laws though based on peculiar facts available in those cases
only but ignoring the one favoring the assessee. Admittedly, the assessee had
furnished all possible evidences i.e. copy of De-mat account, bank statement,
and share transfer form and share allotment certificate, ledger of share broker
account to establish the genuineness of purchase and sale transaction of
shares. There appears no valid reason for entertaining any suspicion or doubt
by the AO and the adverse inference so drawn and the suspicion so raised, are
completely unfounded. The payment of Rs.3,00,000/- was sent through NEFT of
ICICI Bank which is evident from Bank Statements of assessee and payment of
Rs.4,00,000/- was also sent through NEFT of ICICI Bank as on dated 05.07.2012
which is evident from the Bank Statements of the assessee. These shares were
sold in thirteen parts over a period of 5 Months viz 62,500 shares on
29.07.2013 for Rs.23,56,250/- through registered stock broker Raghunandan
Capital Pvt. Ltd. The Broker M/s Raghunandan Capital Pvt. Ltd. is a registered
broker having Broker Member ID: 6112. The brokers while selling, had also
charged STT Rs.26,745.75/-. The entire sale proceeds of Rs. 2,67,45,750/- on
account of both the sale transactions, were received through cheque and duly
found credited in the bank account of the assessee. Both the transactions of
sale and purchase were also duly evidenced by the D-Mat Account of the assessee
which shows the fact of purchasing and selling of the shares, delivery of
shares was taken given. It is submitted that the assessee has been in the field
of the financial market and financial products with an extensive experience of
more than 15 years. He was having in-depth knowledge, strong understanding of
the various intricacies of the financial market. The assessee has been holding
the position of director in various companies namely Raghunandan Industries P.
Ltd, Raghunandan Capital P. Ltd., Raghunandan Insurance & Broker P. Ltd, R
Money Wealth Advisors P. Ltd., which are in the field of financial consultancy
& services. Raghunandan Capital (RCPL) is a broking entity and currently
providing its services in Cash, F&O and Currency derivative segments.
Needless to say that the assessee is not a mere layman and had been investing
in the share market based on the various reports and analytical studies made by
the experts of the fields, credible newspaper reports, trade magazines etc. and based on that only has been making
investment during the period from April 2013-2016 in several other securities
also viz. Power Grid Corporation, Coal India Ltd, State Bank of India etc. The
assessee is also well conversant with the stock exchange mechanism. It is in
this process only, when the assessee came to know of the 2 companies namely-
Careful Projects Advisory Ltd. (“CAPL” for short) and Panchshul Marketing
Ltd.(“PML” for short), hence after making requisite study and application of
mind, analyzing the situation, the assessee decided to purchase the share which
were being offered at a nominal amount of @ Rs.1/- Per Share. Interestingly and
notably, there is no whisper what to talk of establishing that the assessee
really delivered cash in exchange of the LTCG received through cheques. There
is absolutely no detail as to when and where this has happened except blindly
relying upon the statements of few people who even, never specifically named
the assessee or the subjected transaction. Otherwise, in absence of cross
examination, such evidence could not have been used. The AO did not discharge
his duties but rather blindly relied upon other’s information. It is an
admitted fact that the AO had strongly relied upon the statements of the
various persons namely Shri Anil Khemka, Devesh Upadhyay, Pankaj Agarwal and
various other persons and unfortunately, despite using the same against the
assessee, the assessee was never confronted and even the statements of these
persons were not fully reproduced in the impugned order, what to talk of giving
an opportunity of cross examination. In the aforesaid letter dated 30.11.2016,
even the name of these persons were not disclosed by the AO nor the assessee
was confronted the requisite details through order sheet entries. Thus, without
knowing that the statements of third parties were being used against the
assessee, requiring an opportunity of cross examination by the assessee giving
specific name from the AO, was an impossibility. Yet however, the assessee in
its reply dated 26.12.2016 (AO. Pg. 11) specifically submitted that in the
absence of cross examination of the key persons no adverse inference can be
drawn. But still, the AO, in its rebuttal pg. 14 Para 9, completely ignored
such a request for opportunity of cross examination and aspect of providing the
material (relied and used) to the assessee. It is submitted that AO has heavily
relied upon the orders of the SEBI and in particular passed on dated 29.03.2016
(Pg. 8 Para 4 onward Pr. 12) whereby some adverse finding given by the SEBI has
been relied upon. Pertinently however, the SEBI vide its order dated 21.09.2017
(PB- 367- 381) has revoked the suspension order. The ld AR has relied on the
following case laws:
(i) Andaman Timber
Industries vs CIT (2015) 127 DTR 241(SC),
(ii) Meghraj Singh
Shekhawat vs. DCIT in ITA No. 444??/JP/17 vide order dated 7th March, 2018
(iii) Sh. Pramod Kumar
Lodha Vs ITO in ITA No. 826/JP/2014 order dated 16/07/2017
(iv) CIT vs. Smt. Puja
Agrawal in DBIT No. 385/2011 dated 11.09.2017
6. We have heard the
rival submissions as well the relevant material on record. The assessee stated
to have purchased three lacs shares of Careful Projects Advisory Ltd. for a
consideration of Rs. 3.00 lacs vide invoice dated 12/3/2012. We find that M/s
Sanskriti Vincom Pvt. Ltd. has issued the invoice dated 12/3/2012 for the
purchase made by the assessee of three lacs shares of Careful Projects Advisory
Ltd.. The payments of the consideration of Rs. 3.00 lacs was made by the
assessee through his bank account with ICICI bank and the statement of bank
account reflected said payment of Rs. 3.00 lacs on n14/3/2012. Thus, the
payment of consideration through bank account for purchase of shares is not in
dispute as the same has been proved by the evidence which can be verified
independently without even any scope of manipulation or control by the
assessee. Similarly, the purchase transaction of four lacs shares of M/s
Panchshul Marketing Ltd. vide invoice dated 12/7/2012 issued by M/s Sanskriti
Vincom Pvt. Ltd. is also established to the extent that the assessee made
payment of purchase consideration of Rs. 4.00 lacs through his bank account
with ICICI bank and the payment is duly reflected in the bank account
statement. Therefore, the payment of purchase consideration has been
established beyond any doubt. The only question which can be raised for this
transaction of purchase of shares of these two companies is the suppression of
purchase price so as to create an artificial capital gain of maximum amount.
However, the Assessing Officer has not given any finding that the purchase
price was artificial suppressed by the parties with intention to maximize the
capital gain through the modus operandi of bringing the assessee unaccounted
income in the shape of long term capital gain exempt U/s 10(38) of the Act. The
Assessing Officer has given much emphasis on the report of DDIT(inv.), Kolkata
and some statements were recorded during the investigation proceedings by
Kolkata wing wherein three persons who were brokers namely Shri Anil Khemka,
Shri Devesh Upadhyay and Shri Pankaj Agarwal were examined by the DDIT(Inv.),
Kolkata and in their statements recorded U/s 131(1) and 133A of the Act, they
admitted their indulgence in providing accommodation entries of bogus capital
gain in some of the scripts including the scripts of M/s Kailash Auto Finance
Ltd. However, we find that in the entire report of investigation Wing of which
the relevant part is reproduced by the Assessing Officer as well as the
statements of these persons, there is no mention either of the assessee or M/s
Sanskriti Vincom Pvt. Ltd. through whom the assessee purchased these shares.
Thus, even if three persons are considered to have indulged in the transaction
of providing accommodation entries, it would not automatically lead to the
conclusion that each and every transaction in purchase and sale of shares of
those companies are bogus transactions, which were between the some other
parties not connected with those operators. Even otherwise in the case in hand,
the assessee did not purchase the shares of M/s Kailash Auto Finance Ltd. but
the assessee purchased the shares of Careful Projects Advisory Ltd. and M/s
Panchshul Marketing Ltd.. These two companies were subsequently amalgamated
with M/s Kailash Auto Finance Ltd. in pursuant to the scheme of amalgamation
approved by the Hon’ble Allahabad High Court as well as the Hon’ble Bombay High
Court vide their respective decisions dated 09th & 10th May, 2013.
Consequently, the assessee was allotted equal number of shares of the
amalgamated entries of M/s Kailash Auto Finance Limited in lieu of the shares
held by the assessee in erstwhile two companies namely Careful Projects
Advisory Ltd. and Panchshul Marketing Ltd.. The allotment of these shares are
duly reflected in the record through the correspondence of the allotment and
the same company M/s Kailash Auto Finance Ltd. is a listed company in the stock
exchange, therefore, the allotment of shares by the said company is verifiable
transaction from an independent record. The assessee has also produced DEMAT
account showing the shares held in the dematerialized form and therefore, the
holding of the shares by the assessee after the dematerialization cannot be
questioned from any angle. During the financial year relevant to the assessment
year under consideration, the assessee sold these shares through stock exchange
and from his DEMAT account. The sale transaction of shares through stock
exchange is not in doubt and the shares were sold from the DEMAT account of the
assessee is also cannot be doubted. The sale price as on the date of
transaction is also the prevailing price in the stock exchange. Hence it is not
a case of the Assessing Officer that the assessee has shown an inflated sale
price which is not as per the prevailing market price of the shares of M/s
Kailash Auto Finance Ltd.. It is pertinent to note that the shares of M/s
Kailash Auto Finance Ltd. were issued to the assessee only in lieu of the shares
of erstwhile two companies M/s Careful Projects Advisory Ltd. and M/s Panchshul
Marketing Ltd. and it is not a transaction of acquiring the shares of M/s
Kailash Auto Finance Ltd against the consideration. Thus, the allotment of
shares by M/s Kailash Auto Finance Ltd. in pursuant to the scheme of
amalgamation established the fact that the assessee was already holding the
equal number of shares in the erstwhile companies namely M/s Careful Projects
Advisory Ltd. and M/s Panchshul Marketing Ltd. Thus the holding of shares by
the assessee and allotment of shares of M/s Kailash Auto Finance Ltd. are the
material facts emerging from the records, which cannot be disputed. The
allotment of shares of M/s Kailash Auto Finance Ltd. itself is a proof of
holding of shares by the assessee in the erstwhile companies which got
amalgamated into new entity. Hence, all these facts go to prove beyond any
doubt that the assessee was holding the shares in question and the payment of
consideration was duly made through banking channel, which is also not in
dispute. The Assessing Officer has treated the transaction as bogus only on the
basis of the statements recorded by the Investigation Wing, Kolkata, however,
even if those statements are considered and taken into account, it cannot lead
to the conclusion or establish the fact that the assessee was part of the said
racket of providing accommodation entries of bogus capital gain. The ld. CIT(A)
while considering all these facts, have decided the issue in para 5.4 and 5.5
as under:
“5.4 I have considered
the above mentioned facts of the case.
It is my
considered view that the assessee needs to maintain and produce
following documents/evidence to prove the genuineness of the share transaction.
To conclude assessee need to maintain the following documents in order to prove
genuineness of the investments:-
Basic documents:
• Source of the
investments made.
• Business activity of
the investor.
• Contract note for
purchase of investment made and sale of investment.
• Bank statement
reflecting payment and receipt of sale of investments.
• Demat statement to
prove delivery of shares.
• Ledger copy of share
broker a/c.
• Copy of ledger a/c of
source of investment.
Additional
Documents/information which can even help during investigation
• To prepare the
justification/ reason to buy shares of that company?
• Name and address of
the person who has recommended the purchase of shares.
• Analysis of financial
performance before purchase of share.
• Copy of share
purchase agreement, if any.
• Reason for selling
the shares. Business of the investor/company investing the shares?
• The frequency of
analysis of performance of the Investee Company and kinds of analysis assessee
did.
• How did assessee
place the purchase orders with broker? To whom did he speak / instruct for
placing the orders?
• How was the payment
made/received to/from broker?
• What is the status of
that demat account?
• Justification in case
of delay in dematerialization of shares, since it is one of the main ingredients
to prove backdated purchase of shares.
So far as the basic
documents are concerned, they have been filed before the A.O and also during
the appellate proceedings. Additional informations as stated above have also
been provided by the appellant. In this regard I have taken note of the fact
that the appellant is himself a founder and promoter of Raghunandan group and
is a management graduate having experience of more than 19 years in financial
market and financial products. In this regards, the appellant has submitted as
under;
1. He has an in depth
knowledge and strong understanding of various intricacies of financial market.
The Appellant has been investing in the share market based on various reports,
analysis and studies made by experts in the field, which are published in
newspapers, trade magazines etc. as also on the basis of knowledge gained
through acquaintances.
2. During the period
April 2013 to April 2016, the Appellant had traded in several other securities
as well through the stock exchange mechanism. In or about February 2012, the
Appellant came to know from Mr. Anuj Goyal that shares of Careful Projects
Advisory Ltd. (“CPAL”) were available with one Sanskriti Vincom Pvt. Ltd. Mr.
Anuj Goyal also impressed upon the Appellant that CPAL was engaged in to the
business of investment in various companies and were holding shares of various
companies. The Appellant was informed that these investment made by CPAL would
grow and could yield good profits to the Appellant. In view of the same the
Appellant thought it fit and presumed it to be a good investment opportunity
and decided to purchase shares of CPAL. Accordingly in March, 2012, the
Appellant purchased 300000 shares of CPAL at the price of Rs. 1 per share for a
total consideration of Rs. 3,00,000/-.
3. Further in May 2012
the Appellant came to know that CPAL and one Panchshul Marketing Ltd.
("PML") had purchased in Kailash Auto Finance Ltd. (“KAL”) and once
the company is acquired by the PML and CPAL they would infuse fresh capital in
KAL and they would be revamping the business drastically. Accordingly in July
2012, Our Client again approached Sanskriti Vincom Private Limited and
purchased 400000 shares of PML at the price of Rs. 1 per share for a total
consideration of Rs. 4,00,000/-.
4. Following the
amalgamation of CPAL and PML with Kailash Auto Finance Ltd. pursuant to the
Scheme of Amalgamation sanctioned by the Hon ’ble Allahabad High Court and the
Hon’ble Bombay High Court on 9th and 10th May 2013 respectively, and on July
22, 2013 the Appellant was allotted 7,00,000 shares of Kailash Auto Finance
Ltd. for the 3.00.000 and 4.00,000 shares held by him in CPAL and PML. The
Appellant had therefore, not directly invested in the shares of Kailash Auto
Finance Ltd. but was allotted shares of Kailash Auto as a result of the
amalgamation of CPAL and PML with Kailash Auto Finance Ltd. Between January
2013 and Jane 04. 2013 the shares of Kailash Auto Finance Ltd. were trading on
the stock exchange in the price range of Rs. 11/- to Rs. 44.35/-. Seeing this
as a good opportunity to earn a good return on his investment, the Appellant
sold the 7,00,000 shares of Kailash Auto Finance Ltd. held by him on the stock
exchange mechanism. I have also taken note of the fact that the appellant has
sold the scrip of KAFL through recognized stock exchange on various dates from
29/07/2013 to 23/10/2013 and through registered stock broker. When sale of the
shares have been recognized as genuine then corresponding purchase of such
shares in the demat form is also recognised. The A.O has particularly raised
the issue of exorbitant price of the share at which they are sold as compared
to very low purchase price. If there any manipulation is done to rig the price
of the shares then the SEBI is the competent body to investigate it. SEBI in
its order dated 21/09/2017 has stated that no adverse finding against the
aforementioned 244 entities with respect to their role in the manipulation of
the scrip of Kailash Auto. Accordingly SEBI has revoked the suspension of the
said entities including KAFL. Merely sharp increase in share price cannot be
the reason for treating sale/purchase of such shares as dubious in nature.
I have also considered
various reasons given by the A.O to treat the
share transaction as sham transaction. Merely, basing the judgment on
the basis of statement given by 3rd parties without corroborating it with
evidences on record is neither tenable nor reasonable inference. The A.O has
not brought on record any evidence that any cash amount were transferred , from
the appellant to the share brokers/intermediaries in lieu of money received
through cheque by way of sale of shares at an exorbitant price.
It is also my
considered view that purchase of shares through off-market is not an illegal
transaction. In this regard, Hon’ble ITAT at Mumbai in case of ACIT Vs Shri
Ravindrakumar Toshiwal in ITA nos. 5302/Mum/2008 has held that:-
We find that the issue
is covered by the decision of the Tribunal in the case of Mukesh R. Marolia
wherein it has been held that off market transaction is not a unlawful activity
and there is no relevance in seeking details of share transaction from stock
exchange when the sale was not on stock exchange and relying upon it for making
addition.
Further, sale of such
shares have neither been disputed nor any evidence are on record which shows
them as sham transaction. A.O’s casting doubt on the appellant’s credential as
director in M/s Raghunandan Capital Pvt. Ltd, which is the broker company
through which the shares were sold is not tenable in the eyes of the law as the
appellant is a separate entity and is well qualified also to take decisions on
his own. Further, the A.O has failed to bring on record any wrong doings on the
part of the broker company in the transaction.
Therefore, on factual matrix
of the case, I failed to find any discrepancy right from the purchase of shares
and till its eventual sale.
I have also taken into
account Hon’ble Rajasthan High Court Judgment at Jodhpur in case of CIT Vs. Smt
Sumitra Devi in ITA 54/2012 has held that:-
True it is that several
suspicious circumstances were indicated bv the AO but then, the findings as
ultimately recorded by him had been based more on presumptions rather than on
cogent proof. As found concurrently by the CIT(A) and the IT AT, the AO had
failed to show that the material documents placed on record by the assessee
like broker’s note, contract note, relevant extract of cash book, copies of
share certificate, de-mat statement etc. were false, fabricated or fictitious.
The appellate authorities have rightly observed that the facts as noticed by
the AO. like the notice under Section 136 to the company having been returned
unserved; delayed payment to the brokers; and de-materialization of shares just
before the sale would lead to suspicion and call for detailed examination and
verification but then, for these facts alone, the transaction could not be
rejected altogether, particularly in absence of any cogent evidence to the
contrary.
In a recent judgment,
Jurisdictional Rajasthan High Court has dismissed the revenue case in the case
of CIT-1 Vrs Smt. Pooja Agarwal and Jitendra Kumar Agarwal in the Appeal
No.385/2011. Hon’ble High Court in its order dated 11/09/2017 has upheld the
decision of CIT(A) and Hon’ble ITAT, Jaipur Bench, in giving relief to the
assessee. Hon’ble Court has recorded as under;
8. the assessee
submitted reply to the show cause notice contending that the share transactions
are genuine and the short term capital gain of Rs.98,56,872/- has been earned
from purchases and sales of shares of Konark Commercial limited and Limtux
Investment Ltd. Investigation revealed that the entire share transactions were
bogus and mere accommodation entries obtained from an entry provider Sh P K
Agarwal from Kolkata. The said facts were revealed during search carried out by
the Investigation wins, Jaipur in the case o f B C Purohit Group.
Therefore, in the above
mentioned judgments by the jurisdictional Rajasthan High Court, the Hon’ble
Court has upheld the decision taken by
the ITAT/CIT(A) that if the assessee files the copy of contract note regarding
purchase and sale of shares, assessee accounts with the brokers, copy of
depository a/c or demat a/c, payments and receipts are made through a/c payee
cheques and the transactions are routed through recognized stock exchange and
no evidence that the cash has gone back to appellant’s account then the share
transactions cannot be denied as bogus and not genuine.
5.5 Therefore, taking
into account all factual matrix, judicial rulings including jurisdictional
Rajasthan High Court judgments, it is my considered view that the appellant in
this case has reasonably discharged its onus by providing all necessary
details/evidences and the A.O has not been able to bring on record any credible
evidences (except 3 rd part statements but the assessee has not been given
proper opportunity to cross examine such persons who has given statement) to
disprove the appellant’s contention and claims. In view of the foregone, it is
my considered view that the share transaction by the appellant involving KAFL
shares cannot be treated as sham and not genuine. Accordingly, the share
transaction resulting in capital gains of Rs.2,60,17,995/- as valid transaction
and subjected to the provisions of section 10(38) of the Act. Accordingly the
addition of Rs.2,60,17,995/- u/s 68 of the Act is deleted. Appellant’s ground
of appeal on this issue is allowed.”
We further note that
this Tribunal has also considered the similar issue in the case of Shri Pramod
Jain Vs DCIT (supra) and Shri Meghraj Singh Shekhawat Vs DCIT (Supra). In the
case of Shri Meghraj Singh Shekhawat Vs DCIT (supra), the Tribunal vide order
dated 07/3/2018 has held in para 5 and 6 as under:-
“5. We have considered
the rival submissions as well as relevant material on record. The assessee has
produced record of allotment of 3,50,000 equity shares of M/s Rutron
International Ltd. under preferential issue at par of face value of Rs. 10/-
each vide allotment letter dated 08.03.2012. The Assessing Officer has not
disputed the genuineness of the letter of allotment issued by the company to
the assessee wherein it has been communicated that the assessee has been
allotted 3,50,000 equity shares vide allotment letter dated 08.03.2012 against
the application of the assessee at par of face value of Rs. 10/- each without
any premium. The assessee has also produced the bank statement showing the
payment of consideration of the acquisition of shares on 29.02.2012. It appears
that the said payment was made by the assessee at the time of applying for
allotment of shares and subsequently the shares were allotted by the company on
01.03.2012. Thus, it is clear that the shares acquired by the assessee is not a
trading transaction but these were allotted directly by the company under the
preferential issue and hence, the role of intermediate is ruled out. Once, the
shares were directly allotted by the company M/s Rutron International Ltd.
against the consideration paid by the assessee through cheque. Then the role of
any intermediately particular of Shri Anil Agrawal is said allotment does not
appear from any of the record. Even as per the statement as reproduced by the
Assessing Officer in the assessment order Shri Anil Agrawal has stated that he
is having business nexus with the companies including M/s Rutron International
Ltd. The department put a question about the association with as many as 13
companies and in response to that he has accepted that he is having business
nexus with these companies including M/s Rutron International Ltd. The nature
of service was also explained by Shri Anil Agrawal as the consultancy services.
For ready reference we quote question No. 4 and 5 and answer, thereto in the
statement of Shri Anil Agarwal as reproduced as under:-
Q 4. Whether M/s
Comfort Securities Pvt. Ltd. or you have any association with the following
companies or have ever had any business transactions with the companies as
mentioned below:
1. First Financial
Services Ltd. (FFSL)
2. Splash Media and
Infra Ltd. ( SPMIL)
3. D B (International)
stock Brokers Ltd. ( DBSBL)
4. Unisys Softwares
& Holdings Industries Ltd. (USHL)
5. Fact Enterprises
Ltd. ( FEL)
6. Parikh Herbal Ltd. (
now Safal Herbs Ltd)
7. Premier Capital
Service
8. Rutron Internationa
Ltd.
9. Radford Global Ltd
10. JMD Telefilms
Industries Ltd
11. Dhanleela
Investments & Trading Co. Ltd.
12. SRK Industries Ltd.
13. Dhenu Buildcon
Infra ltd.
Ans. M/s Comfort
Securities Ltd. has business nexus with the following companies:
Name of
the Company Nature of Business Transaction
1. First Financial Services Ltd. Brokerage and Consultancy Services
2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy
3. Fact Enterprises Ltd Broking as well as share holding
4. Rutron International Ltd. Consultancy Services
5. D.B. (International) Stock Consultancy Services Brokers Ltd.
6. Unisys Software & Holding Broking Services Industries ltd.
Apart from the above
mentioned companies neither I nor M/s Comfort Securities Ltd. has any business
nexus with the companies mentioned supra.
Q5. Do you know the promoters and directors of
the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have
any association with the promoters and directors of the above said companies or
have ever had any business transactions with the promoters and directors of the
above said companies.
Ans. Sir, I know some
of the directors of the First Financial Services Limited, Splash Media &
Infra Services Ltd, Rutron International Limited and FACT enterprise Ltd.
Regarding other companies I am not aware
who are the directors of these companies.”
Thus, it is clear from
the relevant part of statement of Shri Anil Agrawal as reproduced by the AO
that he has stated having business nexus with these companies and nature of
business being consultancy services. Hence, he has not stated anything about
providing bogus long term capital gain in respect of the equity shares of M/s
Rutron International Ltd. A business nexus with any company will not
automatically lead to the conclusion that the shares allotted by the other
company is bogus transaction. As per question no. 5 and answer thereto it is
clear that Shri Anil Agrawal was not the Director of M/s Rutron International
Ltd. but he has stated to know some of
the directors of these companies
including M/s Rutron International Ltd. Hence, from this relevant part
of the statement of Shri Anil Agrawal it cannot be inferred that he has
provided the bogus long term capital gain from purchase and shares of equity
shares of M/s Rutron International Ltd. much less the specific transaction of
preferential issue allotment of shares by the company itself to the assessee.
Further, though he has explained the modus oprendi of providing bogus long term
capital gain entries in the equity shares however, when the transaction was not
routed through Shri Anil Agrawal and the shares were allotted directly by the
company to the assessee at par on face value then the same cannot be considered
as a penny stock transactions. The assessee has produced the D-mat account and
therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of
M/s Rutron International Ltd. in D-mat account. This fact of holding the shares
in the D-mat account as on 18.06.2012 cannot be disputed. Further, the
Assessing Officer has not even disputed the existence of the D-mat account and
shares credited in the D-mat account of the assessee. Therefore, once, the
holding of shares is D-mat account cannot be disputed then the transaction
cannot be held as bogus. The AO has not
disputed the sale of shares from the D-mat account of the assessee and the sale
consideration was directly credited to the bank account of the assessee,
therefore, once the assessee produced all relevant evidence to substantiate the
transaction of purchase, dematerialization and sale of shares then, in the
absence of any contrary material brought on record the same cannot be held as
bogus transaction merely on the basis of statement of one Shri Anil Agrawal
recorded by the Investigation Wing, Kolkata wherein there is a general
statement of providing bogus long term capital gain transaction to the clients
without stating anything about the transaction of allotment of shares by the
company to the assessee. Further, Shir Anil Agrawal was not a director of M/s
Rutron International Ltd. as perceived by the AO and therefore, the entire
finding of the AO is without any corroborative evidence or tangible material.
6. The assessee has
specifically demanded the cross examined to Shri Anil Agrawal which was denied
by the AO as under :-
“(ii) The assessee’s
pleas that effective opportunity may be provided to cross examination. In this
regard, it is pointed out that the Hon’ble Supreme Court in the case of
C.Vasantlal & Co. v/s CIT 45 ITR 206 (SC) (3 Judge Bench) has observed that
“the ITO is not bound by any technical rules of the law of evidence. It is open
to him to collect material to facilitate assessment even by Private enquiry.”
Thus, in view of the decision of Hon’ble
Supreme Court in case of CCE vs. Andaman Timber Industries (supra) the
assessment based on statement without giving an opportunity is not sustainable
in law. We further note that the assessee produced copy of affidavit of Shri
Anil Agrawal who has retracted his statement before the Investigation Wing,
Kolkata however, without going into controversy of the retraction of the
statement we find that the statement cannot be used by the AO without giving an
opportunity to cross examination of Shri Anil Agrawal. The Coordinate Bench of
this Tribunal in case of Pramod Jain and Others vs. DCIT (supra) whole dealing
with an identical issue as held in para 6 to 8 as under:-
“6. We have considered the rival submissions as well as relevant material on record. The
assessee purchases 800 equity shares M/s Gravity Barter Ltd. for a
consideration of Rs. 4 lacs the assessee has produced the purchase bill of the
shares purchase from M/s Winall Vinimay Pvt. Ltd. which shows that the assessee
purchase 800 equity shares having face value of Rs. 10/- each M/s Gravity
Barter Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each
total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500
per share itself shows that it was not a transaction of purchase of penny
stock. These shares were duly reflected in the balance sheet as 31.03.2011. The
payment of the purchase consideration was made by the assessee vide cheque on
17.05.2011 which is evident from the bank account of the assessee at page 40 of
the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed
its status from private limited to a public limited and fresh certificate was
issued by the Registrar of company on 05.02.2011 which is placed at page 43 of
the paper book. Therefore, there is no reason to disbelief the fact of fresh
certificate issued by the Registrar of companies on 05.02.2011 and hence, the
date mentioned in the order of the Hon’ble Kolkata High Court as 18.04.2011 appears
to be typographical mistake. Even otherwise these two dates do not have any
effect on the genuineness of the transactions of purchase of equity shares by
the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all
the relevant records and evidences right from the purchase bills, certificate
issued by the Registrar about the change of name, the communication between the
assessee and the seller of the shares and thereafter, the amalgamation of M/s
Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly
approved by the Hon’ble High Court vide order dated 28.8.2011. The assessee in
the mean time got the physical share certificate dematerialized into Demat
account on 16.02.2012. There is no reason to doubt the allotment of the shares
to the assessee after amalgamation took place between M/s Gravity Barter Ltd.
and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the
assessee was allotted shares of M/s Oasis Cine Communication Ltd. on
04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine
Communication Ltd. cannot be doubted or disputed as these shares were issued
post amalgamation and by a listed company. It is also not in dispute that these
shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the
shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the
shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the
holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly
cannot be doubted because of the reasons that the shares of M/s Oasis Cine
Communication Ltd. could be allotted only in exchange of shares of M/s Gravity
Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment
of shares M/s Oasis Cine Communication Ltd. are directly interconnected. In the
absence of holding of shares M/s Gravity Barter Ltd. the shares of the M/s
Oasis Cine Communication Ltd. could not be issued or allotted to the assessee.
Therefore, holding of the shares by the assessee at least at time of
amalgamation took place and shares of the M/s Oasis Cine Communication Ltd. on
04.02.2012 cannot be doubted. Moreover, these shares were dematerialized by the
assessee in the Demat account, therefore, on the date of allotment of share of
M/s Oasis Cine Communication Ltd the assessee was holding these shares and
prior to that the assessee was holding the shares of M/s Gravity Barter Ltd. on
exchange of the same the shares of M/s Oasis Cine Communication Ltd. were
issued to the assessee. The Assessing Officer has doubted the genuineness of
the transactions however, once the holding of shares of the assessee at the
time of the same were issued by M/s Oasis Cine Communication Ltd. is not in
dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be
dispute because of the fact that without holding of the same the shares of M/s
Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the
shares were held by the assessee then, the question of genuineness of the
transaction does not arise however, the purchase consideration can be doubted
by the AO if the shares were claimed to have been purchased against
consideration paid in cash which is not in case of the assessee. The assessee
has paid purchase consideration through cheque and therefore, even if the said
consideration is found to be very less in comparison to the sale price at the
time of sale of shares in the absence of any material or other facts detected
or brought on record by the AO that the assessee has brought back his own
unaccounted money in the shape of long term capital gain and has used the same
as a device to avoid tax, the purchase consideration paid by the assessee
cannot be doubted in the absence of any corroborating evidence. The Assessing
Officer has not disputed that the fair market value of the shares of M/s
Gravity Barter Ltd. was more than the purchase price claimed by the assessee.
It may be a case that ensuring merger/amalgamation of the said company with M/s
Oasis Cine Communication Ltd. the assessee might have anticipant the
exceptional appreciation in the share price due to extraordinary event of
merger/ amalgamation. However, the same cannot be a reason for doubting
genuineness of the transaction if the motive of purchase of the share is to
earn an extraordinary gain because of some internal information available to
the assessee.
7. In case of equity
shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on
26.03.2011 by paying share application money of Rs. 5 lacs which is duly
reflected in the bank account of the assessee as paid on 28.03.2011. Therefore,
the payment of share application money has been duly established by the
assessee through his bank account for allotment of shares of 50,000 equity
shares of M/s Paridhi Properties Ltd. The share allotted in private placement
as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the
entire process of application and allotment of shares as it have been completed
within a short duration of 5 days, which in the opinion of the AO is not
possible in ordinary course. However, when the assessee has produced the record
including the share application, payment of share application money, allotment
of share then merely because of a short period of time will not be a sufficient
reason to hold that the transaction is bogus. The shares allotted to the
assessee vide share certificate dated 31.03.2011 were dematerialized on
21.10.2011, therefore, on the date of dematerialization of the shares the holding
of the shares of the assessee cannot be doubted and hence the acquisition of
the shares of the assessee cannot be treated as a bogus transaction.
Nobody can have the shares in his own
name in demant account without acquiring
or allotment through due process hence, except the purchase
consideration paid by the assessee holding of shares cannot be doubted when the
assessee has produced all the relevant record of issuing of allotment of
shares, payment of share application money through bank, share certificate and
demat account showing the shares credited in the demat account of the assessee
on dematerialization. The said company M/s Paridhi Properties Ltd. was
subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon’ble Bombay High
Court order dated 27.07.2012. Hence, the assessee got allotted the equity
shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the
scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each
on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave
no scope of any doubt about the holding of the shares by the assessee.
8. As regards the
purchase consideration when the assessee has shown the share application money
paid through his bank account and the AO has not brought on record any material
to show that apart from the share application money paid through bank account
the assessee has brought his own unaccounted money back as long term capital
gain. It is also pertinent to note that the shares of M/s Oasis Cine
Communication Ltd. are still held by the assessee in its demat account to the
extent of 17,200 shares and therefore, the holding of the shares by any
parameter or stretch of imagination cannot be doubted. The AO has passed the assessment
year based on the statement of Shri Deepak Patwari recorded by the
Investigation Wing of Kolkata however, the assessee has specifically demanded
the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016
specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the
assessment order as under:-
“3. Since, the shares
were allotted by the company through private placement after completing the
formalities of ROC and were sold through the recognized Bombay Stock Exchage
(BSE) there is no question of knowing individual persons or company official
personally in the whole process, so the assessee is not in position to produce
any one for cross examination before your good self. Since your good self has
got the authority, we humbly request you to kindly issue the notice u/s 131 of
the Income tax Act 1961 to the concerned individual persons or company
officials for cross examination. Please note that the assessee is ready to bear
the cost of their travelling in this regards.
4. As regard your
opportunity given to us to read the recorded statement of Shri Deepak Patwari
and to produce him from the cross examination before your good self, we have to
submit that from the reading of the statements of Shri Deepak Patwari it is
clear that he has never taken the name of the assessee, nor the assessee is
aware of any Shri Deepak Patwari neither he has made any transaction with him,
so in what capacity he can call him for cross examination before your good
self. Since your good self has got the authority, we humbly request youto
kindly issue the notice u/s 131 of the income Tax act 1961 to him also for
cross examination. We also request your good self to kingly provide us the copy
of statements of Shri Deepak Patwari along with the other relevant documents.
Please note that the assessee is ready to bear the cost of his travelling in
this regard.”
It is manifest from the assessee’s reply to
show cause notice that the assessee had specifically demanded the cross
examination of Shri Deepak Patwari however, the Assessing Officer did not offer
the opportunity to the assessee to cross examine Shri Deepak Patwari. Further,
the AO asked the assessee to produce the Principal Officers of the M/s Gravity
Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the
Assessing Officer wanted to examine the principal Officers of those companies
he was having the authority to summon them and record their statements instead
of shifting burden on the assessee. It is not expected from the assessee individual
to produce the principal Officers of the companies rather the AO ought to have
summoned them if the examination of the officers were considered as necessary
by the AO. Hence, it was improper and unjustified on the part of the AO to
asked the assessee to produce the principal Officers of those companies. As
regards the non grant of opportunity to cross examine, the Hon’ble Supreme
Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with
the issue has held in para 5 to 8 as under:
“5. We have heard Mr.
Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K.
Radhakrishnan, learned senior counsel who appeared for the Revenue.
6. According to us, not
allowing the assessee to cross-examine the witnesses by the Adjudicating
Authority though the statements of those witnesses were made the basis of the
impugned order is a serious flaw which makes the order nullity inasmuch as it
amounted to violation of principles of natural justice because of which the
assessee was adversely affected. It is to be borne in mind that the order of
the Commissioner was based upon the statements given by the aforesaid two
witnesses. Even when the assessee disputed the correctness of the statements
and wanted to cross-examine, the Adjudicating Authority did not grant this
opportunity to the assessee. It would be pertinent to note that in the impugned
order passed by the Adjudicating Authority he has specifically mentioned that
such an opportunity was sought by the assessee. However, no such opportunity
was granted and the aforesaid plea is not even dealt with by the Adjudicating
Authority. As far as the Tribunal is concerned, we find that rejection of this
plea is totally untenable. The Tribunal has simply stated that cross-
examination of the said dealers could not have brought out any material which
would not be in possession of the appellant themselves to explain as to why
their ex-factory prices remain tatic. It was not for the Tribunal to have guess
work as to for what purposes the appellant wanted to cross- examine those
dealers and what extraction the appellant wanted from them.
7. As mentioned above,
the appellant had contested the truthfulness of the statements of these two
witnesses and wanted to discredit their testimony for which purpose it wanted
to avail the opportunity of cross-examination. That apart, the Adjudicating
Authority simply relied upon the price list as maintained at the depot to
determine the price for the purpose of levy of excise duty. Whether the goods
were, in fact, sold to the said dealers/witnesses at the price which is
mentioned in the price list itself could be the subject matter of
cross-examination. Therefore, it was not for the Adjudicating Authority to
presuppose as to what could be the subject matter of the cross-examination and
make the remarks as mentioned above. We may also point out that on an earlier
occasion when the matter came before this Court in Civil Appeal No. 2216 of
2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal
with the directions to decide the appeal on merits giving its reasons for
accepting or rejecting the submissions.
8. In view the above,
we are of the opinion that if the testimony of these two witnesses is
discredited, there was no material with the Department on the basis of which it
could justify its action, as the statement of the aforesaid two witnesses was
the only basis of issuing the Show Cause Notice.”
Therefore, the
statement of witness cannot be sole basis of the assessment without given an
opportunity of cross examination and consequently it is a serious flaw which
renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC
Industries vs. ACIT (supra) had the occasion to consider the addition made by
the AO on the basis of suspicion and surmises and observed in par 46 as under:-
“46. In situations like
this case, one may fall into realm of 'preponderance of probability' where
there are many probable factors, some in favour of the assessee and some may go
against the assessee. But the probable factors have to be weighed on material
facts so collected. Here in this case the material facts strongly indicate a
probability that the wholesale buyers had collected the premium money for
spending it on advertisement and other expenses and it was their liability as
per their mutual understanding with the assessee. Another very strong probable
factor is that the entire scheme of 'twin branding' and collection of
premium was so designed that assessee- company need not incur advertisement
expenses and the responsibility for sales promotion and advertisement lies
wholly upon wholesale buyers who will borne out these expenses from alleged
collection of premium. The probable factors could have gone against the
assessee only if there would have been some evidence found from several
searches either conducted by DRI or by the department that Assessee-Company was
beneficiary of any such accounts. At least something would have been unearthed
from such global level investigation by two Central Government authorities. In
case of certain donations given to a Church, originating through these benami
bank accounts on the behest of one of the employees of the assessee company,
does not implicate that GTC as a corporate entity was having the control of
these bank accounts completely. Without going into the authenticity and
veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of
the opinion that this one incident of donation through bank accounts at the
direction of one of the employee of the Company does not implicate that the
entire premium collected all throughout the country and deposited in Benami
bank accounts actually belongs to the assessee-company or the assessee-company
had direct control on these bank accounts. Ultimately, the entire case of the
revenue hinges upon the presumption that assessee is bound to have some large
share in so-called secret money in the form of premium and its circulation.
However, this presumption or suspicion how strong it may appear to be true, but
needs to be corroborated by some evidence to establish a link that GTC actually
had some kind of a share in such secret money. It is quite a trite law that
suspicion howsoever strong may be but cannot be the basis of addition except
for some material evidence on record. The theory of 'preponderance of
probability' is applied to weigh the evidences of either side and draw a
conclusion in favour of a party which has more favourable factors in his side.
The conclusions have to be drawn on the basis of certain admitted facts and
materials and not on the basis of presumption of facts that might go against
assessee. Once nothing has been proved against the assessee with aid of any
direct material especially when various rounds of investigation have been
carried out, then nothing can be implicated against the assessee.”
Therefore, when the
Assessing Officer has not brought any material on record to show that the
assessee has paid over and above the purchase consideration as claimed and
evident from the bank account then, in the absence of any evidence it cannot be
held that the assessee has introduced his own unaccounted money by way of bogus
long term capital gain. The Hon’ble Jurisdiction High Court in case of CIT vs.
Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue
in para 12 as under:-
“12. However, counsel
for the respondent has taken us to the order of CIT(A) and also to the order of
Tribunal and contended that in view of the finding reached, which was done
through Stock Exchange and taking into consideration the revenue transactions,
the addition made was deleted by the Tribunal observing as under:-
"Contention of the
AR is considered. One of the main reasons for not accepting the genuineness of
the transactions declared by the appellant that at the time of survey the
appellant in his statement denied having made any transactions in shares.
However, subsequently the facts came on record that the appellant had
transacted not only in the shares which are disputed but shares of various
other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc.
Regarding the transactions in question various details like copy of contract
note regarding purchase and sale of shares of Limtex and Konark Commerce &
Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker,
company's master details from registrar of companies, Kolkata were filed. Copy
of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary
of NSDL was also filed which shows that the transactions were made through
demat a/c. When the relevant documents are available the fact of transactions
entered into cannot be denied simply on the ground that in his statement the
appellant denied having made any transactions in shares. The payments and
receipts are made through a/c payee cheques and the transactions are routed
through Kolkata Stock Exchange. There is no evidence that the cash has gone
back in appellants's account. Prima facie the transaction which are supported
by documents appear to be genuine transactions. The AO has discussed modus
operandi in some sham transactions which were detected in the search case of
B.C. Purohit Group. The AO has also stated in the assessment order itself while
discussing the modus operandi that accommodation entries of long term capital
gain were purchased as long term capital gain either was exempted from tax or
was taxable at a lower rate. As the appellant's case is of short term capital
gain, it does not exactly fall under that category of accommodation
transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K.
Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B. C.
Purihit and Co. group. The AR made submission before the AO that the fact was
not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh.
P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K.
Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar
Purohit. Copy of the order of settlement commission was submitted. The AO has
failed to counter the objections raised by the appellant during the assessment
proceedings. Simply mentioning that these findings are in the appraisal report
and appraisal report is made by the Investing Wing after considering all the material
facts available on record does not help much. The AO has failed to prove
through any independent inquiry or relying on some material that the
transactions made by the appellant through share broker P.K. Agarwal were
non-genuine or there was any adverse mention about the transaction in question
in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank
a/c were opened with HDFC bank and the appellant has also received short term
capital gain in his account with HDFC bank does not establish that the
transaction made by the appellant were non genuine. Considering all these facts
the share transactions made through Shri P.K. Agarwal cannot be held as
non-genuine. Consequently denying the claim of short term capital gain (6 of 6)
[ ITA- 385/2011] made by the appellant before the AO is not approved. The AO is
therefore, directed to accept claim of short term capital gain as shown by the
appellant."
In view of the above
facts and circumstances of the case, we are of the considered opinion that the
addition made by the AO is based on mere suspicion and surmises without any
cogent material to show that the assessee has brought back his unaccounted
income in the shape of long term capital
gain. On the other hand, the assessee has brought all the relevant material to
substantiate its claim that transactions of the purchase and sale of shares are
genuine. Even otherwise the holding of the shares by the assessee at the time
of allotment subsequent to the amalgamation/merger is not in doubt, therefore,
the transaction cannot be held as bogus. Accordingly we delete the addition
made by the AO on this account.”
Thus, it is clear that
the Tribunal in the said case has analyzed an identical issue wherein the
shares allotted in the private placement @ Rs. 10 at par of face value which
were dematerialized and thereafter sold by the assessee and accordingly the
Tribunal after placing reliance on the decision of Hon’ble Supreme Court in
case of CCE vs. Andaman Timber Industries (supra) as well as the decision of
Hon’ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra)
as held that when the Assessing Officer has not brought any material on record
to show that the assessee has paid over and above purchase consideration as
claimed and evident from the bank account then, in the absence of any evidence
it cannot be held that the assessee has introduced his own unaccounted money by
way of bogus long term capital gain. Similar in the case in hand the assessee
has produced the relevant record to show the allotment of shares by the company
on payment of consideration by cheque and therefore, it is not a case of
payment of consideration by in cash. But the transaction is established from
the evidence and record which cannot be
manipulated as all the entries are part of the bank account of the assessee and
the assessee dematerialized the shares in the D-mat account which is also an
independent material and evidence cannot be manipulated. Therefore, the holding
of the shares by the assessee cannot be doubted and the finding of the AO is
based merely on the suspicion and surmises without any cogent material to show
that the assessee has introduction his unaccounted income in the shape of long
term capital gain. We find that the ld. CIT(A) has also referred to SEBI enquiry
against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding
financial irregularities and use of fund belonging to the clients for the
purpose other than, the purchase of shares on behalf of the clients. Therefore,
the subject matter of the enquiry has no connection with the transaction of
bogus long term capital gain. The decisions replied upon the ld. DR in case of
Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of
the present case as the said decision is in respect penny stock purchase by the
assessee from a persons who was found to be indulged in providing bogus capital
gain entries whereas in the case of the assessee the shares were allotted to
the assessee by the company at par of face value. Hence, in view of the facts
and circumstances when we hold that the order of the Assessing Officer treating
the long term capital gain as bogus and consequential addition made to the
total income of the assessee is not sustainable. Hence, we delete the addition
made by the AO on this account.
Therefore, on analyzing
of the facts as well as the evidence produced by the assessee, we find that the
Assessing Officer has not brought any material on record to controvert the fact
duly established by the supporting evidence of purchase bills, payment of
consideration through bank, dematerialization of shares in the DEMAT account,
allotment of the shares amalgamated new entity in lieu of the earlier two
companies of equal number of shares. Sale of shares from the DEMAT account
through stock exchange and at the prevailing price as on the date of sale and
further payment of STT on the transaction of sale has been duly established. In
absence of any contrary fact, the mere reliance by the Assessing Officer on the
report of Investigation Wing, Kolkata is not sufficient to establish the fact
that the transaction is bogus. The finding of the Assessing Officer is based
merely on the suspicion and surmises without any tangible material to show that
the assessee has introduced his own unaccounted income in the share of long
term capital gain even otherwise the reliance of the statements recorded by the
Investigation Wing, Kolkata wherein without giving an opportunity of cross
examination is a complete violation of principles of natural justice as held by
the Hon'ble Supreme Court in the case of CCE Vs Andaman Timber Industries
(Supra). The Coordinate Bench has also followed the decision of the Hon’ble
Jurisdictional High Court in the case of CIT Vs. Pooja Agarwal order dated
11/09/2017 wherein the Hon'ble High Court has duly considered the fact that the
Assessing Officer has not brought any material on record to show that the
assessee has paid over and above the purchase consideration as claimed and
evident from the bank account. Therefore, in absence of any evidence, it cannot
be held that the assessee has introduced
his own unaccounted money by way of bogus long term capital gain. Accordingly,
in view of above facts and circumstances, we do not find any error or
illegality in the order of the ld. CIT(A) qua this issue. Hence, this ground of
revenue’s appeal is dismissed.
7. Ground No. 2 of the
appeal is regarding the addition made by the Assessing Officer on account of
notional commission expenses U/s 69C of the Act. We have heard the ld DR as
well as the ld AR of the assessee and considered the relevant material on
record. This is a consequential issue to the addition made by the Assessing
Officer U/s 68 of the Act treating long term capital gain as accommodation
entries for bogus claim of exempt income and consequently the Assessing Officer
has also made an addition on account of expenditure of Rs. 10,68,720/- being
unexplained commission expenses on such transaction of accommodation entries.
8. Since this is a
consequential issue and the ld. CIT(A) has decided and same in para 6.3 as
under:
“6.3 I have considered
the order passed by the A.O. and submissions filed by the appellant. This ground of appeal is the
offshoot of the Ground of appeal No. 2, which has been adjudicated in favour of
the assessee. Hence there is no basis left for the addition of Rs. 10,68,720/-
as possible commission paid to brokers/intermediaries to arrange for the
accommodation entry. Accordingly, the addition of Rs. 10,68,720/- is deleted.
And the appellant’s ground of appeal on this issue is allowed.”
9. In the result, appeal
of the revenue is dismissed.
Order pronounced in the
open court on 29/08/2018.
(VIKRAM SINGH YADAV) (VIJAY PAL RAO)
Accountant Member Judicial Member
Dated:- 29th August,
2018
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