TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 509
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....Income Tax Department, Kolkata and at Para. 4, he stated as follows: "4. Before going into the details of this particular case, it is pertinent to discuss the background of the Investigation carried out by the Investigation Wing of the Income Tax Department, Kolkata. For this relevant portions of the Investigation Reports are reproduced herein: In the whole project total 84 BSE listed penny stocks have been identified and worked upon. After that, number of search and surveys were conducted in the office premises of more than 32 shares broking entities, which accepted that they were actively involved in the bogus LTCS/STCL Scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements recorded. All have accepted their role in the scam. Beneficiaries of more than Rs. 38 thousand Crore have been identified and segregated DGIT(Inv. ) wise. Total number of more than 60 thousand PAN numbers of the beneficiaries have been identified, which is being reported to assessment wings through the DGIT's. This report also covers more than 5000 Shell/Paper companies which are better known as Jamakharchi Companies, which are involved in....
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....result in LTCG assured to the beneficiaries. This maximum is reached around the time when the initial allottees have held the shares for one year or little more and thus, their gain on sale of such shares would be eligible for exemption from Income Tax. x. An analysis of share buyers of some of LTCG companies was done to see if there were common persons/entities involved in buying the bogus inflated shares. It was noted that there were many common buyers [which were paper companies]. xi. The prices of the shares fall very sharply after the shares of LTCG beneficiaries have been off loaded through the pre-arranged transactions on the Stock Exchange floor/portal to the Short Term Loss seekers or dummy paper entities. xii. The shares of these companies are not available for buy/sell to any person outside the syndicate. This is generally ensured by way of synchronized trading by the operators amongst themselves and/or by utilizing the mechanism of upper/lower circuit of the Exchange. The assessee submitted various documents in support of her claim that the transactions in question are genuine. She also relied on certain case laws. The AO did not accept the evidence filed by the ....
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....y the company "Smart Champ IT & Infra Ltd. " in its return filed before the Registrar of companies as a shareholder in the year 2011-12 and that the assessee had lodged the shares with a depositary, with ademat request on 11. 02. 2012. Further, the Hon'ble Bombay High Court hadapproved the Scheme of Amalgamation of "Smart Champ IT & Infra Ltd. " with a company M/s. "Cressanda Solution ltd. ". That in accordance with the scheme of amalgamation the assessee was allotted fifty thousand equity shares of M/s. Cressanda Solution Ltd. and that the documents filedreflected the transaction statement for the period 01. 11. 2011 to 31. 12. 2013. It was further submitted that these shares were sold through the broker"SKP Stock Broking Pvt. Ltd. "who is a SEBI registered broker and all the evidences in this regard were filed. It was pleaded that the scripts were held for more than 500 days, which proves the bonafidenature of the shareholdings as no sale was done immediately on completion of 365 days. It was submitted that the assessee is not connected with the promoters and has nothing to do with the alleged rigging of shares, if any. Reliance was placed on number of decisions for the propositi....
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....eged bogus long term capital gain with the help of many alleged connected parties through price rigging and price manipulations does not arise. f. The A. O. has drawn an adverse inference in regard to purchases through private placement of shares. It is common knowledge that the management of various companies comes out with private placement of equity shares, of which information is disseminated through market grapevine. Applications are made on that basis and allotment is obtained. There are also market rumours that the shares in question will see a phenomenal rise in the near future. The assessee merely acted on the basis of such market information and happened to get phenomenal gain. It could have been otherwise as well. The rags to riches story in the stock market are a galore. But the scope of downside in this particular scrip was virtually nil as the assessee was getting the shares at the rock bottom price. So, she took a prudent but calculated risk. g. It has been submitted that the alleged circumstances, circumstantial evidence and material has led the A. O. to believe that the real is not the apparent. In the absence of any link between the assessee and the alleged ad....
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....tial gain and sold the shares in the online system, when substantial gains materialised. It is submitted that just because the assessee is able to draw benefit out of the rigging of prices done by others in the transactions bonafidely done in the fully legalised system with not a shred of evidence on record to prove the complicity of the assessee in the alleged crime, it is not possible to draw any adverse inference against the assessee. m. The A. O. has also, nowhere in the assessment order referred to any material which can prove the complicity of assessee in the alleged accommodation entry operation. If the assessee has taken advantage of the price rise in an open manner through the transaction conducted in the official online system, no adverse inference can be drawn against the assessee. 8. He submitted that the overwhelming documentary and circumstantial evidence has to be considered and not mere suspicion andpreponderance of probabilities. He relied on a number of case laws, which we would refer to, as and when necessary. 9. The ld. DR on the other hand, relied on the order of the assessing officer and reiterated the findings made therein and submitted that the same be u....
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....nt of the period from 1st November 2011 to 31st December, 2013 (A copy of the scheme of amalgamation alongwith copy of order of the Hon'ble Bombay High Court and a copy of the letter to this effect submitted by "Cressanda Solutions Ltd". to Bombay Stock Exchange is placed in the Paper Book at page no 22 to 43. ) 6. The assessee sold 50000 shares costing Rs. 500000/- through her broker "SKP Stock Broking Pvt. Ltd" which was a SEBI registered broker and earned a Long Term Capital Gain of Rs. 2, 18, 13, 072/-. (Copy of the bank statement, brokers contract note together with the delivery instructions given to the DP and broker's confirmation is also placed in the paper book at page no 44 to 65). 7. Copy of Form No. 10DB issued by the broker, in support of charging of S. T. T. in respect of the transactions appearing in the ledger is placed in the paper book at page no. 66. 8. The holding period of the said scrip is more than one year (above 500 days) through in order to get the benefit of claim of Long Term Capital Gain the holding period is required to be 365 days. 12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referri....
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....m third parties cannotbe used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis forthe addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on these market tips and had taken a calculated risk and had gained in the process and that she is not partyto the scam etc. , has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60, 000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal importlaid down by the Courts of law. 15. In our view, just the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless sp....
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....the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, in our view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported b....
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....ppellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1, 000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1, 000 each". The observations of the Hon'ble Apex Court are equally applicable to the case of the assessee. In our view, the assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 1....
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....gainst him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an effective and useful cross-examination. 29. In Rajiv Arora v. Union of India and Ors. AIR 2009SC 1100, this Court held:Effective cross-examination could have been done as regards the correctness or otherwise of the report, ifthe contents of them were proved. The principles analogous to the provisions of the Indian Evidence Actas also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on atechnical plea, namely, no prejudice has been causedto the Appellant by such nonexamination. If the basic principles of law have not been complied with or therehas been a gross violation of the pr....
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....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 presupposeas 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 inCivil Appeal No. 2216 of 2000, order dated 17-3- 2005[2005 (187) E. L. T. A33 (S. C. )] was passed remittingthe case back to the Tribunal with the directions todecide the appeal on merits giving its reasons for accepting or rejecting the submissions. 7. 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 witnes....
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.... capital gain. Hence wedelete the addition made by the AO on this account. " c)The Hon'ble Punjab and Haryana High Court in the case of PREMPAL GANDHI[ITA-95-2017(O&M)] dated18. 01. 2018 at vide Page 3 Para 4 held as under: ".... . The Assessing Officer in both the cases added the appreciation to the assessee's' income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee's' income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On theother hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receiptswere routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. " The Court also held the following vide Page 3 Para 5 the following: "Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in....
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....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. We, therefore, direct theAO to delete the addition. " e) The BENCH "D" OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15. 11. 2017 held vide Para 9. 3 held as under: "....... . We find that 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, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. 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). We note that the allegations that the assesse/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that 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....
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....ere bonafide and genuine and therefore the ld AO was notjustified in rejecting the assessee's claim of exemption under section 10(38) ofthe Act. " g) The BENCH "H"OF MUMBAIITAT in the caseof ARVINDKUMAR JAINHUF[ITA No. 4682/Mum/2014]order dated 18. 09. 2017 held as under vide Page 6 Para 8: "......We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and....