TaxTMI 
TaxTMI 
2018 (8) TMI 509
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....rried out by the Investigation Wing of the 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 wh....
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....alysts]. ix. The volume of trade jumps manifold immediately when the market prices of shares reach at optimum level so as to 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 ....
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....his submissionsis that the assessee has been allotted fifty thousand equity shares of "Smart Champ IT & Infra ltd", on an application made by the assessee, and the amount in question was paid through banking channels and the name of the assessee was reflected by 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 sharehold....
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.... as stated by the A. O. e. The assessee has transacted in the shares of Cressand Solutions Ltd. / amalgamated company in the normal course of investment like millions of investors do in the stock market. Therefore, the question of alleged conversion of unaccounted money in the form of alleged 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 th....
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....rrelation with the fundamentals of the company. The price of any commodity including shares is determined by the market forces of demand and supply of the market players and not by their intrinsic worth. l. The assessee categorically submits that the assesseebonafidely purchased the shares in private placement in anticipation of substantial 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....
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....in the paper book at page no. 19 to 21). 5. On 24. 01. 2013, the Hon'ble Bombay High Court approved the scheme of amalgamation of "Smart Champs IT and Infra Ltd. " with "Cressanda Solutions Ltd. " In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of "M/s. Cressanda Solutions Ltd. " The demat shares are reflected in the transaction statement 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....
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....ird party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 14. It is well settled that evidence collected from 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 reje....
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....gated, including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact, the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of 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 th....
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....le source or sources from which the appellant could have earned a large amount in the sum of Rs. 2, 91, 000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant 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 th....
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.... e. audi alterampartem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend him self against the charges, on the basis of which an inquiry isheld. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against 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 ju....
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....amination 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 static. It was not for the Tribunal to have guess work as to for what purposes theAppellant wanted to cross-examine those dealers andwhat extraction the Appellant wanted from them. 6. 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 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 inCiv....
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..... The appeal and the stay petition, accordingly, shall stand dismissed. " b) The JAIPURITAT in the case of VIVEKAGARWAL[ITA No. 292/JP/2017]order dated 06. 04. 2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based onsuspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AOhas also failed to establish that the assessee has brought back his unaccounted income in the shape of long term 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 t....
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.... from LTCG is exempted u/s 10(38) of the Act. " Further in Page 15 Para 8. 5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster his claimwhich are not being repeated again since it has already been incorporated inthe submissions of the ld. AR (supra) and have been duly considered by us toarrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaidfacts and circumstances of the case, we hold that the ld. 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. 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 l....
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....allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also amatter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be falseor fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were 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 ....