TaxTMI 
TaxTMI 
2018 (3) TMI 1639
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....acts and in the circumstances of the case and in law, Ld. CIT(A) has grossly erred in confirming the addition made by Ld. AO without providing opportunity for cross-examination, when specific requests were made before Ld. AO which were turned down arbitrarily, without assigning any reason. Thus, the impugned Assessment completed, committing such a serious illegality deserves to be quashed and the consequent addition be deleted. 3. On the facts and in the circumstances of the case and in law, ld. CIT(A) further erred in confirming the addition made by Ld. AO, by completely ignoring the fact that Sh. Anil Agrawal, whose statements were heavily relied upon for making addition, had retracted such statements and copy of affidavit was also provided to both Ld. AO and Ld. CIT(A). Thus, addition made on the basis of retracted statements deserves to be deleted. 4. On the facts and in the circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition by relying upon the report of SEBI, which was nowhere discussed by ld. AO during assessment proceedings . Thus action of Ld. CIT(A) in placing reliance upon report of SEBI without providing assessee with the ....
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....69C of the I. T. Act, 1961 on whims and fancies and baselessly alleging that the assessee has paid commission at the rate of 2% of the long term capital gain to the entry provider without appreciating the facts and circumstances of the case and the submissions made and further bringing on evidence on record for saying so. Thus, the addition of Rs. 2,65,122/- deserves to be deleted. 7. That the appellant craves the leave to amend/ alter all or any of the grounds of this appeal on or before the hearing of the matter." 2. Ground Nos. 1 to 5 are regarding the long term capital gain from sale of shares declared by the assessee and claimed as exempt income u/s 10(38) of the Act was treated by the AO as bogus and added the said amount to the total income of the assessee u/s 68 of the Act. The assessee is an individual and engaged in the business of retail sale of IMFL/Beer. A search u/s 132 of the Income Tax Act was conducted on 17.07.2013 in case of MRS Group of which the assessee belongs. In the Return of income filed in response to notice u/s 153A of the Act, the assessee declared total income Rs. 16,08,31,700/- including the income surrendered and declared by the assessee ....
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....he assessee has submitted that the Assessing Officer has made this addition solely on the basis of the statement of Shri Anil Agarwal recorded statement u/s 132(4) by the Investigation Wing, Kolkata without any corroborative evidence to show that the assessee has converted its unaccounted income in the long term capital gain. He has further contended that even in the said statement recorded u/s 132(4) Shri Anil Agarwal has not mentioned any fact about providing bogus long term capital gain entry to the assessee or even he was a promoter of M.s Rutron International Ltd. The ld. AR has further submitted that the assessee specifically demanded the cross examine of Shri Anil Agarwal on whose statement the AO has based his assessment order and made addition on account of bogus long term capital gain. Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman timber Industries 127 DTR 241. The addition made by the AO is not sustainable. The ld. AR has submitted that the assessee was allotted 3,50,000/- equity shares by M/s Rutron International Ltd. on 01.03.2012 vide allotment letter dated 08.03.2012. The shares were allotted by the company at face value of Rs. 10/....
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....ng an opportunity of cross examine to the assessee. The ld. AR has relied upon the decision of Hon'ble Pubjab and Haryana High Court dated 18.01.2018 in case of CIT vs. Prem Pal Gandhi in ITA No. 95/2017. He has also relied upon the decision of the Coordinate Bench of this Tribunal dated 31.01.2018 in case of Pramod Jain & others vs. DCIT in ITA No. 368/JP/2017 and submitted that in all these decisions when the assessee produced the supporting evidence to prove the genuineness of the transactions and the AO has failed to produce any counter evidence to disprove the evidence produce by the assessee it was held that the transactions cannot be treated as bogus merely on the basis of statement without any corroborating evidence brought by the Assessing Officer. 4. On the other hand, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrou....
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.... 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. ....
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.... 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,....
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....nt 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 Re....
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....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 B....
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.... 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 o....
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....ead 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 ....
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.... 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 aseessee. 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 promoti....
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....how 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, ....
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....r 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 s....
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....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. 7. Ground No. 6 is regarding the addition made by the AO on account of notional commission of Rs. 2,65,122/- u/s 69C of the Act which is consequential to the issue of treatment of long term capital gain as bogus. Once, we have reversed the finding of the AO on the issue of treatment of long term capital gain as bogus then, the consequent addition made by the AO on notional commission is not sustainable. Accordingly, the same is deleted. 8. For the assessment year 2014-....
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....he Ld. CIT(A) has further erred in confirming addition by observing that: (i) preferential share allotment letter was not bearing any running/ distinctive No. (ii) purchase transaction was not online when the sale transaction was online. (iii) shares were credited in DMAT account after a lapse of 3 months. (iv) SEBI inquiry was conducted in the dealings of broking firm of Sh Anil Kumar Agarwal and M/s Anand Rathi Share and Stock Broker Ltd., which facts were kept away from the knowledge of Ld. AO whereas assessee himself was unaware of such facts. (v) SEBI has barred Sh. Anil Kumar Agarwal among others from securities market from suspected tax evasion and laundering of black money through stock market platforms and has debarred trading of shares of the entity M/s Rutron International Ltd. on BSE. (vi) the assessee has failed to furnish (a) copy of share certificates (b) Article of Association (c) Valuation Report of registered valuer evidencing allotment of shares (d) details of annual return filed before ROC (e) copy of board resolution authorising addition of shareholders during the year (f) Details of Register of Member....