TaxTMI 
TaxTMI 
2018 (10) TMI 53
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....-10, Kolkata 561/CIT(A)-10/W-34(4)/2014-15/2016-17/Kol 28.03.2018 CIT(A)-10,Kolkata 572/CIT(A)-10/W-36(1)/2014-15/2016-17/Kol 01.03.2018 CIT(A)-Siliguri 51/CIT(A)/SLG/2016-17 22.03.2018 CIT(A)-10,Kolkata 132/CIT(A)-10/W-34(2)/2014-15/2016-17/Kol 12.01.2018 CIT(A)-6, Kolkata CIT(A), Kolkta-6/10287/2016-17 08.03.2018 CIT(A)-10, Kolkata 469/CIT(A)-10/W-36(1)/2014-15/2016-17/Kol 20.04.2018 CIT(A)-10, Kolkata 568/CIT(A)-10/W-35(2)/2014-15/2016-17/Kol 29.12.2018 CIT(A)-10, Kolkata 855/CIT(A)-10/Wd-36(4)/15-16/2017-18/Kol 12.04.2018 Relevant assessment year involved in all cases is 2014-15 except ITA No.1266/Kol/2018 relating to A.Y.2013-14. 2. I have heard all learned counsel(s) representing these assessees as well as the Revenue reiterating their respective stands against and in support of the lower authorities' impugned action treating their respective capital gains amounts to be bogus. I also condone 17 days delay in ITA No.1266/Kol/2018 as the Revenue is fair enough in not disputing the sole issue averments citing reasons thereof. I take up ITA No.1263/Kol/2018 in case of Shri Jignesh Desai to be the lea....
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....wance/addition @2.5% amounting to Rs. 60,041/- as unexplained expenditure. 6. The CIT(A) upholds the Assessing Officer's action with the following detail discussion : "1. I have carefully considered the action of the Ld. AO In making an addition of Rs. 25,21,600/- as unexplained credit u/s 68 of the Income Tax Act, 1961. After an exhaustive discussion and elaborating the factual and legal matrix, I find that the Ld. AO has held that the claim of Long Term Capital Gain u/s 10(38) was to be denied to the assessee-individual, and was to be assessed as unexplained cash credit u/s 68 of the I T Act. The Ld. AO has placed on record the entire gamut of findings, and there Is, In my considered view no further requirement for elaboration from this forum. In my view of the facts there are elaborate and direct evidence to clearly Indicate that that the entire transactions undertaken by the appellant were merely accommodation entries taken for the purpose of such bogus Long Term Capital Gain made by the assessee during the previous year .. It is apparent that, in the grab of alleged LTCG, the assessee "earned" exempt income of Rs. 25,21,600/- and huge amount brought into the books ....
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....efore the Ld. AO by the assessee-appellant are enough to justify the humongous gains accruing to the assessee by way of Capital Gains. In my considered view the banking documents are mere self serving recitals. The law in the matter of selfserving recitals has been long established by the Hon'ble apex Court. In the case of CIT vs P.Mohankala 291 ITR 278, the Hon'ble Supreme Court held that" the money came by way of bank cheque and was paid through the process of banking transactions was not by itself of any consequences." The burden of proof is on the assessee in the matter of justification of receipts which are of suspicious and dubious nature. In the case of CIT vs. Durga Prasad More (1971)82 ITR 540 (SC), their Lordships laying down the significance of human probabilities held as under: "in a case where a party relied on self serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals." Similarly in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), their Lordships held as under: "In view of section 68 of the A....
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....d reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars. This may entail Issue of notices to third parties to furnish and supply Information or confirm facts or even attend as witnesses. The Assessing Officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response. We cannot lay down or state a general or universal procedure or method which should be adopted by the assessing officer when verification of facts is required. The manner and mode of conducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons form whom confirmation or verification is required. The verification and investigation should be one with the least amount of intrusion, Inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application or....
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....dence as may be admissible under the Indian Evidence Act the use of word 'material' in Sec.143(3) showed that the assessing officer, not being a court could rely upon material, which might not strictly be evidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. Court often took judicial principal fact. It is evidence of various facts, other than the fact in Issue which are so associated with the fact in issue, that taken together, they form a chain of circumstances leading to an Inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are - (1.) the circumstances alleged must be established by such evidence, as In the case of other evidence (2) the circumstances proved, must be of a conclusive nature and not totally Inconsistent with the circumstances or contradictory to other evidence. (3) although there should be no missing links In the case, yet It is not essential that every one of the links must appear on the surface of the evidence adduced ; some of these links may have to be inferred from th....
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....in the offing, as the relevant Investigations were in process. In view of these observations, we do not accede to the assessee's pleas in this behalf. The Assessee's contentions and objections In this behalf that the material available on record was not admissible as evidence and that It cannot be relied on by the AO, are devoid of any merit and are rejected outright....... " 8. When the impossible is projected as possible through a plethora of well arranged documents, it would be very reasonable to reject the documents outright as make believe and self serving. In the Case of Us ha Chandresh Shah Vs ITO, Ward- 19(1)(2), Mumbai, the Hon'ble ITAT - "F " Bench Mumbai by their Order for A.Y.2006-07 26th September, 2014 have, in the operational portion adjudicated as under : [Quote] 9. We have heard the rival contentions and perused the record. The pertinent points are that the assessee has claimed to have purchased the Impugned shares through Off market transaction. The purchase price was not paid by cheque, but it was claimed to have been adjusted against the speculation profit claimed to have been made by the assessee. The small difference of Rs. 3....
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....sessee has claimed to have purchased the shares in physical format in May, 2004, she chose to D-Mat the same only In June 2005, just two months prior to its sale. The shares were sold through a share broker named Sanju Kabra, who is indicted by SEBI for rigging the prices of penny stock shares. It is pertinent to note that the share prices of MIs Prime Capital Markets Ltd went from Rs. 5.17 (May, 2004) to Rs. 279.50 (Sep., 2005). The assessee could not furnish any reasons or at-least stock market news to support the abnormal Increase in the prices of the above said shares. The financial statements of the above said company were also not produced. Though M/s Prime Capital Markets Ltd has confirmed the entries in its books of account with regard to the purchases made by the assessee, It could not identify the name of purchaser to whom the shares were sold by the assessee. 12. We have already seen that the tax authorities have applied the test of human probabilities explained by the Hon'ble Supreme Court In the cases of Sumati Dayal and Durga Prasad More (supra) to disbelieve the claim of Long term Capital gains put forth by the assessee. We notice that the test of human ....
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....Penny Stock" by SEBI and the broker Sanju Kabra, through whom the shares were sold by the assessee was Indicted for manipulating the prices of penny stock shares. Hence, In our view, the tax authorities have rightly applied the test of human probabilities to examine the claim of purchase and sale of shares made by the assessee. 15. We notice that the Mumbai D bench has considered an identical issue In the case of Shrl Ramesh Kumar D Jain In ITA No.3192/Mum/2010 relating to assessment year 2006-07. The Tribunal, vide Its order dated 15-06-2011, rejected the claim of making speculation gains on the reasoning that speculation transactions could not have been entered Into by the assessee therein without paying margin money to the broker. Accordingly, the claim of purchase of shares was rejected by the Tribunal and consequently the claim of sale of shares was also rejected. It is pertinent to note that, in the decisions relied upon by the assessee, the claim of speculation profits was not considered by the Tribunal. In yet another case of Shrl Araving M Kariya considered by "A " bench of Mumbai ITAT, the test of human probabilities was applied to reject the aim of profit realiz....
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....hased through a broker Munish Arora & Co. and sold through another broker M/s S.K. Sharma & Co. The AO took by surprise the astronomical rise In share price of a company from Rs. 3 to Rs. 55 and started further Inquiry. The AO Issued notice under Section 131 to both the brokers from whom shares were purchased and sold and statements were recorded. The AO also analyzed the balance sheet of- M/s Ankur . International Ltd. To justify as to how the share price of a company can go up from a .mere Rs. 3 to Rs. 55 In a short span of six to seven months' time. The. AO made detailed and extraneous exercise of finding the fundamental of the share of the company by different methods and concluded that these shares were not genuine and transactions were so arranged so as to cover up the loss Incurred on account of sale of jewellery only. The AO also recorded the finding that transactions were made at Ludhiana where also the share price of the company is quoted but maximum value of the share are quoted was Rs. 17 but that was only In July, 1997, .i.e. long before the shares were sold by the assessee to M/s S.K. Sharma & Co. in the of months of February and March, 1998. The AO also recorded ....
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....hare market, share price does not move according to the fundamentals of a company. They go up and down as per sentiments prevailing at that time. To controvert, the argument of the learned Departmental Representative, he argued that share prices are quoted at Jaipur Stock Exchange and were quoted on the relevant date of sale at the same price on which shares were sold to M/s S.K. Sharma & Co. However, the learned Departmental Representative controverted his argument by saying that volume of transactions on the relevant dates Is only 600 shares on 9th Feb., 1998 and 1000 shares on 23rd March, 1998 whereas number of shares involved in the transactions with S.K, Sharma & Co. are 45000 shares. 6. After hearing the rival submissions, going through the orders of authorities below and paper book, we find that M/s Ankur International Ltd., although It Is a quoted company, its shares were not being transacted at Ludhiana Stock Exchange at, the relevant time. Shares have been purchased and sold through the brokers and payments have been received cheque on different dates as per the statement of account of M/s S.K. Sharma & Co, Factual matrix of the case from start of the purchase of....
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....nd the transactions and find -out the motive behind transactions. Generally, it is expected that apparent is real but it is not sacrosanct. If facts and circumstances so warrant that it does not accord with the test of human probabilities, transactions have been held to be non-genuine, It is highly improbable that share price of a worthless company can go from Rs. 3 to Rs. 55 In a short span of time. Mere payment by cheque and receipt by cheque does not. Render a transaction genuine. Capital gain tax was created to operate in a real world and not that of make belief. Facts of the case only lead to the inference that these transactions are not genuine and make believe only to offset the loss incurred on the sale of jewellery declared under VDIS. In the totality of facts and circumstances of this case and material on record, we are of the considered view that the CIT(A) was not justified In deleting the impugned addition. We, accordingly set aside the order of the CITCA) and restore that of the AO. 8. In the result, the appeal of the Revenue is allowed. Moreover on the judgments relied upon by the appellant fall flat in the face of the facts of the case and the prep....
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....ion 68 in the given facts and circumstances of this case to treat the impugned long term capital gain as assessee's unexplained cash credits. My attention is invited time and again to the fact that DIT(Investigation) has found some entry operators spread throughout the country to be indulged in such kind of business by rigging scrips' prices. I find no merit in all these contentions raised at the Revenue's behest. The fact remains that there is not even a single evidence or material against the assessee apart from mere assumptions and presumptions hereinabove. This tribunal coordinate bench's decision in case of Navneet Agarwal vs ITO ITA No.2281/Kol/2017 dated 20.07.2018 has decided the very issue in assessee's favour with the following elaborate discussion :- "10. After careful consideration of the rival submissions, perusal of the papers on record and order of the lowers authorities below, as well as case law cited, we hold as follows. 11. The assessee in this case has stated the following facts and produced the following documents as evidences: 1. The assessee had made an application for allotment of 50000 equity shares of "Smart champs IT and Infra L....
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....ugh 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 referring to "Modus Operandi" of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced dur....
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....be assessed based on legal principles of legal import laid 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 specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced,the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion how....
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....ollect 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 by proper third party documents are collusive transactions. 17. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: "Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the p....
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....othing 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. 18. We now consider the various propositions of law laid down by the Courts of law.That cross-examination is one part of the principles ofnatural justice has been laid down in the following judgments: a) AyaaubkhanNoorkhan Pathan vs. The State of Maharashtra and Ors. "23. A Constitution Bench of this Court in State of M.P .v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Esta....
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....able for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, notonly should the opportunity of cross-examination be made available, but it should be one of effective crossexamination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examinations an integral part and parcel of the principles of natural justice." b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: "4. 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. 5. According to us, not allowin....
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....th the directions to decide 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 afore said two witnesses was the only basis of issuing the show cause notice." 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTAHIGH COURT in the case of BLBCABLES &CONDUCTORS[ITA No. 78 of2017] dated19.06.2018. The High Court held vide Para 4.1: "............we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the....
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....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 the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises." d) The BENCH "D"OF KOLKATAITAT in the case of GAUTAMPINCHA[ITA No.569/Kol/2017]order dated 15.11.2017 held as under vide Page 12 Para 8.1: "In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by t....
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....see 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 resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again s....
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....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 have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT ....