TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 1560
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment order. I have also considered the submission of the appellant along with paper book filed by Ld. A/R which contained, inter-alia, the following documents:- Copy of capital gain calculation sheet for A.Y 2014-15 -- 37 -- Copy of Allotment advice and share application Form of NCL Research & Financial Services Ltd. 38 -- 39 Copy of Demat statement 40 -- 42 Copy of show cause letter dated 06.12.2016 43 -- 61 Copy of reply to show cause letter filed before AO 62 -- 69 Copy of notice u/s. 142(1) dated 17.11.2016 70 -- 72 Copy of reply to notice u/s. 142(1) dated 17.11.2016 filed before AO 73 -- 74 Copy of notice u/s. 142(1) dated 23.09.2016 75 -- 76 Copy of reply filed on 07.11.2016 before AO 77 -- 78 Copy of notice u/s. 142(1) dated 10.06.2016 79 -- 80 Copy of reply filed on 22.08.2016 before AO -- 81 -- The factual background reveals that the appellant claimed exemption for Rs. 2,79,06,132/- towards LTCG on sale of shares u/s. 10(38) in respect of following share scripts. PARTICULARS AMOUNT (Rs) Sale consideration of 29,000 shares of NCL Ltd. 3,58,8....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d through the stock exchange and the entire transaction were routed through proper banking channel. The shares were duly reflected in the demat account of the appellant. The appellant has paid STT as well as all statutory charges levied by the stock exchange. The AO has disallowed the claim of the appellant and treated the long term gain as unexplained cash credit solely on the basis of general report of the Investigation wing, Kolkata. The AD's observations are purely based on suspicion and surmises. I find from the paper book that the appellant had applied for 29000 Equity Shares of NCL Research and Financial Services Ltd. on preferential allotment basis and purchase consideration through account payee cheque which was duly cleared. The source of investment as explained by the appellant has not been disputed by AO. Moreover, such investment is supported by share application and bank statement as filed in the paper book. Pursuant to such application the appellant was allotted all the shares as per Allotment advice and Share Certificate was also issued to the appellant. This fact is not in dispute. This investment was reflected under share Investment in the audited balance sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vidence to the appellant. The appellant also asked the AO to allow cross examination of those persons whose statements are relied upon by the investigation wing or by the AO himself. This also was denied by the AO. I find that this is a clear violation of principles of natural justice. I find that the Calcutta High Court in the case of CIT Vs Eastern Commercial Enterprises reported in 210 ITR 103 has held that right to cross examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross examination is one of the corner stones of natural justice. Thus on this ground itself the assessment is held to be bad in law. I find that the AO having said that he had certain investigation report from the Investigation wing, Kolkata and report from SEBI he must have cross examined these evidences with the appellant. I find that the AO failed to appreciate request made by the appellant seeking copies of statements, reports etc. The AO has mechanically followed investigation report without establishing any link of such reports with that of the appellant company. It is also apparent from the assessment order that no independent finding is recorded in treating ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that enquiry report was prepared by the SEBI and from the observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bona fidely and if he show his bona fide in transaction by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafldely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ash trail of the appellant company was prepared by the Investigation Wing or by him. I also find that the AO has failed to point out that either the appellant or its directors were ever subjected to any investigation by any agency in respect of these transactions. As far as AO's observation that there is sharp increase/ decrease in the share prices during the period I find that this cannot be a ground for treating the Long term capital Gain as non genuine or bogus in nature because this is a free market where the investor does not have any control over price. The AO did not have any material on record to show that the purchase and sale of shares were bogus. The AO has to bring material on record to support his finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money without paying any tax. I also agree with the contentions of the AR of the appellant that the online trading system of stock exchanges is a free market where the investor does not have any control over the prices. The sharp rise and fall in price of share cannot be a ground for considering transaction as bogus. Therefore, I am unable to uphold....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to uphold the findings of the AO. He also relied on the so called "rules of suspicious transaction". No direct material was found to controvert the evidence filed by the assessee, in support of the genuineness of the transactions. In other words, the overwhelming evidence filed by the assessee remains unchallenged and uncontroverted. The entire conclusions drawn by the revenue authorities, assessee based on a common report of the Director of Investigation, Kolkata, which was general in nature and not specific to any assessee. The assessee was not confronted with any statement or material alleged to be the basis of the report of the Investigation Wing of the department and which were the basis on which conclusion were drawn against the assessee. Copy of the report was also not given. 4. Under the circumstances, in a number of cases this bench of the Tribunal has consistently held that decision in all such cases should be based on evidence and not on generalisation, human probabilities, suspicion, conjectures and surmises. We have in all cases deleted such additions. Some of the cases were detailed finding have been given on this issue are listed below:- Sl.No ITA No.s Nam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rried the matter in appeal and the ld. CIT(A), had upheld the addition. The ld. CIT(A) has in his order relied upon "circumstantial evidence" and "human probabilities" to uphold the findings of the AO. He also relied on the so called "rules of suspicious transaction". No direct material was found to controvert the evidence filed by the assessee, in support of the genuineness of the transactions. In other words, the overwhelming evidence filed by the assessee remains unchallenged and uncontroverted. The entre conclusions drawn by the revenue authorities, are based on a common report of the Director o Investigation, Kolkata, which was general in nature and not specific to any assessee. The assessee was not confronted with any statement or material alleged to be the basis of the report of the Investigation Wing of the department and which were the basis on which conclusion were drawn against the assessee. Copy of the report was also not given. 4. Under the circumstances, in a number of cases this bench of the Tribunal has consistently held that decision in all such cases should be based on evidence and not on generalisaton, human probabilities, suspicion, conjectures an surmises. We h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 during investigations, should guide the authorities in arriving at a conclusion as to whether the claim in genuine or not. An alleged scam might have taken place on LTCG etc. But it has to be established in each case, by the party alleging so, that this assessee in question was part of this scam. The chain of events and the live link of the assessee's action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation's office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examinatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 however strong, cannot take the place of evidence. In this connection we refer to the general view on the topic of conveyance of immovable properties. The rates/sale price are at variance with the circle rates fixed by the Registration authorities of the Government in most cases and the general impression is that cash would have changed hands. The courts have laid down that judicial notice of such notorious facts cannot be taken based on generalisations. Courts of law are bound to go by evidence. 16. We find that the assessing officer as well as the Ld. CIT(A) has been guided by the report of the investigation wing prepared with respect to bogus capital gains transactions. However, we do not find that the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capita....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th 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 prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single transaction or in a chain of transactions could exceed the amounts, involved in the high denomination notes,--- this also was a pure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by that party. Not providing the said opportunity to crossexamine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas TeaEstate v. Workmen, AIR 1963 SC 1719; M/s. KesoramCotton Mills Ltd. v. Gangadhar and Ors. ,AIR 1964 SC708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448;Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v.Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Excise Act, 1944,considered a similar issue i.e. permission with respect to the cross-examination of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, woul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned senior counsel appearing for the Assessee, and Mr. K.Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. 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 si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ansactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal." [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee to have entered 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 supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also 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. These evidences were neither 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 that income from LTCG is exempted u/s 10(3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive 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 aforesaid facts 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 the AO to delete the addition." f) The BENCH "A"OF KOLKATA ITAT in the case of SHALEEN KHEMANI[ITA No.1945/Kol/2014]order dated 18.10.2017 held as under vide Page 24 Para 9.3: "We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the findings of CIT (A)." h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: "On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has affirmed such finding. Such finding of fact is sought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed." i) The Hon'ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee ....