TaxTMI 
TaxTMI 
2019 (1) TMI 213
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....ad raised several grounds of appeal the main issue is as to whether on the facts and circumstances of the case, the ld CITA was justified in upholding the addition made by the AO u/s 68 of the Act in respect of sale proceeds of shares of M/s Kailash Auto Finance Limited (KAFL) treating the same as income from undisclosed sources after rejecting the assessee's claim of Long Term Capital Gains (LTCG) on sale of those shares. 3. The brief facts of the issue as has been recorded by the AO in the Assessment Order are that the assessee claimed long term capital gains from sale of shares of M/s. Kailash Auto Finance Limited (KAFL). The AO noted that the assessee had purchased 1,00,000 shares of M/s. Careful Projects Advisory Limited (CPAL) at a face value of Rs. 1 each in for a total consideration of Rs. 1,00,000/- which company (CPAL) later got amalgamated with M/s. KAFL by virtue of an order of Hon'ble Allahabad High Court and in pursuance to such amalgamation, the assessee was allotted 1,00,000 shares of KAFL of the face value of Rs. 1 each. The said shares were later sold through a broker named M/s. Ratnabali Capital Markets Ltd. on different dates falling within the previous year 20....
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.... same to bogus/shell companies, by layering through various accounts, who had ultimately purchased the shares sold by the beneficiaries. The AO has also relied upon another statement of Shri Sunil Dokania recorded u/s 131 by the Investigation wing on 6.3.2013, in the case of Rashmi Group of Kolkata ; Statement of Shri Bidyoot Sarkar recorded on 8.4.2015 u/s 133A in the case of Religare Securities Limited; Statement of Shri Narendra Balasia recorded on oath u/s 133A in the case of SMC Global Securities Limited ; Statement of Shri Pradip Jain recorded on 31.3.2015 u/s 131 and the two Statements of Shri Amit Dalmia recorded by the Investigation wing on 31.3.2015 and 5.6.2015. The statements were annexed to the Assessment Order to come to a conclusion that the assessee was one of the beneficiaries of the transactions in shares of KAFL which resulted in bogus claim of exempt LTCG. 5. The AO, on the basis of movement of price of KAFL quoted in Bombay Stock Exchange during the period of September, 2013 to January, 2014 (the period of sale of shares of KAFL by the assessee), found that the price of shares had increased by 267%. The AO concluded that while Sensex showed almost no progress,....
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....es transactions done by all the buyers in relation to shares sold by the assessee. The AO observed that the cash trail analysis prepared on sample basis strengthens the suspicions over the genuineness of the buyers of shares and further suspected that the unaccounted cash of the assessee was layered into the bank account of the exit providers. 8. The AO relying on the various decisions viz. Hersh Win Chaddha v. DCIT [ITA Nos.3088 to 3098 & 3104/Del/2005], Sumati Dayal v. CIT 214 ITR 801 (SC), Durga Prasad More v. CIT, Mcdowell & Co. V. CTO, CIT v. P. Mohankala] observed that tax liabilities can be assessed by revenue authorities on consideration of material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/evidence available on record. The AO ultimately concluded that in such clandestine operations and transactions, it is impossible to have direct evidence or demonstrative proof of every move. 9. The AO concluded that the assessee's transactions resulting in LTCG on sale of shares of KAFL were bogus and that the assessee ploughed back his unaccounted money in the books of accounts which is assessa....
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....th KAFL has been approved by the order of Hon'ble High Court. The ld AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon'ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross -examination. Moroever, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we 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 lower authorities apart from placing the copy of SEBI's interim order supra. We find that the SEBI's orders relied on by the ld AO and referred to him as direct evidence against the assessee did not contain the ....
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.... given thereon would apply to the facts of the instant case. The ld DR was not able to furnish any contrary cases to this effect. Hence we hold that the ld AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is decided in the negative and in favour of the assessee." 14. Coming back to the facts of the instant case before us, we note that the assessee had purchased 1,00,000 Equity shares of M/s. Careful Projects Advisory Limited on 13.02.2012 which shares were credited to its de mat account on 24.02.2012. The assessee had made payment for purchase of above shares by cheque no. 825565 dated 20.02.2012 drawn on Andhra Bank, Kolkata Main Branch from his current account no.007011011003846. The shares were purchased from M/s. Needful Vincom Private Limited, off market. Later M/s. Careful Projects Advisory Limited was amalgamated with M/s. Kailash Auto Finance Limited by an order dated 21.05.2013 u/s. 391, 394 of the Companies Act, 1956 of Hon'ble High Court. By virtue of this amalgamation, the assessee was allotted 1,00,000 equity shares of M....
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....nce Ltd. by virtue of scheme of amalgamation on 13 July 2013. (paper book page 9). 6 Copy of statement of DEMAT account evidencing the debit of shares of Kailash Auto Finance Ltd. on 25 July. 2013, 25 July 2013, 7 August 2013 and 13 August 2013. (Paper book page 9). 7.Copy of the order approving the Scheme of Amalgamation passed by the Hon'ble Allahabad High Court in relation to the merger of Kailash Auto Finance Ltd. and Careful Projects Advisory Ltd. (Paper book page 10-39). 8. Copy of contract notes evidencing the sale of shares Kailash Auto Finance Ltd. (Paper book page 40-42). 9. Copy of Bill/Transaction Statement evidencing the sale of shares of Kailash Auto Finance Ltd. ( paper book page 43-46). 10. Copy of the bank statement reflecting the transactions of sale of shares of Kailash Auto Finance Ltd. (paper book page 47-48). 16. We note that shares of M/s. KAFL were sold by assessee through recognized broker in a recognized Bombay Stock Exchange. The details of such sale and contract note have been submitted before AO/Ld. CIT(A). We take note that when the transactions happened in the Stock exchange, the seller who sells his shares on the stock exchange does not kn....
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....on'ble Supreme Court in case of CCE vs. AndamanTimber Industries 127 DTR 241(SC) the assessment based on statement without giving an opportunity to assessee to cross examine the maker of the adverse statements relied on by the AO, is not sustainable in law. We find that the statement cannot be used by the AO without giving an opportunity to cross examination of Shri Sunil Dokani, Shri Bidyoot Saral, Shri Narendra Basin and Shri Amit Dokani. 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 ....
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....e to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee." 19. Since, when the Assessing Officer has not brought any material on record to show 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 Rajasthan High Court dated 11-09-2017in case of CIT vs. Smt. Pooja Agrawal [ ITA no 385/2011 ] 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 obs....
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.... Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all the material facts available on record does not help much. The AO has failed to prove through any independent inquiry or 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 Purohit. 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 ....
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....e third parties statements recorded behind the back of the assessee and the assessee has not been allowed to cross examine those persons, so the statements even if adverse against the assessee cannot be relied upon by the AO to draw adverse inference against the assessee in the light of the documents to substantiate the claim of LTCG, which has not been found fault with by the AO. 23. Let us look at certain judicial decisions on similar facts:- 24. The case of the assessee's is similar to the decision of Hon'ble Bombay High Court, Nagpur Bench in CIT vs. Smt. Jamnadevi Agrawal & Ors. dated 23rd September, 2010 reported in (2010) 328 ITR 656 wherein it was held that: "The fact that the assessees in the group have purchased and sold shares of similar companies through the same broker cannot be a ground to hold that the transactions are sham and bogus, especially when documentary ITA Nos. 93 to 99/RPR/2014 & C.O. Nos. 12 to 18/RPR/2014 . A.Y. 2004-05 10 produced to establish the genuineness of the claim. From the documents produced, it is seen that the shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed ....
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...., the broker in question was not banned by SEBI and that assessee had produced copies of purchase bills, contract number share certificate, application for transfer of share certificate to demat account along with copies of holding statement in demat account, balance sheet as on 31st March, 2003, sale bill, bank account, demat account and official report and quotations, of Calcutta Stock Exchange Association Ltd. on 23rd July, 2003. Therefore, 'the prese/itdppeal does not raise any question of law, much less any substantial question of law." 25. The Hon'ble High Court of Punjab and Haryana in the case of Anupam Kapoor 299 ITR 0179 has held as under:- "The Tribunal on the basis of the material on record, held that purchase contract note, contract note for sates, distinctive numbers of shares purchased and sold, copy of share certificates and the quotation of shares on the date of purchase and sale were sufficient material to show that the transaction was not bogus but a genuine transaction. The purchase of shares was made on 28th April, 1993 i.e.. asst. yr. 1993-94 and that assessment was accepted by the Department and there was no challenge to the purchase of shares in tha....
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....rs would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders." 15. The Hon'ble Apex Court held as under:- "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 pass....
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....that consideration was paid when the shares were purchased. The shares were thereafter sent to the company for the transfer of name. The company transferred the shares in the name of the assessee. There is nothing on record which could suggest that the shares were never transferred in the name of the assessee. There is also nothing on record to suggest that the shares were never with the assessee. On the contrary, the shares were thereafter transferred to demat account. The demat account was in the name of the assessee, from where the shares were sold. In our understanding of the facts, if the shares were of some fictitious company which was not listed in the Bombay Stock Exchange/National Stock Exchange, the shares could never have been transferred to demat account. Shri Mukesh Choksi may have been providing accommodation entries to various persons but so far as the facts of the case in hand suggest that the transactions were genuine and therefore, no adverse inference should be drawn. 18. In the light of the decisions of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra) and considering the facts in totality, the claim of the assessee cannot be denied on....
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....es and supported with the account payee cheques. The ld. AR has also submitted the IT return, ledger copy, letter to AO land PAN of the broker in support of his claim which is placed at pages 72 to 75 of the paper book. The ld. AR produced the purchase & sale contracts notes which are placed on pages 28 to 69 of the paper book. The purchase and sales registers were also submitted in the form of the paper book which is placed at pages 76 to 87. The Board resolution passed by the company for the transactions in commodity was placed at page 88 of the paper book. On the other hand the ld. DR relied in the order of the lower authorities. 4.1 From the aforesaid discussion we find that the assessee has incurred losses from the off market commodity transactions and the AO held such loss as bogus and inadmissible in the eyes of the law. The same loss was also confirmed by the ld. CIT(A). However 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 b....
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....al filed by the revenue was dismissed. vi) CIT V. Andaman Timbers Industries Limited [ITA No. 721 of 2008] (Cal HC) - In this case the Hon'ble Calcutta High Court affirmed the decision of this Tribunal wherein the loss suffered by the Assessee was allowed since the AO failed to bring on record any evidence to suggest that the sale of shares by the Assessee were not genuine. vii) CIT V. Bhagwati Prasad Agarwal [2009- TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.4.2009] - In this case the Assessee claimed exemption of income from Long Term Capital Gains. However, the AO, based on the information received by him from Calcutta Stock Exchange found that the transactions were not recorded thereat. He therefore held that the transactions were bogus. The Hon'ble Jurisdictional High Court, affirmed the decision of the Tribunal wherein it was found that the chain of transactions entered into by the assessee have been proved, accounted for, documented and supported by evidence. It was also found that the assessee produced the contract notes, details of demat accounts and produced documents showing all payments were received by the assessee through banks. On these facts, the appeal ....
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....n of showing that a particular transaction is benami and the appellant owner is not the real owner always rests on the person asserting it to be so and the burden has to be strictly discharged by adducing evidence of a definite character which would directly prove the fact of benami or establish circumstances unerringly and reasonably raising inference of that fact. The Hon'ble Apex Court further held that it is not enough to show circumstances which might create suspicion because the court cannot decide on the basis of suspicion. It has to act on legal grounds established by evidence. The ld AR submitted that similar view has been taken in the following judgments while deciding the issue relating to exemption claimed by the assessee on LTCG on alleged Penny Socks. (i) ITO vs. Ashok Kumar Bansal - ITA No. 289/Agr/2009 (Agra ITAT) (ii) ACIT vs. J. C. Agarwal HUF - ITYA No. 32/Agr/2007 (Agra ITAT) 30. Moreover it was submitted before us by ld AR that the AO was not justified in taking an adverse view against the assessee on the ground of abnormal price rise of the shares and alleging price rigging. It was submitted that there is no allegation in orders of SEBI and/or the enquiry....