TaxTMI 
TaxTMI 
2018 (9) TMI 1785
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....ile perused. 2. The assessee's sole substantive grievance that remains to be adjudicated in the instant appeal is that of correctness of both the lower authorities action treating her LTCG of Rs.95,06,050/- as bogus therefore liable to add u/s 68 of the Act. There is no dispute about the some basic facts emerging from the instant case file. The assessee declared her LTCG in question in case of two scrips to M/s Unno Industries Ltd and Sharp Trading Finance Ltd. She had invested Rs.1 lakh and Rs.70,000/-; respectively to acquire the shares in question on 03.03.2011 and 21.03.2012 in M/s. Basukinath Realestate Pvt. Ltd and Trinity Trademark Ltd. as amalgamated in the above two entities. The assessee thereafter sold her investments in the relevant previous year giving rise to LTCG of Rs.93,17,930/- as per relevant figures emerging from the assessment order comprising of corresponding sums of Rs.25,91,050/- and Rs.69,15,000/-; respectively. The Assessing Officer was of the view that the above appreciation in her investments in the two entities @ Rs.2481- and Rs.9,766/- required a deeper analysis of the two entities in light of the share market trends in the relevant holding period. Sh....
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....y indicate 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. 95,06,050/- and huge amount brought into the books without paying- a single rupee of tax. The Ld. AO has very carefully analyzed the information received from the Investigation Wing, and has recorded the noteworthy features of the Company whose shares were purchased/ sold by the assessee-individual. The economic parameters of the said company over the impugned period has also been brought on record, in the analysis. The rise and fall of the prices as recorded had been brought out by the Ld. AO to be artificial and not commensurate with the normal market, as the Company had no business at all. The Ld. AO has also brought forth information that the Regulatory Authority SEBI has also after investigating such abnormal price increase of certain stocks investigated the matter and suspended trading in certain scripts. It is very clear that the prices of these scripts fell sharply after the off....
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....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 Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assesses of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case, there is prima facie, evidence against the assessee viz. the receipt of money, and if he fails -to rebut, the said evidence being on-rebutted, can be used against him by holding that it was a receipt of an income nature." In the case of Sajjan Das & Sons vs. CIT (2003) 264 ITR 435 (Delhi), their Lordships of the High Court of Delhi, while considering a case in which gifts were received by the assessee through banking channels laid importance on the capacity of the donor for making the gift and his identity a....
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....orm 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 mind on the relevant facts and the decision should take into consideration the entire material, which is germane and which should not be ignored and exclude that which is irrelevant. Certain facts or aspects may be neutral and should be noted. These should not be ignored but they cannot become the bedrock or substratum of the conclusion. The provisions of Evidence Act are not applicable, but the assessing officer being a quasi judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the canons of equity, fairness and justice. The evidence should be impartially and objectively analyzed to ensure that the adverse findings against the assessee when recorded are adequately and duly supported by material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderance of probabilities....
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....erence to the test of human probabilities in the following fact situation:- " ..... It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals. Otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents . 6. It is a well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs,CIT"(214 ITR 801)(SC) that the true nature of transaction have to be a....
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....T (International Taxation) in ITA No.3088 & 3107/Del/200S, the Hon'ble Delhi ITAT "B"-Bench has observed, on 31.12.2010 as under: "SUSPICIOUS AND DIBIOUS TRASANCTION HOW TO BE DEAL T WITH: 6.11. The tax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of incriminating information/ evidence available with AO. 6.12. In the case of Sumati Dayal V. CIT (1995) 80 Taxman 89 (SC), the Hon'ble Supreme Court has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department in cases of suspicious circumstances, by following observations: " ..... It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But in view of section 68, where any sum is found cre....
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.... F.Y.2013-14 (A.Y.2014- 15): 1. I state that I had purchased 100 equity shares of Pinnacle Vintrade Ltd. on 20.01.2012 from Uniglory Developers Pvt. Ltd. Pinnacle Vintrade Ltd. was merged with Unno Industries Ltd. and there was change of management and control of Unno Industries ltd. pursuant to scheme of arrangement sanctioned by the Hon'ble High Court at Bombay. 2. Payment for the purchase of aforesaid 100 equity of Pinnacle Vintrade Ltd. was made by Account Payee Tamilnad Mercantile Ltd. Bank Cheque no. 736027. 3. Bank statement of Tamilnad Mercantile Ltd. Bank reflecting payment (cheque no. 736027) for purchase of the said investment in equity shares of Pinnacle Vintrade Ltd. is enclosed (highlighting the said entry). Annexure-I. 4. The equity shares of Unno Industries Ltd. were allotted pursuant upon merger of Pinnacle Vintrade Ltd. with Unno Industries Ltd. pursuant to sanction of scheme of arrangement by the Hon'ble High Court at Bombay, I was issued 91000 equity shares of Unno Industries ltd. in lieu of my shareholding in Pinnacle Vintrade Ltd. The relevant gist of the scheme of arrangement sanctioned by the Hon'ble High Court was communicated by the company to the ....
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....e through SEBI registered stock broker Ashika Stock Broking Ltd. and Guiness Securities Ltd. whose details are as under: a) Name: Ashika Stock Broking Ltd. Address: Trinity, 7th Floor, 226/1, A.J.C. Bose Road, Kolkata-700020. Contact No. 033 22839952. b) Name: Guiness Securities Ltd. Address: Guiness House, 18, Deshpriya Park Road, Kolkata-700026 Contact No. 033 30015555. 3. Contract Notes issued regarding sale of equity shares of Unno Industries Ltd. on Bombay Stock Exchange by SEBI registered brokers- Ashika Stock Broking Ltd. and Guiness Securities ltd. are enclosed. Annexure V. 4. The relevant Demat Account statements of Ashika Stock Broking Ltd. and Guiness Securities Ltd. reflecting the debit of shares of Unno Industries Ltd. upon sale are enclosed. (entries highlighted). Annexure VI. 5. The Ledger of the brokers of Ashika Stock Broking Ltd. and Guiness Securities Ltd. for the financial year 2013-14 are enclosed. Annexure VII. 6. Tamilnad Mercantile Ltd. bank Statement reflecting the receipts of sale consideration from the SEBI registered stock brokers (highlighting the said entries) is enclosed. Annexure VIII. 7. Out of sale consideration money of Rs. 31514....
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....und that, the transaction in question comes within the ambit of 'Suspicious Transaction' and therefore, the rules of 'Suspicious Transaction' would apply to the case. He further stated that the payments through bank of processing of transaction through stock exchange and other such features are only apparent features and that the real feature are the manipulation and abnormal price raise and the sudden dip thereafter. Based on surrounding circumstances and circumstantial evidence and the order of the Tribunal in the case of "Bhag Chand Chabra (HUF) vs. ITO", in I.T.A. No. 3088& 3107/2007 dated 31.12.2010, the addition made by the AO was confirmed. Aggrieved the assessee is in appeal before us. 8. A perusal of the order of the AO demonstrates that this addition was made merely on "suspicion" and in a routine and mechanical manner. This is clear from the fact that the AO refers to some 'Sharp Trading Company as one of the main ,manipulated company and whereas the assessee sold scrips in Unno Industries Ltd. The AO refers to various enquiries made by "The Directors of Income Tax", Kolkata on project basis and that this resulted into unearthing of a huge syndicate of entry operators ....
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....the Securities Transaction Tax, brokerage service tax and cess, which were already paid. They were complied with. All the transactions were through bank. There is no iota of evidence over the above transactions as it were through demat format. Hence, we agree with the given findings of the ld. Commissioner of Income Tax (Appeals) in accepting the transactions as genuine too. In view of the fact findings we cannot reappreciate, recording is such, cannot be said to be perverse as it is not fact finding of the ld. Tribunal alone. The commissioner of Income Tax came to the same fact finding. Concurrent fact finding itself makes the story of perversity, unbelievable." The "D" Bench of the Kolkata Tribunal in the case of Gautam Kumar Pincha vs. ITO, in I.T.A. No. 569/Kol/2017 dated 15.11.2017 at para 19 onwards held as follows: (i) M/s Classic Growers Ltd. vs. CIT [ITA No. 129 of 2012] (Cal HC) - In this case the ld AO found that the formal evidences produced by the assessee to support huge losses claimed in the transactions of purchase and sale of shares were stage managed. The Hon'ble High Court held that the opinion of the AO that the assessee generated a sizeable amount of loss....
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....wati 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 of the revenue was summarily dismissed by High Court. 8.4. 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 the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take no....
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....ion 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. 9. In the result the appeal of the assessee is allowed." The "A" bench of the Kolkata Tribunal in the case of ITO vs. Shaleen Khemani in I.T.A. No. 1945/Kol/2014 dated 18.10.2017 at para 9.1. to 9.4 held as follows: 9.1 We further find that the transaction of sale of shares by the assessee was duly backed by all evidences including Contract Notes, Demat Statement, Bank Account reflecting the transactions, the Stock Brokers have confirmed the transactions, the Stock Exchange has confirmed the transactions, the Shares have been sold on the online platform of the Stock Exchange and each trade of sale of shares were having unique trade no. and trade time. It is not the case that the shares which were sold on the date mentioned in the contract note were not traded price on that particular date. The ld AO doubted the transactions due to the high rise in the stock price but for that, the assesse....
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.... of showing trading of shares only in three penny stocks. AO relied the loss of Rs. 25,30,396/- only on the basis of information submitted by the Stock fictitious. AO has also not doubted the genuineness of the documents placed on record by the assessee. AO's observation and conclusion are merely based on the information representative. Therefore on such basis no disallowance can be made and accordingly we find no infirmity in the order of ld. CIT(A), who has rightly allowed the claim of assessee. Thus ground No. 1 of the revenue is dismissed." We agree with the reasoning of the Tribunal on this point also. We do not find any reason to interfere with the impugned order. The suggested questions, in our opinion do not raise any substantial question of law. 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 ....
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....dismiss the appeal of the revenue. Accordingly the grounds raised by the revenue are dismissed." Applying the proposition of law laid down in all the above referred cases, the facts of this case, I find force in the submission of the assessee and there are backed by evidence. I also find that the revenue has not based its finding on in any evidence. In view of the above discussion the addition made u/s 68 of the Act is hereby deleted." 6. Learned Departmental Representative vehemently contends at this stage that the DIT(Inv) has carried out a detailed investigation in various entry operators cases. They have been found to have rigged such kind of scrips' prices. There is not even a single material during the course of hearing which could suggest the assessee to have engaged in any kind of foul play. This tribunal's another co-ordinate bench decision in ITA No.2281/Kol/2017 Navneet Agarwal vs. ITO decided on 20.07.2018 has rejected Revenue's all these arguments as follows: 9. The ld. DR on the other hand, relied on the order of the assessing officer and reiterated the findings made therein and submitted that the same be upheld. He vehemently argued that merely because the asses....
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....13 (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 respect of the transactions appearing in the ledger is placed in the paper book at page no. 66. 8. The holding period of the said scrip is more than one year (above 500 days) through 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 ga....
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....is 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 for the 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 party to 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 reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to 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 va....
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....quiry 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 the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect 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 transaction....
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....n 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 that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing 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....
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....he 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 crossexamination. 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, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available 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....
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....ted 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 presuppose as 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 in Civil Appeal No. 2216 of 2000, order dated 17-3-2005[2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with 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 aforesaid two witnesses was the only basis of issuing the show cause notice....
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....ion 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 the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed 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 d....
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....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." 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 ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/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 ....
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.... and therefore the ld AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act." g) The BENCH "H" OF MUMBAI ITAT in the case of 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 from M/s Basant Periwal and Co. Against purchases payment has been made by account payee 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 t....