TaxTMI 
TaxTMI 
2020 (2) TMI 786
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....r forum, these cases was fixed for clarification on 04/02/2020 i.e. the date on which another cases of the same group to which these assessees belong are fixed. The Ld. Counsel for the assessee clarified that the Departmental appeals against the said order dated 31/10/2018, were belated by approximately 200 days and till date those appeals had not been admitted by the Hon'ble Jurisdictional High Court and as such the said order dt. 31/10/2018 in the case of another persons belonging to the same group and decided by the ITAT Delhi Bench, is intact. 2.1 Since the issues involved are common having similar facts in all these appeals which were heard together, so these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. At the first instance we will deal with the appeal in ITA No. 706/Chd/2018 wherein following grounds have been raised: 1. That order dated 31.03.2018 passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter called the "Act") by the Ld. Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in ini....
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....he Department at the business premises of the assessee Group i.e; Bhushan Power & Steel Group (BPSL in short) alongwith residential / business premises of its Directors and other related entities & persons on 03/03/2010. 6. During the course of search certain incriminating documents, papers, books of accounts etc. were found and seized. The A.O. mentioned that the assessee being the Director and key person of the Group filed letter dt. 18/06/2010 before the Investigation Wing surrendering an amount of Rs. 302 Crores in the hands of various Group Companies, his wife and himself as undisclosed income emanating from the seized documents. The surrender was made as under: Sr. No. Name of the person making disclosure Amount of disclosure made Assessment Yeatr of Surrender 1 Shri Sanjay Singal Rs. 110 Crores 2010-11 2 Smt. Aarti Singal Rs. 140 Crores 2010-11 3 M/S Bhushan Power & Steel Ltd. Rs. 8 Crores 2010-11 4 M/S Diyajyoti Steel Pvt Ltd Rs. 10 Crores 2010-11 5 M/S Vision Steel Pvt Ltd Rs. 9 Crores 2010-11 6 M/S Marsh Steel Pvt Ltd Rs. 12 Crores 2010-11 7 M/S Jasmine Steel Pvt Ltd Rs. 13 Cro....
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....ted on 27/12/2012 in M/s BPSL Group by DIT(Investigation), Chandigarh which resulted in voluntary disclosure of Rs. 70.36 Crores for the A.Y. 2013-14 on account of unexplained credits, cash payment for land purchase and interest disallowance in the hands of various Group concerns. Thereafter, another search and seizure operation on 21/02/2014 was initiated by the Department at the business premises alongwith residential / business premises of the Directors and other related persons of BPSL. 6.3 The AO also observed that various new evidences in the form of soft as well as hard data including statements of Numerous Entry Operators were found / recorded which prime facie indicated that bogus Long Term Capital Gain (LTCG), accommodation entries in the case of individuals of BPSL group and One Time accommodation (OT) towards share capital /share premium in the case of group concerns were obtained which suggested that BPSL Group had been continuously involved in introducing its unaccounted income in garb of LTCG, OT etc. The AO pointed out that during the course of search and seizure action on 22/02/2014 the key person of the BPSL Group Shri Sanjay Singhal i.e; the assessee was confr....
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....ted) 54.36 1.20 2 DB (International) Stock Brokers Ltd. 15.66 3 Blue Circle Services Ltd. 40.43 4 Unisys Software &Holding Indust. Ltd. 3.18 7.75 5 Nouveau Multimedia Ltd. 0.37 6 Action Financial Services (India ) Ltd. 0.72 7 Rutron International Ltd. 9.62 8 Rander Corporation Ltd. 9 P.L. Enterprises Ltd. now known as Mantra Kausal Enterprises Ltd. 10 Matra Kaushal Enterprises Ltd. 11 Grandma Trading & Agencies Ltd. 12 Asia....
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....der which recorded 1 Shinsh Chandrakant Shah (SCS) 132(4) dated 13.04.13, 03.06.13, 11.06.13 and u/s. 131(1 A) dated 25.11.13 and 13.01.14 (Relevant Parts) 2 Rajan Kachalia Main person handling the accounting and documentation part. 09.04.2013 u/s. 132(4); 11.04.2013 u/s. 131(1A) 3 Chandan Kumar Singh Mam person handling cash and bank transactions and preparation of primary receipt payment documents. 09.04.2013 u/s. 132(4) and 10.04.2013 u/s. 131(1 A) 5 Damodar Attal Main person handling share trading and synchronized trading work. 09.04.2013 u/s. 131(1 A) 6 Devang D. Master Key- associate handling the compliance work and involved in legal planning 09.04.2013 u/s. 132(4) and 10.04.2013 u/s. 131(1 A) 7 Devang Jhaveri Key associate handling day to day compliances and verification of documents. u/s. 132(4) dated 09.04.2013 8 Prakash Dave Employee of Shirish Shah u/s. 132(4) dated 09.04.2013 9 Naresh Parmar Employee of Shirish Shah, prepares cash and cheques sheets. u/s. 132(4) dated 10.04 2013 10 Kumar Raichand Madan Person supplying Di....
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....e. 48% of the total traded were executed within one minute of the order placed in the exchange and more than 71% orders were executed within five minutes of placing the orders on the Exchange. He also pointed out that modus operandi followed by the SCS for providing exempt LTCG had been explained in details in his various sworn statements recorded during the course of search and post search proceedings which had been corroborated and collated with the evidences found and seized / impounded during the course of search and survey proceedings conducted in the case of SCS at various premises. The evidences and the statements of employees of SCS were confronted to him during the course of search and in the post search proceedings and SCS in his statement admitted to have provided various types of accommodation entries against receipt of cash from the clients either directly or through intermediaries and also admitted to be engaged in synchronized trading in the shares of various listed companies managed and controlled by him so as to facilitate LTCG to the clients against receipt of cash from them. The A.O. mentioned that the modus operandi followed by SCS for providing accommodation en....
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.... by SCS by allotting a large number of fresh shares through private placement. The structuring of share capital involves two types of allotment: b. Majority of the shares are allotted a number of private companies which too are under control of SCS. The investment is made by the private limited companies in the shares of listed companies following two modus operandi: • Firstly, the unaccounted cash received from clients is layered into the investing private company which invests in the shares of the listed company and the listed company in turn provides accommodation entry of share capital/premium to the client from whom cash was received. • Secondly, an artificial structure of share capital of the listed company is created, wherein, a private limited company managed by SCS subscribes to the shares of the listed company. The listed company in turn advances these funds to another private limited company managed by SCS. This money so received by the second private limited company is layered in the web of companies managed by SCS and another private limited company invests in the share capital of the listed company. In this manner the cycle of layeri....
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....m /through the person mentioned in the "Party" column was entered in the column "Received". The A.O. also pointed out that in the most of instances the cash received by SCS from the assessee & Group had been paid to Pintu alias Chintan (Praveen Kumar Jain) and the same had also been found to have been recorded in the books independently maintained by Pintu, seized during the course of search conducted in his own case. The A.O. reproduced the details of new accounts in Kedia 2 Sheet at page no. 19 to 27 of the assessment order, the contents of the same was extracted as under: Date DETAILS QTY Rate AMT DEPOSIT PAID RECEIVE D Balance 1 2 3 4 5 6 7 8 9 22.07.10 P RAN ETA NEW 100000 46.25 46.25,000.00 -50,000.00 45,75,000.00 22.07.10 COMM ON 40.97 @ 4.75 % COMM 1,94,607.50 47,69.607.50 22.07.10 CASH RCD 50,00.000.00 -2,30.3 92.50 22.07.10 ANGAD1A CHRG 12,500.00 -2,17,892.50 26.07.10 CASH RCD ....
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.... commission has been charged at 4.75% of the net LTCG (Refer column No.2). The value of LTCG has been computed by SCS at Rs. 40.97 (Lakhs) (i.e. sale price per share minus the purchase price multiplied by the number of shares sold by the client to SCS. In the present case the purchase price is Rs. 2.25 per share and the sale price is Rs. 46.25 and the no of shares sold by BPSL Group is 100000. Thus, LTCG is 44 X 100000 = 44,00,000/-) . • At Column No. (7) the details of any amount paid by SCS to the client Sanjay Singal have been recorded. The entries recorded in this column are also of the nature of debit made by SCS to the client account. • At column No. (8), the amount received by SCS from the client is recorded. The entries recorded in this column are in the nature of credits made by SCS to the clients account. For instance the cash of Rs. 50,00,000/- received by SCS from the client in this case is credited to his account at column No. (8). The nature of credit or the mode of receipt is recorded at Column No. 2 (Details) of the sheet. • At column No. (9), the balance in the account of the client BPSL Group is recorded. Positive balance rep....
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....BPSL Group on 15/03/2011, 16/03/2011 and 17/03/2011 respectively. The A.O. also observed that the search and seizure action was again conducted at the office and residential premises of Shri R.K. Kedia Group on 13/06/2014 and all the evidences and findings of search action on SCS Group and other related groups were confronted to Shri R.K. Kedia who stated on oath that he had arranged LTCG accommodation entries for the various individuals of M/s BPSL Group on the request of assessee and Shri R.P. Goyal. He also pointed out that Shri Praveen Kumar Jain (Pintu) admitted on oath that he was in business of providing accommodation entries and used to collect cash from angadias on behalf of SCS and then equal amount through cheques / RTGS were paid to SCS. The comparative analysis of Kedia 2 Sheet in the books of SCS and the SCS account in the books of Pintu was mentioned by the A.O. at page no. 35 to 58 of the assessment order for the cost of repetition the same is not reproduced herein. 6.12 The A.O. pointed out that the details which were found in the books of accounts of SCS entities matched with the details found in books of accounts and document seized from Shri R.K. Kedia who ad....
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....06/2014 in which it was admitted that he was in the business of providing accommodation entries after charging certain percentage of commission and arranged accommodation entries for various beneficiaries like BPSL group from different entry operators. The A.O. on the basis of statement of Shri R. K. Kedia and his accountant Shri Manish Arora was of the view that the Shri R.K. Kedia had provided accommodation entries from his paper concerns and had arranged accommodation entries for various beneficiaries from different entry operators in lieu of unaccounted cash after charging certain percentage of commission in cash and that he also told the name of persons who contacted him for taking accommodation entries on behalf of various beneficiaries who delivered unaccounted cash to his employees on behalf of the beneficiaries. The A.O. on the basis of statement of Shri R.K. Kedia observed as under: • Sh. R.K. Kedia was in the business of providing accommodation entries in lieu of unaccounted cash receipts. • Sh. R.K. Kedia also arranges various kind of accommodation entries from different entry operators (SCS in this case) for his different client beneficiari....
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....e not doing actual work but were being used for providing LTCG to various beneficiaries. The A.O. reproduced the relevant part of statement of Shri R.K. Kedia at page no. 66 to 69 of the assessment order, for the cost of repetition the same is not reproduced herein. The A.O. also mentioned the names of the listed paper companies alongwith names of the entry operators controlling and managing the affairs of such companies as under: Sr. No. Name of the Company Name of entry operator controlling and managing the affairs of the company 1 Pranneta Industries Ltd. Sh. Shirish Chandrakant Shah 2 DB International Stock Brokr Ltd. Sh. S.N. Daga 3 Blue Circle Services Ltd. Sh. Jagdish Prashad Purohit 4 Unisys Software & Holding Ltd. Sh. Jagdish Prashad Purohit 5 Action Financial Services (India) Ltd. Sh. Bakul Parikh 6 Global Infratech Ltd. Sh. Jagdish Prashad Purohit 7 Rutron International Ltd. Sh. Anil Aggarwal 8 Matra Kaushal Enterprises Ltd. Shri Krishan Kumar Khadaria 9 Rander Corporation Ltd. Sh. Natwar Lai Daga and Krishan Kumar Khadaria 10 Grandama Trading Agencies Ltd. Sh. Sawan Jaju ....
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....commodation entry to various beneficiaries, were found and seized which revealed that Shri R.K. Kedia sold 2,00,000 shares of BCSL held in the name of Shri Aniket Singal @ an average rate of Rs. 79.93 for approx. Rs. 1,59,86,000/- on 13/09/2012, also 2,00,000 shares @ an average price of Rs. 79.88 for approx Rs. 1,59,76,000/- and on 17/09/2012, 13,000 shares @ an average price of Rs. 79.87 for apporx Rs. 1,03,83,100/- were sold. The A.O. also mentioned that in the pages found during the course of search at Shri R.K. Kedia, the details of Chopra Account /BPSL Account, reconciliation of the said accounts had been given wherein the details of the cash received by Shri R.K. Kedia from Shri Suresh Gupta on behalf of BPSL Group and cheque payments to and from the entities of BPSL Group for providing various kind of accommodation entries were given and details of commission charged/premium received @6.5% for arranging bogus LTCG accommodation entry on account of sale of shares of BCSL were also given. 6.16 The A.O. also pointed out that the SEBI had carried out investigation in few listed companies on the basis of common trading pattern, identical developments like stock splits, prefer....
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....ntry operators for providing various kind of accommodation entries found as printouts and seized. These mails printouts also establishes beyond doubt that Sh. R.K. Kedia has provided accommodation entries. These mails printouts also have details to decipher the codes used while entering transations in tally in coded language. • Coded SMS communication (generally currency notes numbers) while receiving and delivering cash from beneficiaries to entry operators through angadias from the phone of Sh. Manish Arora. • Statement on oath given by Sh. San jay Kumar and Sh. Bishu Jain two employees of Sh. R. K.Kedia, that they used to collect cash and deliver that to angadias on the instructions of Sh. R.K. Kedia. 6.18 The A.O. observed that the evidence seized from Shri Parveen Agarwal an entry provider based at Kolkata revealed the modus operandi adopted to provide various accommodation entries in collusion with Shri R.K. Kedia. He also produced the Flow Chart of modus operandi of accommodation entries and correlation of data between Shri Kedia and Parveen Agarwal. However, the assessee submitted that statement of Shri R.K. Kedia and Shri Manish Arora were not ....
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....owever Shri R.K. Kedia vide letter dt. 20/10/2014 retracted from the sworn statement given earlier and stated that those were given under mental stress. The A.O. again recorded the statement of Shri R.K. Kedia under oath on 26/03/2015 wherein he was confronted with the evidences gathered and he again confirmed that he was an entry provider and also confirmed all the sworn statements given earlier. The A.O. did not accept this contention of the assessee that the department put a lot of pressure on Shri Manish Arora to receive favourable remarks from him. He therefore asked the assessee to show cause as to why the receipts credited in the books of account on account of sale of shares should not be brought to tax under section 68 of the Act and that as to why the commission @ 6.5% paid in cash to get accommodation entries of exempt LTCG from various bogus scripts / companies should not be brought to tax under section 68 of the Act as unaccounted expenditure. The Assessee was also required to produce all the persons (including contra parties and brokers) from whom money was received, along with their books of accounts, ITR details, relevant vouchers and ledger account etc. The A.O. iss....
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....by those persons. It was also stated that cross examination of SCS and all other persons which were covered alongwith SCS and gave sworn statements, should have been allowed to the assessee. 9. As regards to the decision of investment in M/s PIL the assessee submitted as under: 5. Regarding the decision of investment in M/s PIL, the assessee submitted that, "Investment was made on the perception that M/s Prraneta Industries Limited was planning to setup big projects in Gujarat, Mumbai and overseas. The Assessee further came to know that M/s Prraneta Industries Limited was getting a huge contract for land development work from PACL. The company planned to undertake expansion programmes by looking for prospective Mergers/Acquisitions, and promoting companies in the financial sectors. The company was also planning to enter into new areas of information technology sector like Software development, Internet, Mobile, Networking related solution etc. The Assessee was attracted by the low price and huge expansion plans of the company. Considering it as a low risk investment, the assessee decided to invest in the shares o f Prraneta Industries Limited. The Assessee's belief ....
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..../06/2014 and his letter filed on 20/10/2014. Regarding the maintenance of data of LTCG transactions of BPSL family and group by Shri R.K. Kedia the assessee submitted that he was not aware of the purpose of maintaining such records by him and that he might have been expecting some commission since he had advised for investment in the shares of PIL and the assessee had earned a handsome amount from the said investment. However no such commission was ever agreed or paid to him. 13. As regard to the voluntary surrender of Rs. 250 crores made by the assessee during the course of search proceedings, it was submitted before the A.O. that during the course of search on 21/02/2014 the assessee was under a lot of mental stress and psychological pressure and hence a letter offering an amount of Rs. 250 Crores as additional income in the entire group of cases was made to avoid litigation and to purchase peace of mind. It was further submitted that offer of Rs. 159.61 crores pertaining to LTCG on shares of M/s PIL was made without any factual basis and there was no admission or acknowledgment that any accommodation entry was received or any unaccounted income had been earned. It was also su....
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....t nexus between different entry providers operating from various locations had been adequately established and it was not necessary that only one entry provider worked on share for jacking up the price of share and that the evidence found, suggested that different entry operators worked in tandem in trading of shares of penny stock companies for jacking up the price for final purchase. Therefore, he was of the view that the assessee's contention that various parties other than the ones controlled and managed by SCS group purchased the shares of PIL had no relevance. The A.O. pointed out that during the course of assessment proceedings and after the submission of the assessee on 03/02/2016 some other incriminating documents were noticed which had huge evidentiary value regarding flow of funds between flagship company M/s BPSL and various companies of an entry operator Shri Praveen Kumar Agarwal, based at Kolkata from whose possession the documents were found and seized on13/09/2012 by Kolkata Investigation Unit and the data seized contained four excel sheets found in a hard disc which contained date wise details of cheques/RTGS received from various parties and cheque/RTGS paid to v....
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.... knowledge about land development contract awarded to M/s PIL by M/s PACL India Ltd., therefore, he decided to invest in the shares of that company. The A.O. observed that the details found maintained by Shri Praveen Kumar Agarwal established that all those contracts were completely bogus and it was a network created for benefit of all the beneficiaries indulged in tax avoidance practices. Therefore the contention regarding decision of investment in M/s PIL was base-less without any supporting evidence. He also observed that the assessee remained silent with regard to the cash transactions against accommodation entries recorded in BIPL folder and did not comment or offerred any explanation. The A.O. also mentioned that the data seized from various persons and location matched among themselves and with the entries recorded in the assessee's books, authenticated the correctness of the data and if the seized data suggested that accommodation entries had been taken in lieu of cash then it was a conclusive proof. As regard to the assessee's stand that Shri R.K. Kedia was not a reliable person, the A.O. observed that Shri Kedia backed up his statement by filing an affidavit dated 31/03/2....
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....h were not doing any meaningful business activity, it was stated that various things regarding those companies attracted him to make investments and that he was not aware of the activity of any entities / individuals involved and nor was assessee in any way connected with the activities if any of such entities / individuals. The A.O. observed that assessee did not elaborate or explain the things which attracted him about those companies and did not file any supporting documents. 14.2 The Assessee submitted to the A.O. that he did not know any of the person whose statements were recorded and was not in any way connected with their activities and that the statement of those brokers / sub brokers / employees/ associates of broker were recorded at the back of the assessee and reliance sought to be placed for drawing any adverse inference against the assessee on the basis of statements recorded without the presence of the assessee was unwarranted. The assessee also submitted that he did not know any person by name Shri Manish Arora with whom he never dealt either directly or through any of his employees. It was also alleged that the statements given by Shri Manish Arora were not out ....
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....with his family choose to invest not in one but in at least 15 such companies and earned extraordinary income of approx Rs. 750 crores on sale of shares over a period of five years which was beyond human probability and hence the transactions were treated as sham. 16. With regard to the issue of jacking up the price of shares the A.O. observed that there were direct and circumstantial evidences which established that the price of those penny stocks were artificially jacked up the cartel of various entry providers and this fact had duly been accepted by SCS in his sworn statements. He also observed that the statement of S/Shri R.K. Kedia, Manish Arora, Shrish Chanderkant Shah(SCS), Jagdish Purohit, Parveen Jain (Pintu alias Chintan), Parveen Kumar Agarwal etc were based on the clinching evidences in the form of various hard & soft documents which directly established that the assessee group was one of the major beneficiaries of their activities and the statements of those brokers / sub brokers were only corroborative & circumstantial evidence to prove the case of the department. He also observed that the detailed statements of Shri Manish Arora was recorded over a period of 25 da....
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....the country which was collected independently from remote locations, tallied and matched not only with each other but also with the regular books of account of the assessee and its group concerns. He further observed that the assessee was confronted with all the data and evidences collected by the department but he could not explain or comment on merits of the evidences. The A.O. pointed out that none of the persons to whom summons were issued appeared for cross examination coupled with the fact that the assessee failed to offer any reasonable explanation on merits of the hardcore evidences established the unholy nexus between the entry providers and beneficiaries, and that for the service of providing accommodation entries hefty commission was charged from the beneficiaries by entry providers which had been disclosed by some of them and offered to tax and once service was provided for money, a contractual nexus was created between the service providers and the beneficiary which could not be easily broken. Therefore, the request for cross examination and non compliance of summons exposed the unnatural bonding between the assessee and entry operators being used by the assessee to th....
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....ce. He sought cross examination of the entry providers whose statements were relied upon by the department. The A.O. also pointed out that the summons under section 131 of the Act were issued to 20 such persons but none responded. The A.O. held that having confronted with the evidence indicating sham transaction, the burden of proof shifted back on the assessee and heavy onus was cast on him under section 68 of the Act to prove his case beyond doubt by producing so called investors but the assessee had failed to do so. Therefore the cross examination was not relevant and not necessary for the finalization of the assessment. The A.O. also held that the pattern of movement of funds for layering, non existence of genuine business activities of such investors etc. coupled with the fact that the assessee failed to produce the investor for examination could safely lead to conclusion that share capital / premium received from companies against which there was no direct evidence was also taxable under section 68. The reliance was placed on the following case laws: • Sumati Dayal Vs. CIT (1995) 125 CTR (SC) 124 : 1995 Supp. (2) SCC 453(SC) • CIT Vs. P. Mohanakala &....
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....ss the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment year: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (3) It is implicit in the above provisions that where an assessment order has already been passed for a year within the relevant six assessment years, then the Assessing Officer is duty bound to reopen those proceedings and reassess the total income but by taking note of the undisclosed income if any, unearthed during the search. The legislative intent behind incorporating the said provisions into the statute book was to establish a live link/ undeniable nexus between some incriminating material/document etc. found/uneart....
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....ir Lordships have analyzed the provisions of Section 153A as following:- i. Once a search takes place under Section 132 of the Act, notice under Section 153A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as afresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search materi....
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..... 1010/JPI/2013 passed by the Hon'ble ITAT Jaipur Bench, Jaipur; • Dy. Commissioner of Income Tax, Central Circle 23 vs. Sh. Himanshu B. Kanakia [order dated 18.01.2016 in ITA No. 3187/Mum/2014 passed by the Hon'ble ITAT "H"Bench ", Mumbai. (9) In particular, it may be noted that the jurisdictional Chandigarh Bench of the Hon'ble Income Tax Appellate Tribunal in the case of Mala Builders (P) Ltd vs ACIT, Central Circle -II, Chandigarh vide order dated 23/08/2016 in ITA Nos. 433 to 437 of 2014 has also unequivocally affirmed the above interpretation of law. It is respectfully prayed that the above ground may kindly be adjudicated in the light of the submissions made above. 20. As regards to the merits of the case relating to the addition by invoking the provisions of Section 68 of the Act the submissions of the assessee had been reproduced by the Ld. CIT(A) at page no. 124 to 154 of the assessment order, the same are reproduced verbatim as under: (1) The Appellant had, from time to time, invested in shares/share warrants (which were subsequently converted into equity shares) of various companies and which were subsequently credi....
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.... duly satisfied. (6) While passing a voluminous and, ostensibly, detailed reasoned order justifying the aforesaid action, the Ld Assessing Officer has relied on various reasons and factors including statements of various persons recorded during the course of search/survey actions (on the Appellant as well as other unrelated independent entities/persons), and documents/information allegedly recovered/found therein, analysis of the financial and trade data of the Companies, elaborate but largely irrelevant discussion on the modus-operandi followed by entry operators, application of the principle of preponderance of probabilities etc. by disregarding the documentary evidence/submissions filed/made on behalf of the Appellant. However, it may be prima-facie submitted that whatever data has been used by the Ld. Assessing Officer in making the impugned additions does not even remotely suggest that the Long- Term Capital Gains earned by the Appellant were allegedly not genuine and the result of alleged sham transactions. (7) While passing the impugned assessment order the Ld. Assessing Offer has relied solely upon the findings of the Investigation Wing and information tha....
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....er, 2004 and Securities Transactions Tax (STT) having been duly paid thereon are cumulatively satisfied. In the given case, the transactions giving rise to the LTCG entered by the Appellant duly comply with the said conditions specified in Section 10(38) of the Act in as much as while they have been entered in the F/Y 2011-12 i.e. much after 1st October, 2004 (the date on which the provisions came into force) they were also chargeable to Securities Transaction Tax (STT) which fact also stands duly documented and is not disputed. Accordingly, the LTCG earned by the Appellant are undisputedly covered by the provisions of Section 10(38) of the Act and will therefore not be a part of his total income. (12) It should be noted and strongly emphasized here that any long-term capital gain arising from the transfer of equity shares in a company which fulfils the aforesaid conditions specified in Section 10(38) of the Act cumulatively would not form a part of the total income. It cannot be over-emphasized, to any extent or degree, that the Act (as amended from time to time and for the time being in force) being an independent sovereign statute should be read, interpreted and impleme....
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....re of a listed company, and were sold at the prevailing rates through the Bombay Stock Exchange Online Trading (BOLT) platform of the Bombay Stock Exchange and all the payments against the same were received through account payee cheques/RTGS from the stock broker, through whom the shares were sold, who, as already stated above, in turn received the payment from the stock exchange as per the specified designated payment mechanism. It may be mentioned that under the online web-based trading platforms of the relevant exchanges as per the applicable, recognized and prevalent procedures and practices, the broker only acts as the intermediary in the online market place where, in the absence of any physical interaction between the parties, the identity of the counter- party (whether buyer or seller) is not available and is consequently also not known to the party (ies) entering into the transaction thereby almost completely eliminating the possibility of any collusion between the parties. The entire transaction is documented and evidenced by contract notes/bills of the relevant brokers issued in the form and in a manner as prescribed by the regulatory authorities. (15) In such a....
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....ed price-manipulation and rigging through a perceived arrangement between various parties/brokers and individuals. Given the above discussion on the functioning of stock-exchanges, it should be noted that since the Appellant, who is just an investor and a minor player on the stock exchange was not only but also could not be aware of the person/entity buying the shares there was no way formal, informal or even collusive, what to talk of legal whereby he could have any control to ensure that the shares could be sold to a particular person/entity or to any price manipulation therein. In such a regulated and formalized scenario, the possibility of rigged trading to generate allegedly bogus LTCG accommodation through a syndicate of accommodation entry operators through dummy entities is not only negligible, but well-nigh impossible. (19) With the above background the various, arguments both legal and factual, garnered by the Ld Assessing Officer in support of his action are being countered separately and seriatim as under: - A LTCG from Penny Stocks (i) The Ld Assessing Officer has relied upon certain, which can at least be termed extraneous and largely irrelevant, fac....
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....ly exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices. (iv) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is also influenced by global sentiments and cues, cross-border movement of funds, international political developments, perception ofFII's, crude prices, economic indices in various countries across the glo be, domestic as well as international political developments and a host of other tangible/intangible/perceptual and even sentimental factors. (v) An analysis of the security price movements of companies on....
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.... of persons/entities to whom shares are to be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued. (viii) In this background and situation, to disregard an entire process the foundation of which is laid on a comprehensive multi-stage process, multi-agency approval is not only the negation of an act committed with due compliance of law but also exhibits, we may submit with respect, a complete disdain therefor. The Appellant cannot be faulted for relying on a commercial proposition which was duly compliant with law, including approval of SEBI and which has resulted in huge profits. A large part of the arguments of the Learned Assessing Officer are based on the apparently unrealistic high rate of returns and supernormal profits ignoring the fact that the rate of return is a function of various factors on only some of which an entity/person can have some control. The fact of a high rate of returns should not, by itself, prejudice the mind of any person while judging the transaction. (ix) To disregard the activities conducted by a Company as dummy when its entire spec....
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....nvestment advisors, is not unusual or unheard of and does not carry the taint of illegality or wrong doing in any manner. Accordingly, it would not be correct to look at any transaction in the so called "penny stocks" with even a slightly suspicious or slanted view since not only are they perfectly legal but also can be a part of any traders/investors legitimate portfolio. In fact, to better appreciate the legality and legitimacy of trading in "penny stocks" it should be noted that the respected national daily "Economic Times", which has the widest circulation among economic newspapers in the Country, carries out a weekly survey of penny stocks vis-a-vis their price trends, market capitalization etc. (xii) In this connection it is also submitted that the provisions of the Act must be implemented administered and interpreted only with reference to its specific provisions and any income-tax authority is estopped from stepping into the shoes of any assessee so as to question its rationality, prudence or acceptability from a common-sense point of view. So long as any action/transaction meets the specific conditions laid down in the Act an attempt to seek to negate it or interp....
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....rt period of time, by investing in a penny stock whose fundamentals/ financials had no support, was neither the result of a coincidence nor of a genuine investment activity but allegedly created through a well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked deliberately to achieve predetermined objectives. The Ld. Assessing Officer has not made any independent enquiries in this regard and has relied solely upon the information provided by the Investigation Wing and that which came to his knowledge from other sources. (iii) The conclusion arrived at by the Ld Assessing Officer is based upon the statements of different persons recorded by the Investigation Wing of the Income-tax Department, during the course of separate search/survey proceedings carried out on various persons unconnected with the Appellant at various stages, geographical locations at different time periods. The Ld Assessing Officer has rather erroneously stated that various evidences were gathered during the course of search and seizure proceedings which, allegedly, prove that the transactions resulting in LTCG were not genuine whereas the fact of ....
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....S with whom the Appellant does not have any dealing directly or even indirectly. (d) Without prejudice to the above, as regards the allegation that the transactions recorded in "Kedia 2" sheet found in the search proceedings against SCS are exactly same as recorded in bank account of BPSL with Punjab National Bank and as such the transactions recorded therein are authentic, it is submitted that these transactions in Kedia 2 sheet were recorded at a separate location and the Appellant is not aware of the purpose of recording the entries therein and even as to how they came to be recorded. The payments representing advances against purchase of capital goods by BPSL were made through Sh. RK Kedia which probably could explain the reason for recording such transactions by SCS. However, the Appellant does not and cannot be expected to have details/knowledge as to the reasons why such details were kept by SCS/RK Kedia and of the internal dealings among them, if any. (e) It may also be reiterated here, a fact also emphasized before the Ld Assessing Officer that BPSL being a separate legal entity and an independent assessee, running a separate business can only be privy to....
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....nywhere in the said documents. Without prejudice it is also submitted that certain transactions of chequefsj received which have been entered therein on various dates such as 01-11-2010, 10-11-2010, 19-11-2010 do not pertain to the Appellant or any of his family members or group companies which further proves the fact that said sheet has no relevance with the Appellant or any of his family members and any adverse inference sough to be drawn on the basis of said excel sheet is neither warranted and in any case nor sustainable. (h) In particular, the charge in the statement ofSh. RK Media recorded on 14/06/2014 regarding "Kedia 2" sheet and delivery of unaccounted cash by Sh. Alkesh Sharma and Sh. Suresh Gupta is vehemently denied since no credence can be given to the statements given by Sh. RK Kedia. While it is once again reiterated that no cash was paid to Sh. RK Kedia or his employees either directly or through any intermediaries, it may be submitted that the stand taken by Shri RK Kedia, in this regard, is also contradictory as is clear from the shifting stands taken by him in his statements recorded on various dates viz. 22-02-2014, 20-03-2014,13- 06-2014 and his lette....
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.... As regards, his statement that the shares of PIL, under his control, were transferred to various companies and persons off market or through the stock exchange as directed by SCS, it may be mentioned that no shares were purchased by the Appellant off market. It is also submitted that the entire purchase was through preferential allotment made by the Company, after following the due procedure as laid down by SEBI and the other applicable statutes including the Companies Act, as in force at the relevant point of time. (ii) With regard to the inference drawn by the Ld Assessing Officer on the basis of the statement of Sh. Omprakash Anandilal Khandelwal that LTCG was generated through the shares ofPIL against payment of cash, it is submitted that the same is against facts since no cash was ever paid by the Appellant to SCS or any entities/persons against sale of shares of PIL. Moreover, there is no concrete evidence to support such an allegation and the corresponding conclusion drawn is only presumptive and conjectural. (iii) The Appellant did not have any role to play in the movement of the share price of PIL and was neither aware nor could have been aware of any un....
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....as laid rather under stress, that there was purchase and sale of shares of BSE listed companies through synchronized trading for jacking up the share price of listed companies managed and controlled by SCS, it is again submitted that the Appellant was not aware of the activities of SCS or his associates/employees nor was the Appellant in any way connected with the activities of SCS or his employees. As already separately submitted earlier, as an investor, the Appellant was not required to and could not in any way keep track of the internal activities of the company. Without prejudice to the above, in the statement of Shri Damodar Atal, there is no reference to PIL or the Appellant or any of his family members. The Appellant was not aware of the reasons for increase in share price of PIL. As an investor, the Appellant's objective was to just keep track of the share price movement of the script so that the same could be sold at the appropriate price, which he diligently did. The Appellant was also not concerned with the composition of Board of Directors of the companies alleged to be managed and controlled by SCS. (m) With regard to the transactions recorded in the form ....
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....m 28-06-2011 to 27-08-2011, whereas in the case of the Appellant and any of his family members, the last sale of shares of PIL was effected on 03- 05-2011. Accordingly, these transactions could by no stretch of imagination pertain to the Appellant or any of his family members and the Ld Assessing Officer's allegation that cash has been paid by the Appellant and his family members to SCS through Sh. RK Kedia and Pintu is without any basis and drawing any adverse inference on the basis of the same is not warranted in the facts and circumstances of the case. (q) Regarding entries of commission alleged to be charged by Sh. RK Kedia from the Appellant and his family members and entered at page no 43 of extract E-14 (Annexure A-27) seized in the case of Sh. RK Kedia, it is submitted that the Appellant/his family members did not pay any commission / premium to Sh. RK Kedia against the sale of shares of PIL. While Shri RK Kedia might have been expecting some commission since he had advised the Appellant on making investment in the shares of PIL and the Appellant had earned a handsome amount from the same, the uncontroverted fact of the matter is that no such commission was eve....
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....d that with the stock markets being open only for a limited period, speed becomes essential to the execution of deals and in case of willing buyer(s) and seller(s) the deals get consummated in seconds. The stock markets operate on a real-time basis wherein the deal get transacted instantaneously given the matching of the intentions of the buyers and seller exhibited in the online market place. (v) Without prejudice to the Appellant's stand that given the fact that the shares were sold on the online (BOLT) platform of BSE whereby he was and could not be aware of the ultimate buyer of the shares, simply because of the fact that some shares had been purchased by companies allegedly controlled/managed by SCS cannot lead to any kind of adverse conclusions let alone collusion of arrangement between SCS and the Appellant. The Appellant had sold the shares of PIL during the period from 29-11-2010 to 03-05-2011 at different prices ranging from Rs. 62.05 to Rs. 79.75 whereas the highest price of PIL, as per data downloaded from the web site of Bombay Stock Exchange, was Rs. 87.10 on 03- 03-2011. Even on the dates on which the Appellant had sold shares of PIL his selling price wa....
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....leged admission on the part ofSh. Jagdish Prasad Purohit that he had allegedly provided accommodation entries to some beneficiaries cannot be prejudicially extrapolated to arrive at an inimical decision adversely affecting the Appellant. (c) In particular with regard to the allegation/conclusion that Sh. Jagdish Prasad Purohit was controlling and managing the affairs of Blue Circle Services Ltd., it is submitted that as per the information collected online from the website of the Ministry of the Corporate Affairs. Sh. Jagdish Prasad Purohit was not even a director in Blue Circle Services Ltd. Moreover, on going through all the statements of Sh. Jagdish Prasad Purohit, it has been observed that no mention ofM/s Blue Circle Services Ltd has been made in any of these statements. Sh. Jagdish Prasad Purohit during the course of his statements has given a list of companies controlled and managed by him, but the name of Blue Circle Services Ltd is nowhere mentioned in such list nor has he made any statement with regard to composition of Directors of the said company. (d) (e) The Appellant had merely invested in the shares of the various companies and was in no way concer....
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....nd the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices. (h) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is also influenced by global sentiments and cues, Cross-border movement of funds, international political developments, perception of FII's, cude prices, economic indices in various countries across the globe, domestic as well as international political developments and a host of other tangible/intangible/perceptual and even sentimental factors. (i) An analysis of the security price movements of companies on the stock exchange would make it clear that in no case have the prices been determined solely or even majorly/predominantly by their sales/revenue/profits. In fact, even companies in the same industry/sector, with similar profiles and ope....
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....s of the companies alleged to be managed and controlled by him. Even otherwise on going through the contents of the statement ofSh. Praveen Aggarwal and his so called dummy directors, it transpires that they have merely tried to explain some of their activities without mentioning Appellant or any of his family members what to talk of any wrong doing by him/them. Even no mention has been made by him with regard to transacting on behalf of Sh. Jagdish Prasad Purohit. Thus, no adverse inference is warranted on the basis of their statements recorded at the back of the Assessee. (m) It should also be mentioned that in none of the statements of Sh Jagdish Prasad Purohit, the name ofSh. R.K. Kedia or the Appellant or any of his family members/group companies has been referred/mentioned. Also, no reference ofSh. Praveen Aggarwal (who has allegedly helped in providing bogus LTCG accommodation entries) has been made by Sh. Jagdish Prasad Purohit in his statements recorded on oath. The Ld Assessing Officer has sought to draw an adverse inference on the basis of statement of Sh. R.K. Kedia (which itself is unreliable for the reasons mentioned above and discussed separately) and certai....
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....ise, and without prejudice, the aforesaid seven pages pertain to the period from August, 2012 to October, 2012( i.e AY 2013-14) while in the case of the Appellant the entire sale of shares of Blue Circle Services Ltd. was effected during the F.Y 2011-12 (i.e. AY 2012-13) and accordingly, no comments is required to be made with regard to said seized material. Further, as regards reliance placed on Annexure A- 6 seized from the premises ofSh R K Kedia, the same does not contain the name of the Appellant or any of his family members and accordingly cannot be commented upon. (q) The Ld Assessing Officer has also relied heavily on the backup soft copy of the data seized from the premises of Sh R.K. Kedia. In this connection, it is submitted that the Appellant is not aware of any transactions/dealings between Sh. R. K. Kedia and Sh. jagdish Prasad Purohit. As already stated earlier the Appellant does not know any person by the name Sh. jagdish Prasad Purohit. Ongoing through the transactions in the said data, as appearing at the path "G:\Back Office[12]7.3gb\BackOfficeRadha[12]Data\ Present Data\KISHAN_FA" it is observed that it is a month wise ledger account in the name of "Pur....
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....ny adverse conclusion. Although the investment in the shares was made on the recommendation / advice ofSh. R. K. Kedia, the sale of such shares was made through a stock broker registered with Bombay Stock Exchange. The data of such sale could have been obtained from Bombay Stock Exchange or the stock broker through whom the sale of shares was made. (t) With regard to the transactions recorded in excel sheet at path G:\Back Ofpce\back officel28mb[2]\Back Office 128mb[2]Data\Deleted Data\Blue Circle3, in respect of sale and purchase of shares of M/s Blue Circle Services Ltd. it is submitted that as already mentioned above, the investment in shares of Blue Circle Services Ltd. was made on the recommendation/advice of Sh. R. K. Kedia and the Appellant had earned a handsome profit therefrom . As such Mr. Kedia might have been expecting some commission / advisory fee and prepared the excel sheet for the calculation of his fees. However, no such fees or commission was ever agreed or paid to him and the calculations are only imaginary. (u) The conclusive allegations on the basis of said data that unaccounted funds ofRs. 123,82,66,872/- were paid through Sh. R K. Kedia for....
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....need not work to the detriment of the Appellant as he was in no way concerned/connected with their transactions/activities, (x) With regard to conclusion drawn by the Ld Assessing Officer, on the basis of Annual Report of the impugned companies that they were allegedly not doing any meaningful business activity, it is submitted that the investment was made on the basis of future expansion plans of the companies as available either in the public domain or through personal interactions such as the letters of offer, corporate profile, industry scenarios, future expansion plans, etc. Moreover, since the share prices of the various companies were relatively low the possibility of gains through a substantial and rapid rise in the prices was quite high. The entire purchase of shares made by the Appellant was through a registered stock broker using online trading platform of BSE and the shares were subsequently, credited to his DEMAT account. The payments against the purchase of shares were made through account payee cheques/RTGS in favour of the registered stock broker through whom such shares were purchased. In this connection, copies of contract notes/sale bills evidencing the ....
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.... and subsequent conclusion that various entry operators like Sh. Jagdish Prasad Purohit, Sh. R.K. Kedia, Sh. Praveen Aggarwal, Sh. Anand Sharma Sh. Deepak Patwari, Shri Natwar Lai Daga, Shri Kishan Khadaria and Sh S N Daga formed a syndicate for arranging bogus exempt LTCG accommodation entries in the shares of various companies, it is submitted that the Appellant is in no way connected with their transactions/ activities. (aa) With regard to the Ld Assessing Officer's allegation that M/s DB (International) Stock Broker Ltd. is controlled and managed by known accommodation entry operators Sh. Shiv Narayan Daga and Sh. Natwar Lai Daga, it is submitted that the Appellant does not know any person by the name of Sh. Shiv Narayan Daga and Sh. Natwar Lai Daga and is in no way connected with the affairs of the companies alleged to be controlled and managed by them and with regard to the composition of the directors of such companies. Moreover, the Appellant has not been provided with any statement of Sh. Shiv Narayan Daga and Sh. Natwar Lai Daga nor was any reference to any statement made by the said persons alluded to in the show cause notice issued by the Ld Assessing Offic....
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....nt it is submitted that without prejudice to the arguments advanced separately with regard to the degree of reliance that can be placed on the statements of the said persons, it is submitted that since a conclusion of far-reaching consequence has proposed been drawn, on the basis of statements made/records seized from a third party it was and is incumbent on the Department to provide the Appellant an opportunity to cross-examine the said person(s) whose testimony forms the bedrock of its entire case. It is humbly submitted that any action done/conclusion drawn in the absence thereof would be against the principles of natural justice and accordingly bad in law. (af) Regarding the reliance of the Ld Assessing Officer on the Investigation report of SEB1, it is submitted that on going through the report, as provided by the Ld Assessing Officer, it transpires that SEB1 has made certain allegations with regard to activities of various listed companies in which the Appellant and /or his family members had done certain transactions of purchase and sale of their shares. These allegations of SEBI pertain to preferential allotment by companies, subsequent allotment of bonus shares, s....
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....(SC)]. (Ill) Application of the principle of preponderance of probabilities, test of human profitabilities and reliance on circumstantial evidence (a) The Ld Assessing Officer has greatly relied on the principle of preponderance of probabilities for arriving at his ultimate conclusion which is an enabling theory of providing and accepting proof and basing the verdict on their preponderance i.e. importance/predominance. Although it is a normal rule governing civil proceedings providing that a fact can be said to have been established if proved by a preponderance of probabilities or circumstantial evidence, it should be noted that the same comes into prominence only when it is hard to unearth direct evidence or demonstrative proof with respect to a particular fact. In a case where the direct evidence is either of questionable quality or which has been effectively countered and negated since no prima - facie evidence is available the revert to secondary evidence on the basis of preponderance of probabilities is not warranted. (b) The Ld. Assessing Officer has also placed strong reliance on circumstantial evidences and test of human probabilities by relying u....
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.... reference, may be made to the observations of their Lordships of the Hon'ble Supreme Court in the case of Union of India vs Azadi Bachao Andolan [(2003) 132 Taxmann 373 (SC)] wherein their Lordships of the Hon'ble Supreme Court have made the following pertinent topical observations: - (i) We may in this connection usefully refer to the judgement of the Madras High Court in M.V Valliappan v. CIT (1988) 170 ITR 238 which has rightly concluded that the decision in McDowell & Co Ltd's case (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the Appellant, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgement of the privy Council in IRC v Challenge Corpn. Ltd (1987) 2 WLR 24, and did not have the benefit of the House of Lords pronouncement in Craven's case (supra), the view taken by the Madras High Court appears to be correct and we are inclined to agree with it (ii) If the Court finds that notwithstanding a series....
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....vs Udit Narain Agarwal (judgement dated 12, 2012 in the Hon'ble High Court of Allahabad in IT Appeal No. 560 of2009)]; • CIT vsSmtSumitra Devi [(2014) 49 taxmann.com 37 (Rajasthan)]; • Commissioner of Income Tax vs Smt Pushpa Malpani [(2012) 20 taxmann.com 597 (Raj)]; • ACIT vs SmtSumitra Gaur[(2012)27 taxmann.com 107 (jodhpur - Trib); • ACIT, Mathura Vs. Smt Kela Devi Agarwal [(ITA No. 75/Agr/2010)]; • DCIT, Mathura Vs Smt Meenakshi Agrwal [(ITA No. 265/Agr/2009)]; • Sri PaduchuriJeevan vs ITO, Ananthapur [(ITA No. 452/Hyd/2015)]; • ITO, Agra vs Smt Pallavi Garg[(ITA No. 192/Agra/2009 and CO No. 34/Agra/2009)]; • Income -tax Officer, Ward -2, Nizamabad vs Smt Aarti Mittal [(2014) 41 taxmann.com 118 (Hyd-Trib)]; • ACIT, Mathura vs M/s Ram Chand Keshav Dev (HUF) [(ITA No. 233/Agra/2010)]; • Ms Farrah Market v ITO, Mumbai [(ITA No. 3801/Mum/2011)]; • ITO vs Indravadan Jain (HUF) [(ITA No. 4861,5168/Mum/2014)]; • Income Tax Officer vs Smt Neelam Chawla [(ITA No. 5335/Del/2004)]; • Income Tax Officer vs Smt Bibi Ran....
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....onably quasi-judicial in nature. (3) The failure of the appointed persons to appear for cross-examination on the appointed date has prompted the Ld Assessing Officer to, again, rather unfairly and unjustly, conjure up an imaginary "unnatural nexus" between the Appellant, and the alleged entry provider, with absolutely no evidence to back up his conclusion. The said contention is exponentially and conclusively damaging to the Appellant since no such evidence exists to even remotely suggest, let alone prove such a nexus. Apart from routine financial dealings, there are no circumstances even suggestive of such a situation and to conclude the same is again, to say the least, extremely prejudicial to the Appellant. The failure of the said persons to appear on the appointed date cannot be attributable to the Appellant and does not in any manner allow the Ld Assessing Officer to deviate from the principles of natural justice so integral to any incometax proceedings. (4) The positive intent and desire to comply with the laws and cooperate with the Department was evident from the presence of the Appellant (through his/her authorized representative) on the day appointed for....
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....o Rs. 159.61 Crores on account of sale of shares of M/s PIL which tantamount to admittance that they had taken accommodation entries from SCS. He further observed that the disclosure of the assessee group was based on the seized documents in the search of the SCS as well as Shri R.K. Kedia who were searched simultaneously with the assessee group and the surrender of income under section 132(4) of the Act was based on the documents seized therefore those documents were certainly incriminating in nature. Ld. CIT referred to the judgment of the Hon'ble Delhi High Court in the case of Smt. Daya Wanti .... Vs. CIT dt. 27/10/2016 and in the case of CIT Vs. Harjeev Aggarwal dt. 10/03/2016 respectively. Ld. CIT(A) was of the view that the evidences found during the search of SCS and Shri R.K. Kedia revealed that the undisclosed income was shown in the guise of LTCG by the assessee group and that One Time (OT) entries were taken by the group as share capital from various entry providers including SCS which was arranged through Shri R.K. Kedia and the cheques were issued to various concerns by M/s BPSL as advances for acquisition of capita assets and that the amount were routed through v....
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.... which sufficiently showed that the record of incriminating nature was seized from the premises of BPSL at Chandigarh which was maintained on the computers as well as in the printed form. The Ld. CIT(A) observed that the documents seized from the search on SCS was incriminating in nature as accepted by the assessee in his submissions and that the documents seized from the premises of BPSL confirm the transactions recorded by SCS and Shri R.K. Kedia, as such those were also required to be considered as incriminating. Ld. CIT(A) also observed that the documents seized from the premises of SCS were his own documents and as per the prevailing provisions of the Act, the notice under section 153C of the Act could not have been issued to the assessee and even if notices under section 153C of the Act were to be issued to the assessee group by virtue of provisions of second proviso to section 153A(1) of the Act, the assessments would have abated, since the assessee and his wife were searched under section 132 of the Act subsequently and the assessment had to be completed under section 153A of the Act. He therefore held that in the case of the assessee in view of the voluntarily admission of....
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....e from investment in shares amounting to Rs. 21.36 crores was 32600%. Thus every rupee invested had given a profit of Rs. 326 in two years which could not be considered as normal under any circumstances and even the human probabilities of earning such high return was NIL. The Ld. CIT(A) mentioned the sequence of events to strengthen the theory of improbable returns in the case of the assessee, his family members and business concerns in the following manner: (i) A search and seizure operation u/s 132(1) of the Act was carried at the residential / business premises of the appellant group viz Bhushan Power and Steel Group on 03.3.2010. After the search, Shri Sanhay Singhal, director and key person of the group filed a letter dated 18.06.2010 before the investigation wing surrendered amount of Rs. 302 crores on which taxes were paid which included disclosure of:- (a) Shri Sanjay Singhal AY 2010-11 Rs. 110 crores (b)Smt.Aarti Singhal AY 2010-11 Rs. 240 crores (ii) On being confronted with evidence collected consequent of search operation u/s 132 in the case of Shri Himanshu Verma conducted on 29.03.2012 by DIT(Inv) Delhi, the group concerns of the ap....
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....orded in "Kedia 2" Sheet found in the search proceedings of Shri Shirish Chanderkant Shat (SCS) at different locations which proved the close nexus of the assessee's group with those LTCG entry operator dealing with manipulation of share trading. He therefore disproved the submissions of the assessee that the investment in shares of PIL was made as an ordinary investor. Ld. CIT(A) summarised the facts as drawn from the assessment order at page no. 181 to 184 which read as under: (i) During the year under consideration, the appellant had filed return declaring Rs. 89,93,460/- and claimed exemption u/s 10(38) of the Act amounting Rs. 62,66,38,865/-. The AO made an addition of 62,66,38,865/- reflecting the total share proceeds received during the year u/s 68 of the Act and addition of Rs. 3,93,17,170/- on account of 6.5% on net gains (LTCG) u/s 69C towards commission expenses. (ii) The AO has discussed the evidences in possession of the department in the case of LTCG claimed to be earned through sale of shares of various penny stock companies by the appellant and his family. (iii) Evidence regarding LTCG accommodation entries taken w.r.t shares of M/s Prrane....
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.... used to deliver unaccounted cash of the group to Shri R.K. Kedia or his employees against which he used to arrange LTCG entry for " Bhushan Family" Group. (ix) Evidence gathered in the case of Shri Praveen Kumar Jain (Pintu Alias Chintan) searched u/s 132 of the Act by the DIT (Inv) Mumbai is discussed at para 9. It is was held by the AO that the entries recorded in the accounts maintained by Pintu and seized in an independent search action conducted by Mumbai Directorate are independently correlated with the entries recorded in the evidence seized/ impounded during the course of search in the case of SCS. This has been backed by the details as per seized documents, wherein it has been noticed that the cheque or RTGS received by SCS Group entities paid by M/s Bhushan Power &Steel Ltd from its PNB Bank account No. 0131008700000327 and were recorded in' Kedia' 2 sheet'. (x) Para 11.3 gives details in table showing cash trail from BPSL group through Shri R.K. Kedia, Shri Praveen Kumar Jain to SCS as recorded in their books of accounts for providing LTCG accommodation entries by using PIL Shares. (xi) Evidences in the form of seized books of acco....
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....us kind accommodation entries including OT and LTCG. (xviii) The AO has also given list of disclosure by benifiaries of LTCG and OT entries and disclosure by beneficiaries of LTCG. (xix) The AO has also rebutted the submission of appellant regarding PIL shares furnished in response to show cause as to why the receipts on account of sale of shares of penny stock companies should not be taxed u/s 68 of the Act. 28. The Ld. CIT(A) observed that the assessee submitted copies of all the documents to substantiate the genuineness of the transactions related to purchase and subsequent sale of shares leading to LTCG claimed by him, those documents were also placed before the A.O. who after detailed examination / discussion had gone beyond those documents and had established that those documents were mere masks to hide the real nature of transactions and that the A.O. had indicated that the share price of those penny stock companies were neither affected by the movement of Sensex nor the financials of the company to justify the such extra ordinary jump in the price of its shares. Ld. CIT(A) also observed that apart from being based on evidences gathered during the search....
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....of the view that once the assessee was made aware of the result of investigation which proved that trading of shares leading to LTCG was not genuine, the onus was on the assessee to prove that he and his family members had earned genuine LTCG under section 101 of the Indian Evidence Act, 1972 as it was the assessee who was asserting a claim that he was engaged in genuine share transactions. The reference was made to the judgment of the Hon'ble Supreme Court in the case of Shri Charan Singh Vs. Chandra Bhan Singh AIR 1988 SC 637 wherein it has been held that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it, and that the party cannot, on failure to establish the prima facie case take advantage of the weakness of his adversary's case, the party must succeed by strength of his own right and the clearness of his own proof and he cannot be heard to say that it was too difficult or virtually impossible to prove the matter in question. 31. Ld. CIT(A) held that in this case the assessee had made claim that he had earned genuine LTCG, all the facts were within his knowledge, and that the provisions of Sec....
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....were apparently in favour of the assessee but probably the role of human conduct, surrounding circumstances and preponderance of probabilities were either not brought to the notice of the authorities or were not as dominant or deciding factors as those were found to be in the present case and that the A.O. had very clearly segregated the apparent from the real by using various evidences gathered from the reliable sources of information and report. The Ld. CIT(A) was of the view that the documents submitted as evidence to prove the genuineness of the transaction were themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that purchase and sale of shares were arranged transactions to create bogus profit in the garb of tax exempt LTCG by well organized network of entry provider with the sole motive to sell such entries to enable the beneficiary to account for the undisclosed income for a consideration or commission, reference was made to the following case laws: • McDowell & Co. Ltd (1985) 154 ITR 148 (SC) • ACIT Vs. Som Nath Maini (2006) 100 ITJ Chd 917 â....
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....y the assessee(s). Subsequently search action under section 132(1) of the Act was again carried out in BPSL group of cases including office/residential premises of the assessee(s) on 21/02/2014 and once again nothing incriminating was found in the course of search operation in other words the said search action did not lead to discovery of any iota of evidence indicating any irregular availment of bogus LTCG by the assessee(s). 36.3 It was emphasized that the simultaneous search operation was also conducted on the same date i.e; 21/02/2014 in the case of Shri R.K. Kedia the alleged broker on whose advise the assessee had made the impugned investments in the shares. Once again no incriminating material with respect to the LTCG claimed by the assessee was found in the course of said search action and the statement of Shri R.K Kedia was recorded under section 132(4) of the Act on 22/02/2014 wherein he categorically confirmed the genuineness of the share transactions carried out by the assessee, the reference was made to page no. 194 to 206 of the assessee's paper book which is the copy of the statement of Shri R.K. Kedia wherein the references were made to certain preexisting third....
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....k exchange at prices prevailing on the stock exchange through registered stock broker / broker's notes, receipt of sale consideration via regular banking channels etc. thus conclusively establishing all the requisite ingredients of section 68 of the Act to explain the nature and sums found credited in the books of account, shifting onus to disprove the same on the A.O. 36.6 It was stated that the A.O. made references to certain seized documents and statement recorded by various officers of Investigation Wing pursuant to separate search and seizure operation carried out in the case of various alleged entry / exit operator in earlier years vis Shri Praveen Agarwal on 13/09/2012, Shri Sirish Chandrakant Shah (SCS) on 09/04/2013, Shri Praveen Kumar Jain(Pintu) on 11/10/2013, Shri Jagdish Prasad Purohit on 19/10/2011, 12/02/2013, 17/12/2013 etc. However the name of the assessee was not mentioned in any of the documents seized pursuant to the search action on the aforesaid alleged entry providers and the documents found from them apparently comprised of entries interse between them having no nexus with the assese and the statement recorded pursuant to the above search action on third ....
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....report of Investigation Wing and statement recorded by the Investigation Wing without any corroborative evidence and examination and without allowing cross examination to the assessee so, it was not sustainable. The reliance was placed on the following case laws: • ITO Vs. M/s Softline Creations (P) Ltd. in ITA No. 744/Del/2012 • CIT Vs. Gangeshwari Metal Pvt. Ltd. (2014) 264 CTR 277 (Del) • M/s Devansh Exports Vs. ACIT (ITA No. 2178/Kol/2017 • Adhesive P. Ltd. Vs. ITO in ITA No. 3133/Del/2018 • CIT Vs. Fair Invest Ltd. (2013) 357 ITR 146 36.10 It was emphasized that when the search / survey conducted on the alleged third parties i.e; entry / exit operators in earlier years, the assessment under section 153A of the Act was already completed in December 2011 in the case of assessee and if any document was found to be directly claimed against the assessee the proceeding under section 153C ought to have been initiated against the assessee but no such action was taken which proved that the documents found from the alleged third party did not belong to the assessee. In this regard the reference was made to page no. 176 ....
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....elhi High Court in the case of Pr. CIT & Othrs Vs. Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (2017) 395 ITR 526 which subsequently has been affirmed by the Hon'ble Supreme Court as reported at (2018) 96 taxmann.com 468. 36.13 It was submitted that the search action conducted in the case of the assessee on 21/02/2014 did not lead to discovery of any incriminating material whatsoever indicating any irregular availment of bogus LTCG by the assessee as alleged by the A.O. and simultaneously search action in the case of alleged broker Shri R. K. Kedia also did not lead to discovery of any incriminating material against the assessee. However having not discovered anything incriminating the Department kept inflicting immense pressure on Shri R.K. Kedia with a predetermined mindset of extracting certain illicit statements against the assessee, again examined Shri R.K Kedia on 14/03/2014 and subsequently on 20/03/2014. However having once again failed in implicating the assessee it appears that the department continued to pressurize Shri R.K. Kedia at the back of the assessee and certain documents were manipulated against the assesse to match the alleged enties in documents seized ....
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....hing all the requisite ingredients of section 68 of the Act and the A.O failed to successfully discharge the secondary burden of disproving the same before making the addition u/s 68 of the Act. • Uncorroborated third party statements/ documentation gathered by the Investigation Wing in course of separate search/survey actions on third parties have been circuitously used by the A.O for making additions u/s 68 & 69C of the Act in assessments framed u/s 153 A of the Act: • by illegally treating such pre-existing third party statements & documentation already available with the Department at the time of initiation of the search action in the case of the Assessee(s) herein as 'incriminating material' discovered pursuant to the search actions in the case of the Assessee(s) and reopening the concluded assessment proceedings of the unabated assessment years u/s 153A of the Act on the said basis; • by placing reliance on certain fabricated documents allegedly seized from premises of Sri R.K. Kedia on 13.06.2014 in search actions conducted almost four months after the search action in the case of the Assessee(s) herein on 21.02.2014 although th....
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....of incriminating material found during the course of search - in the present case no incriminating material was found during the course of search at the premises of the Assessee - hence no addition was called for - see para 107 of the order for unabated years (at page 1152 ofPB-5C) (ii) Opportunity of cross examination of the persons whose statements were relied upon by the AO was required to be given to the Assessee - on the date fixed by the AO, the Assessee presented himself through his AR but the concerned persons did not turn up, so it cannot be said that opportunity of crossexamination was provided to the Assessee - see para 113 of the order for unabated years (at page 1158 ofPB-5C) (iii) No reliance could be placed on testimony dt. 13.06.2014 of RK Kedia who had been proved to have indulged in double speaking and taking contradictory stands (first retracted from his statement on 14.10.2014 & thereafter withdrew his retraction on 31.03.2015) - see para 113 of order for unabated years (at page 1158 ofPB-5C) (iv) Assessments u/s 153A pursuant to search operation are required to be based on incriminating materials discovered as a result of search opera....
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.... (ix) Additions cannot be sustained merely by placing reliance on theory of preponderance of probabilities - statements of several persons recorded by the Revenue were not allowed to be cross-examined by the Assessee- Assessee had shown purchase consideration paid by cheque and recorded in its books of account which were accepted by the Revenue in earlier years - shares were sold at prices prevailing at the stock exchange- the regulatory bodies viz. SEBI & Stock exchange had not questioned the conduct of the Assessee and the broker selling the shares - Assessee had paid STT and the sale consideration was received from SEBI registered stock broker - Assessee had produced overwhelming evidences which were not proved to be false - AO reliance on preponderance of probabilities to tax the LTCG in the hands of the Assessee held not to be in order - see para 34 of the order for abated years (at pages 1343-1344 ofPB-5C) (x) Even on merit, the LTCG earned by the Assessee could not be charged to tax u/s 68 - see para 44 of the order for abated years (at page 1351 ofPB-5C) The holdings of the Hon'ble ITAT, Delhi Bench in the case of Brij Bhushan Singal & Ors Vs. ACIT (su....
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....pal CIT, Delhi 2 Vs. Best Infrastructure (India) Pvt. Ltd. & Others in ITA Nos. 11/2017 to 22/2017 • Dharampal Satyapal Ltd. Vs. DCIT (ITA Nos. 3877 to 3881/Del/2016) • Pr. CIT Vs. Dharampal Premchand Ltd. (2017) 99 CCH 202 • CIT Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) • CIT Vs. Sri P. Balasubramanium (2013) 354 ITR 116 (Mad) • CIT & Ors, Vs. Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (supra) • Sri Krishna Vs. Kurukshetra University, AIR 1976 SC 376 • K.T.M.M. Mohd. Vs. UOI: 197 ITR 196 (SC): • Vinod Solanki Vs. UOI Civil Appeal No. 7407 of 2008 • Francis Stanly @ Stalin v. Intelligence Officer, Narcotic Control Bureau Thiruvanthapuram (2006) 13 SCC 210 • S. Khadar Khan (2008) 300 ITR 157 • Ratan Corporation 196 CTR 536 (Guj) • Ashok Manilal Thakkar Vs. ACIT: 97 ITD 361/ 279 ITR 143 (AT)(Ahd I • Govind Ram Chhugani: 77 TTJ 339 (Jodh) 37. As regards to the issue relating to the addition under section 68 of the Act, the Ld. Counsel for the assessee stated that the A.O. while making the additions un....
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....o be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued. Therefore the assessee cannot be faulted for relying on a commercial proposition which was duly compliant with law. It was further submitted that the share in question were of listed companies and were sold at prevailing market rates through the Bombay Stock Exchange Online Trading (BOLT) and all the payments were received through account payee cheques. It was reiterated that all the relevant documentary evidences in the form of shares purchase documents, DMAT account, share certificates, contract notes and bank statements evidencing the relevant entries regarding receipt against sale of shares etc were duly filed before the A.O. Therefore the impugned addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. It was further submitted that in making the impugned addition the A.O. predominantly relied upon the statements of third parties without allowing cross examination which is a serious flaw and makes assessment nullitiy. It was stated that a general confession by a person that all his transactions were....
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....d and not in the case of third parties. It was accordingly submitted that the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. Reliance was placed on the following case laws: • Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) • Kishinchand Chellaram (AIR 1980 SC 2117) • State of M.P. v. Chintaman Sadashiva Waishampayan AIR 1961 SC 1623 • Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634 • Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100 • CIT Vs. SMC Share Brokers Ltd., (2007) 288 ITR 345 (Del) • Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] • Prakash Chand Nahta Vs. CIT, (2008) 301 ITR 134 (MP) • Bangodaya Cotton Mills Ltd. vs. CIT [2009] 21 DTR 200 (Cal) • CIT Vs. Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H) • CIT & Anr. Vs. Land Development Corporation (2009) 316 ITR 328 (Kar) • CIT Vs. Rajesh Kumar (2008) 306 ITR 27 (Del) • Heirs & LRs of Late Laxmanbhai S. Patel Vs. CIT (2009) 222 CTR (Guj) 138 • ....
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....7) 83 taxmann.com 348 (Delhi HC) • PCIT Vs. Meenakshi Overseas (P) Ltd. (2017) 82 taxmann.com 300 (Delhi HC) • Gee Cee Cycle Balls Pvt. Ltd. Vs. ITO, ITA No. 867/Del/2013 dt. 30.10.2015 • CIT Vs. Goel Songs Golden Estate Pvt. Ltd. ITA No. 212/2012 dt. 11.04.2012 • CIT Vs. Vrindavan Farms (P) Ltd. ITA No. 71, 72, 85/Del/2015 dt. 12.08.2015 • Dwarka Gems Ltd. ITA No. 71/Jp/2017 (ITAT Jaipur) • Nirmala Agarwal Vs. ACIT (ITA No. 995 & 996/Jp/2016) (ITAT Jaipur) • DCIT Vs. Rohini Builders (2002) 256 ITR 360 (Guj HC) - upholding the order of the Hon'ble ITAT in Rohini Builders Vs. DCIT (2002) 76 TTJ 521 - SLP also dismissed by the Hon'ble Supreme Court • CIT Vs. Rakam Money Matters Pvt. Ltd. dt. 13.10.2015 in ITA No. 778/2015 (Del HC) • CIT Vs. Victor Electrodes 329 ITR 271 (Del HC) • CIT Vs. UK Shah (1973) 90 ITR 396 (Bom HC) • DCIT Vs. GS Control ITA No. 1560 Del/2010 order dt. 13.03.2015 (Del ITAT) • Sri Brij Bhushan Singall & Ors Vs. ACIT(ITA Nos. 1412-141,1476,147,1482, 1485- 1487/Del/2018) • CIT Vs. Eastern ....
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....to convert their unaccounted income by charging a hefty commission of 5-6% of the amount of gains. This fraudulent activity of such unscrupulous entry operators came to the notice of SEBI which being a regulatory authority of the capital market, conducted detailed examination of the price rigging of shares of such companies and collected data of the beneficiaries, counter party buyers, brokers, movement of prices, and other relevant details. It was further stated that the SEBI issued notices to various parties in this regard and passed on the information to the Income Tax Department, thereafter the Directorate of Investigation conducted search at various places as per following details: i) Sh. Shirish Chandra Shah (SCS), entry operator along with his affiliates at Mumbai on 09.04.2013 ii) Pranneta Industries Ltd., the shares of which were used to provide accommodation entries- 09.04.2013 iii. Sh. Om Prakash Anandilal Khandelwal (OAK), Managing Director of Pranneta Industries on 09.04.2013 iv. Praveen Kumar Jain (Pintu/ Chintan), associate of SCS responsible for handling cash on 11.10.2013 v. Sh. Sanjay Singal and others, the appellants o....
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....l for the Department furnished written submissions stating therein that the preposition of the assessee were not tenable which go against basic provisions of the Law for the following reasons : i. There is no requirement of law as enacted under the provisions of Section 153 A that the assessment or re-assessment has to be based on the incriminating material found during the course of search. This concept has evolved through judicial precedents. The expression "incriminating material" has not been defined under any statutory provision. ii. The words and expressions coined by Courts and Tribunals cannot be interpreted like the words and expressions appearing in a statute. Such words and expressions have to be understood in their normal contextual and common-sense connotations. iii. The incriminating material would, include any tangible or intangible asset or property, any information having a bearing on the income, any document which has an impact on such income and would also include any other material which Revenue gathers in a search or post-search investigation having relevance to the determination of chargeable income. iv. The provisions of Se....
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....f the material to the determination of income which is necessary and not the situs or the person from whom the material is seized. Reference is made to the decision of Goyal Industries Limited {[2014] 49 taxmann.com 203 (Gujarat)} at Page 81-89 of Revenue's CLC, where the Hon'ble High Court of Gujarat held that there was no illegality in initiating the block assessment proceedings in the case of the company on the basis of material found during search at the premises of the one of the directors of the company, even though these were different legal entities. The High Court also found justification of the initiation of proceedings on the basis of statement recorded of the employee of the assessee company. Similarly, in the case of Ganpati Fincap Services {[2017] 82 taxmann.com 408 (Delhi)} at Pages 89-102 of Revenue's CLC, it was held that the documents found from the premises of third parties were also relevant if they incriminate the assessee. In the aforesaid case, the premises of several other companies were also searched. In the case of Rajesh Sunderdas Vaswani {[2016] 76 taxmann.com 311 (Gujarat)} at Pages 128- 134 of Revenue's CLC. the Hon'ble High Court o....
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....d is nothing but a desperate bid to escape the incidence of tax. xii. A statement recorded u / s 1 3 2(4) is a material and would be equally incriminating material if it incriminates the assessee or any other person with regard to his income.It would be relevant to refer to the provisions of Section 132(41 which gives the power to the Authorized Officer to examine the person concerned in the same manners as the Authorized Officer gets power to search and seize any valuable articles or things under sub-section (1) of Section 132. The explanation to Section 132(4) further gives power to the Authorized Officer to examine him not only in respect of assets or documents found as a result of search, but also in respect of all other matters relevant for the purpose of any investigation under the Act. Thus, the scope of 132(4) itself is wide enough to cover examination of the person in respect of material recovered in search or any other matter for the purpose of investigation. Hence, the information flowing from a statement which is recorded as a necessary process of search operation would necessarily constitute incriminating material emanating from the search. xiii. In t....
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.... premises of BPSL which was adequate to show the appellant's link with entry operators and unscrupulous brokers and the mode and manner in which such entries were obtained. This established the falsity of the explanation offered by the appellants u/s 68 of the Act. e. Absence of any satisfactory explanation from the appellants even after they were confronted and supplied with copies of all seized documents and sworn statements of every such person. xvi. Thus, the assessments for unabated years are based on incriminating material found during the course of search at the premises of the appellant and his accomplices who were all parties to a systematic fraud played upon the capital market with the sole object of defrauding the Revenue. xvii. Instead of offering any valid or satisfactory explanation as required under the law, the appellants are trying to hide behind wholly untenable technical grounds like the power to make additions for unabated years, AO not providing opportunity of cross examination, material found from third party not capable of being used against them, Statement given u/s 132(4) to be treated as retracted and going as far as to sugge....
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....credit appearing in his books and to establish the identity of the creditors, their credit worthiness and the genuineness of the transactions and where the onus is discharged by the assessee, the A.O. has to carry out further enquiry to demonstrate the explanation, so offered by the assesse was not satisfactory in his opinion and once he does so and the Revenue confront the assessee with such material, the assessee has to establish the satisfactory nature of his explanation and his primary onus would not stand discharged till then. The reliance was placed on the following case laws: • Shamim M. Bharwani reported in (2015) 170 TTK 238 • NRA Iron and Steel (P) Ltd. reported in (2019) 103 taxmann.com 48 (SC) 39.2 It was also submitted that the decisions referred by the Ld. Counsel for the assessee do not affect the legal principles with regard to the question of onus under section 68 of the Act. As an alternative, Ld. Standing Counsel submitted that there are no fetters on the power of the A.O. to make additions to the assessed income under section 153A of the Act, if he has material in his possession to justify the addition irrespective whether or not suc....
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....section 153C and the satisfaction referred to therein has to be with reference to the valuable articles or things found and belonging to such other person. However the coverage of Section 153C is totally different from that under section 153A of the Act and the said decision will not affect the validity of the decisions rendered by Hon'ble Allahabad High Court in the case of Shri Raj Kumar Arora (supra) and of the Hon'ble Kerala High Court in the case of E.N. Gopakumar and ST. Francis Clay Décor Tiles (supra) particularly in the context of Section 153A of the Act. It was stated that there is nothing in law which prohibits an assessment or reassessment under the provisions of Section 153A of the Act with or without any recovery of so called incriminating material from such process alone. It was submitted that the decision of the ITAT Delhi Bench in the case of Shri Brijbhushan Singal & Ors Vs. ACIT (supra) relied by the Ld. Counsel for the assessee the facts are different from the facts of the assessee's case because in the present case there was a clear admission of the assessee, the LTCG was chargeable to tax under section 68 of the Act and accordingly the income wa....
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....e mode and manner in which such entries were obtained. This established the falsity of the explanation offered by the appellants u/s 68 of the Act. v. Absence of any satisfactory explanation from the appellants even after they were confronted and supplied with copies of all seized documents and sworn statements of every such person. d. Thus, the assessments for unabated years are based on incriminating material found during the course of search at the premises of the appellant and his accomplices who were all parties to a systematic fraud played upon the capital market with the sole object of defrauding Revenue. e. Instead of offering any valid or satisfactory explanation as required under the law, the appellants are trying to hide behind wholly untenable technical grounds like the power to make additions for unabated years, AO not providing opportunity of cross examination, material found from third party not capable of being used against them, Statement given u/s 132(4) to be treated as retracted and going as far as to suggest that Revenue has fabricated evidence against him and planted the same at the premises of third parties. Having been thoroughly e....
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....y unusual which do not meet the test of human probabilities, therefore the A.O. was fully justified in making the addition under section 68 of the Act. The reference was made to the following case laws: • Smt. M.K. Rajeshwari reported in (2018) 99 taxmann.com 339(Bang) • Sh. Sanjay Bimalchand Jain in ITA No. 61/Nagpur/2013(Nag) • Harish Kumar (HUF) reported in 2019-TIOL-1200-ITAT-MAD(Mad) • Udit Kalra in ITA No. 220/2019(Del) 42. It was reiterated that the assessee offered the entire amount of undisclosed income in his statement recorded under section 132(4) of the Act which had not been returned by way of an affidavit or any letter addressed to the A.O. or to the Investigation Wing before whom, such declaration was made and that the mere fact that the return under section 153A of the Act did not incorporate this admitted undisclosed income could not be recorded as retraction of a sworn statement given under section 132(4) of the Act and that the assessee had not given any reason for not declaring the undisclosed income in his return except a general argument that the statement was given under duress or coercion. It was stated ....
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.... is an entry operator, that he manages and controls 212 bogus companies for this purpose, that he maintained a meticulous record of receipt of cash against giving accommodation entries, that he charged commission of 5-6% for this purpose. ii. The status of SCS as an entry provider stands confirmed in his order of assessment, which is not in dispute. iii. RKK also accepts that he maintained compete records through his associates of the cash received and transmitted to SCS and the receipt of the corresponding amount from him which was paid over to the appellants by way of an accommodation entry. iv. The directors of the company also record the fact that their companies were used as a vehicle for providing long term capital gains or such other accommodation entries. v. In the light of these statements, which have not been retracted at any stage, the addition made by the AO is fully justified. vi. Once it is established from the co-conspirators that they were entry operators, the explanation offered by the appellants u/s 68 gets fully exposed. The assessee then cannot be regarded as having discharged the onus cast on him under the law. ....
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....e available. The addition has not been made merely on the basis of testimony of these persons. viii. The addition would be justified, even if their statements are to be kept aside, on the basis of the documentary evidence available with the AO. ix. The statements of these persons can be divided into two parts: - one, the nature of their activities and their position as entry operators and two, their testimony implicating the appellants. x. The nature of their business operation would not depend on the crossexamination by the appellants and once they are established as entry operators, this fact alone demolishes the explanation offered by the appellant. xi. Thus, the plea of the appellants that in the absence of opportunity of cross examination being provided to them, it was not open to the AO to rely on the sworn statements or the material gathered from such entities is wholly untenable." xii. The appellants have not led any material whatsoever to discharge the onus cast on them u/s 68 and hence, the additions are fully justified. The reliance was placed on the following case laws: • Smt. Kusumlatha Thakral Vs. CIT (2010)....
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....eported at (2015) 229 Taxmann.com 555(Del) • CIT vs. Reliance International Corp.(P.) Ltd. reported at (2011) 196 Taxmann.com 387 (Del) 46. Ld. Counsel for the Assessee in his rejoinder submitted that there was no merit in this contention of the Ld. Standing Counsel that there is no precondition under section 153A of the Act for additions to be made only on the basis of seized incriminating documents in view of the judgment of the Hon'ble Apex Court in the case of Meeta Gutgutia (supra). As regards to the submissions of the Ld. Standing Counsel that the statement of SCS, Shri R.K Kedia & his employees, Stock Brokers, Entry Providers and other connected persons etc were in the nature of incriminating material, ld. Counsel for the assessee submitted that the assessee was not named in most of the documents found from all the third parties, therefore their statements cannot be construed to be incriminating material and the presumption under section 292C of the Act was not applicable. The reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Harjeev Agarwal 290 CTR 263. 46.1 Ld. Counsel for the assessee further submitted th....
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....out in the statement of the assessee wherein nothing was mentioned that the transactions was bogus. It was also stated that no corresponding assets to suggest the undisclosed income, was found and the transactions were accepted as genuine in the regular assessment framed under section 143(3) of the Act therefore the addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. 48. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the appeals under consideration relates to the years prior to the search and the assessment framed were unabated. In other words regular assessment framed were prior to the search and seizure operation under section 132(1) of the Act on 21/02/2014 and the issuance of notice dt. 29/01/2015 under section 153A of the Act. In the present case no incriminating material was found during the course of aforesaid search and even earlier when the search took place on 03/03/2010 and survey took place on 27/12/2012 no incriminating material was found from the business / residential premises of the assessee. The present assessment was framed under se....
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....ababted assessment whether or not any material was found during the course of search. He also stated that no decision on this issue had been rendered by the Hon'ble Jurisdictional High Court. We do not see any merit in the aforesaid contention of the Ld. Standing Counsel in view of the ratio laid down by the Hon'ble Apex Court in the case of Mysore Minerals Ltd Vs. CIT reported at 239 ITR 775 wherein it has been held that " it is also well settled that where there are two interpretation of taxing provisions the one which is favourable to the assessee should be preferred". 48.3 Similarly in the case of Union of India and Others Vs. Omkar S. Kanwar and Others reported at (2002) 258 ITR 761 Hon'ble Apex Court held that " it is settled law that if two views are possible then the one which is in favour of the assessee must be adopted". 48.4 A similar view has been taken in the case of CIT, West Bengal I Vs. Vegetable Products Ltd reported at 88 ITR 192 wherein it has been held by the Hon'ble Apex Court that " if the Court find that the language of the taxing provision is ambiguous or capable and more mean than one, then the Court has to adopted that interpret....
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....g within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. "Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated un....
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....respectively while the search took place on 13.06.2014 and the assessments u/s 143(3) of the Act were framed on 27.02.2011 and 14.02.2014 for the assessment years 2010-11 and 2011-12 respectively (copies of which are place at page nos. 66 to 92 of the assessee's compilation). The return of income for the assessment year 2012-13 was filed by the assessee on 31.07.2012 and the time to issue the notice u/s 143(2) of the Act had already expired before the date of search. Therefore, the scope of assessment u/s 153A of the Act in respect of the assessment years under consideration i.e. assessment years 2010- 11 to 2012-13 is limited to the incriminating material found during the course of search. As regards to the issue relating to the original return of income processed u/s 143(1) of the Act and for which time to issue notice u/s 143(2) of the Act had already expired before the search took place. The ITAT Delhi Bench 'I-1', New Delhi in the case of Granite Gate Properties Pvt. Ltd. Vs ACIT, CC-6, New Delhi in ITA Nos. 7022 to 7024/Del/2017 for the assessment years 2009-10 to 2011-12 vide order dated 29.05.2018 (where in one of us i.e. Accountant Member is the author) held in paras 18 to....
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....of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted." 20. In the present case also, although the assessment was not framed u/s 143(3) of the Act but an intimation was issued u/s 143(1) of the Act, however, the time to issue the notice u/s 143(2) of the Act has already expired before the search. Therefore, for the purposes of Section 153A r.w.s. 153C of the Act, an intimation u/s 143(1) of the Act was also an order of assessment. In the present case, since no incriminating material was found during the course of search. The addition made by the AO u/s 153A of the Act on account of interest on FCCDs was not justified." 107. We, therefore, by respectfully following the aforesaid referred to order of the Co-ordinate Bench are of the confirmed view that the assessment for the assessment year 2012-13 although was not framed u/s 143(3) of the ....
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....any incriminating material emanating from search u/s 132(1) of the Act, only on the basis of the statement recorded u/s 132(4) of the Act, particularly, when the opportunity to cross-examination of the witness whose statement were relied, was not given to the assessee. 108. On a similar issue, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Best Infrastructure (India) Pvt. Ltd. in ITA No. 11/2017 and Others (supra) vide order dated 01.08.2017 (copy of which is placed at page nos. 151 to 171 of the assessee's compilation) held in paras 35 to 39 as under: "35. As noted in Principal Commissioner of Income Tax Central-2, New Delhi v. Meeta Gutgutia (supra), several other High Courts have also come to a similar conclusion either by following Commissioner of Income Tax (Central-Ill) v. Kabul Chawla (supra) or otherwise. This includes the decisions of the Gujarat High Court in Principal Commissioner of Income Tax v. Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj); Principal Commissioner of Income Tax-i v. Devangi alias Rupa 2017-TIOL-319- HC-AHM-IT; the Karnataka High Court in CIT v. IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar); the Kolkat....
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....a v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is nonexistent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission. 39. For all the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the assessees herein was not justified in law." 109. Similarly, the Hon'ble Apex Court in the case of Andaman Timber Industries Vs Commissioner of Central Excise (2015) 281 CTR 241 (supra) held as under: "6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the orde....
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....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." 110. A similar view has been taken by the Hon'ble Apex Court in the case of Kishinchand Chellaram Vs CIT 1980 AIR 2117 (supra) wherein it has been held as under: "(2) It is true that the proceedings under the Income Tax law are not governed by the strict rules of evidence and therefore it might be said that even without calling the Manager of the Bank in evidence to prove this letter, it could be taken into account as evidence. But before the Income-Tax Authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to crossexamine the Manager of the Bank with reference to the statements made by him. Moreover, this letter was said to have been addressed by the Manager of the Bank to the Income Tax Officer on 18th February, 1955 in relation to a remittance alleged to have been sent on 16th October, 1946 and it is impossible to believe in the absence of any evi....
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.... 114. On a similar issue, the Hon'ble Calcutta High Court in the case of CIT Vs Eastern Commercial Enterprises (1994) 210 ITR 103 (supra) held as under: "4. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as to witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralizes his value as to witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no Court can decided on which occasion he was truthful." 115. On a similar issue the CBDT also issued the Circular No. 286/2/2003- IT(Inv.), dated 10.03.2003 stating therein as under: "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the co....
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....961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion .'' 117. From the aforesaid Circulars, it is clear that the assessments made pursuant to search operation are required to be based on incriminating materials discovered as a result of search operation in the case of the assessee and not on the recorded statement. In the instant case, the persons who gave the statements, retracted the same and even the opportunity to cross-examine was not afforded to the assessee. In our opinion, it cannot be said that those statements on the basis of which impugned additions were made by the AO, were incriminating material found during the course of search. As we have already noted that no incriminating material was found during the course of search and the additions were made by the AO while framing the assessments u/s 153A of the Act, the said additions need to be restricted or limited only to incriminating material found during the course of search. However, in the present case, no such incriminating material was found during the course of search from the possession of the assessee. 118. A similar issue has been adjudicated by the ITA....
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....d the word "reassess" to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 24. A similar view has been taken by the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns "N" Petals (2017) 395 ITR 526 (supra) wherein it has been held as under: "Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incr....
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.... This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the preexisting provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed." 26. We, therefore, b....
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....CIT Vs Kabul Chawla (2016) 380 ITR 573 (supra) held as under: "The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A(ll will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the "total income" of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed i....
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....elief, holding that no incriminating material was recovered during the search. The Revenue's appeal was rejected. The Income-tax Appellate Tribunal held as follows: "10. As per the paper book filed by the learned authorized representative showing the Panchnama from where learned Departmental representative could not point out any material found during the course of search which could give even remote possibilities of altering the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee. The Hon'ble High Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the ....
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.... it is an undisputed fact that for the assessment years 2006-07, 2007-08 and 2008-09 the return of income was filed u/s 139(1) and order u/s 143(3) was passed much before the date of search, except for the assessment year 2007-08, wherein no notice u/s 143(2) was issued within the stipulated time period. Accordingly, on the date of search, i.e., 19.10.2010 the assessments for these assessment years have attained finality and hence has to be reckoned as unabated assessment in terms of second proviso to section 153A. Now under the jurisdiction of Hon'ble Delhi High Court it is a well settled principle that in the case of assessments which have attained finality and are nonabated assessment, then no additions can be made over and above the original assessed income unless some incriminating material has been found during the course of search qua that assessment year. This proposition has been well discussed in the judgment of CIT vs. Kabul Chawla, wherein their Lordships have also discussed the judgment of Shri Anil Kumar Bhatia (supra). After considering the various judgments the Hon'ble High Court have summarised the decisions in the following manner: - "37. On a conspectus ....
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....or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." 15. The ratio laid down in the aforesaid judgment has been further reiterated on the Hon'ble Delhi High Court in the case of Pr.CIT vs. (supra) vs Meeta Gutgutia and catena of other cases as referred above. In so far as judgments relied upon by the Ld. CIT DR, same may not have binding precedence for the reason that; firstly, most of the judgments are distinguishable; secondly, majority of the High Court judgments are in favour; and lastly, jurisdictional High Court in series of judgment has reiterated the same principle. Thus, in view of the settled proposition laid down by the Hon'ble Jurisdictional High Court which is applicable on the facts of the present case also, we hold that all the additions made by the AO in the assessment years 2006-07, 2007-08 and 2008-09 are beyond the scope of assessment u/s 153A, because assessments for these assessment years had attained finality before the date of search and no incriminating material or seized documents were found qua these additions. Accordingly, additio....