TaxTMI 
TaxTMI 
2019 (5) TMI 1846
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....e, except with variance in figures and the name of the scrip. 3. The only common issue involved in these appeals is as to whether the ld CITA was justified in upholding the action of the ld AO in treating the long term capital gain on sale of shares of SRK Industries Ltd in the sum of Rs. 2,26,36,372/- as bogus and consequentially denying the exemption claimed by the assessee u/s 10(38) of the Act by taxing it u/s 68 of the Act in the facts and circumstances of the case. 4. The brief facts of this issue are that the assessee is an individual and had filed her return of income for the Asst Year 2014-15 on 12.3.2015 declaring total income of Rs. 19,04,740/-. The ld AO from the workings of long term capital gains attached with the return of income observed that assessee had shown gain of Rs. 2,26,36,372/- sale of shares of SRK Industries Ltd and claimed the same as exempt u/s 10(38) of the Act. The assessee submitted the details of the same by submitting that she had purchased 30000 shares of M/s Transcend Commerce Ltd on 25.9.2012 for Rs. 3,00,000/- from M/s Subhmangal Sales Private Limited. The assessee made payment for the same by Real Time Gross Settlement (RTG....
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....n of Rs. 2,26,36,372/- u/s 68 of the Act in respect of long term capital gains on sale of shares of M/s. SRK Industries Ltd on the following grounds:- a) By placing reliance on the copies of statements of various persons recorded during the course of survey proceedings carried out by Kolkata Investigation Wing of Income Tax Department b) By holding that the entire transactions of purchase and sale of shares were prearranged by the assessee with a malign intention to launder her undisclosed income in the form of long term capital gains on sale of shares c) The assessee had not taken the advice of her regular share broker and had purchased the shares of Transcend Commerce Ltd off market through an unknown company i.e M/s Subhmangal Sales Private Limited. d) The assessee has not made any other investment in shares of reputed company while assessee made a windfall gain in this share which has very dubious financials. e) Assessee is not aware of the Directors of SRK Industries Ltd , its nature of business , turnover or profit . She was not even aware of Shri Rakeshchand Jain, Managing Director of both SRK Industries Ltd and Transcend Commerce....
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.... We find from perusal of the assessment order, there is no mention or reference as to whether these statements were even provided to the assessee for his verification and seek for cross examination, if any. Hence it could be safely concluded that these statements were taken behind the back of the assessee and were never put to the assessee for his rebuttal. Hence no evidentiary value could be attached to those statements. We find that the statement was recorded on oath u/s 131 of the Act from the assessee during the course of assessment proceedings by the ld AO, but no questions regarding the statements obtained from entry operators were even put to the assessee by the ld AO. 7.1. On analysis of price movements of shares of SRK Industries Ltd , we find that as per the data relied upon by the ld AO in his assessment order, the total number of shares traded in respect of this scrip in the entire market from Feb 2012 ( i.e the time of purchase of shares by the assessee herein) to Jan 2014 (i.e the time of sale of shares by the assessee herein) was 40254365 shares. Whereas the same transactions from Feb 2014 to Dec 2015 were 82818409 shares. This will be clear from the follow....
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....ng the trading of the scrip or banning the scrip. Moreover, the ld AR also placed on record the letter dated 14.2.2019 addressed by SRK Industries Ltd to Bombay Stock Exchange informing the outcome of the Board Meeting held on 14.2.2019 approving the unaudited standalone financial results of SRK Industries Ltd for the quarter ended 31st December 2018 in the format prescribed by SEBI listing norms and the stock exchange. From the said quarterly financials, we find that SRK Industries Ltd revenue from operations for the quarter ended Dec 2018 was Rs. 30.61 crores which clearly shows that it is an operational company and not merely a company having no value as alleged by the revenue before us to make it fall under the category of 'penny stock'. Moreover, the status of this company M/s SRK Industries Ltd in the website of Ministry of Corporate Affairs as on 26.2.2019 is still shown under the category of 'Active'. In the said status report of website of ministry of corporate affairs, we find that the fixed assets and current assets of SRK Industries Ltd were subjected to some charge or encumbrance with certain loan creditors and the said charge on assets were also duly cleared by SRK In....
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....uring the course of assessment proceedings on 29.11.2016 which fact is also mentioned in Page 26 of the Assessment Order. In the said statement, the assessee in reply to Question No. 9 had categorically stated that she had been making investments in capital market and equity shares through broker M/s Sharekhan Limited and through relatives and friends. The assessee had also categorically replied in response to Question No. 13 that the investment in shares of SRK Industries Ltd (Transcend Commerce Ltd prior to merger) was made based on the advice of her friend Shri Shivajirao Jondhale. The assessee in reply to Question No. 17 had also stated that she did not make any enquiry about the financial condition of the shares of SRK Industries Ltd but she was told by Shri Shivajirao Jondhale that the value of the shares would get appreciated. This was the sole basis of the assessee making the investment in shares of Transcend Commerce Ltd (Later merged with SRK Industries Ltd) which cannot be doubted at all. In our considered opinion, it cannot be said that all the investment decisions of the assessee would be prudent and would be done only after analyzing the entire fundamentals and financ....
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....ch of Kolkata Tribunal in ITA No.661/Kol/ 2018 in Shreyans Chopra vs ACIT dated 25.7.2018 on similar set of facts and circumstances had held as follows:- "IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA 'SMC' BENCH, KOLKATA (Before Sri J. Sudhakar Reddy, Accountant Member) ITA No. 661/Kol/2018 Assessment Year: 2014-15 Shri Shreyans Chopra ............................................................. Appellant 3A, Mangoe Lane Kolkata - 700 001 [PAN : AAAFZ 1337 P] Assistant Commissioner of Income Tax, Circle-36, Kolkata.......Respondent Appearances by: Shri Miraj D. Shah A/R, appeared on behalf of the assessee. Shri Satyajit Mandal, Addl. CIT, D/R. appearing on behalf of the Revenue. Date of concluding the hearing : June 28th, 2018 Date of pronouncing the order : July 25th, 2018 ORDER Per J. Sudhakar Reddy, AM :- This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-10, Kolkata, (hereinafter the "Ld. CIT(A)‟), dt. 15/02/2018, passed u/s 250 of the Income Tax A....
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....sing Officer in his detailed order discussed the modus operandi as well as the other evidences available with him and, thereafter, at para 6 & 7, concluded as follows:- "6. Thus in view of the elaborate discussion made above, I hereby hold the amount of Rs. 5,57,658/- introduced/credited by the assessee out of these purported share sale receipts during the Financial Year 2013-14 (AY 201415) in his capital account as his income being unexplained cash credit u/s 68 of the Income Tax Act (taxable at the rate of 30% as provided u/s 115BBE). Therefore, an amount of Rs. 5,57,658/- is added back with the total income of the assessee u/s 68 of the I.T. Act as unexplained cash credit during the relevant year. [Addition: Rs. 5,57,658/-] 7. Under the circumstances, Rs. 5,50,158/- is treated as bogus and also a sum of Rs. 27,508/- being 5% of Rs. 5,50,158/- is added as undisclosed expenditure within the meaning of section 69C of the Income-tax Act, 1961. [Addition of Rs. 27,508/-]" 4. On appeal, the ld. First Appellate Authority, has classified these transactions as "suspicious‟ and confirmed the order of the Assessing Officer. 5. Aggrieved....
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....e. Evidence gathered by the Director Investigation‟s office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assesee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 14. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that she is just an investor and as she re....
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....on with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, in our view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from a....
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....e amount in the sum of Rs. 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, came to the conclusion that the possession of 150 high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each". The observations of the Hon‟ble Apex Court are equally applicable to the case of the assessee. In our view the assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction ....
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....e meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the government servant, he will not be able to conduct an effective and useful cross-examination. 29. In Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the ....
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....aid dealers could not have brought out any material which would not be in possession of the Appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the Appellant wanted to crossexamine those dealers and what extraction the Appellant wanted from them. 6. As mentioned above, the Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2....
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....in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed." b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3: "We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account." c) The Hon‟ble Punjab and Haryana High Court in the case of PREM PAL GANDHI [ITA95-2017 (O&M)] dated 18.01.2018 at vide Page 3 Para 4 held as under: "..... The Assessing Officer in both the cases added the appreciation to the assessee‟s‟ income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee‟s‟ income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in ....
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....ities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act." Further in Page 15 Para 8.5 of the judgment, it held: "We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT (A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition." e) The BENCH "D" OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as under: "........ We find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our ....
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....th contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the ld AO to be false or fabricated. The facts of the case and the evidences in support of the assessee‟s case clearly support the claim of the assessee that the transactions of the assessee were bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee‟s claim of exemption under section 10(38) of the Act." g) The BENCH "H" OF MUMBAI ITAT in the case of ARVIND KUMAR JAIN HUF [ITA No.4682/Mum/2014] order dated 18.09.2017 held as under vide Page 6 Para 8: "......We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded....
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....sdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: "The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank." j) The Hon‟ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon‟ble Gujrat High Court as under: "It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales ....
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....d upon by the ld DR before us on the decision of Hon'ble Bombay High Court (Nagpur Bench) in the case of Sanjay Bimalchand Jain vs Pr.CIT (Nagpur) reported in (2018) 89 taxmann.com 196 (Bombay) dated 10.4.2017 on the impugned issue. From the facts of Sanjay Bimalchand Jain supra, we find that (i) in that case, the broker company through which the shares were sold did not respond to AO's letter regarding the names and address and bank account of the person who purchased the shares sold by the assessee ; (ii) Moreover, at the time of acquisition of shares of both the companies by the assessee, the payments were made in cash ; (iii) The address of both the companies were interestingly the same ; (iv) The authorized signatory of both the companies were also the same person ; (v) The purchase of shares of both the companies was done by that assessee through broker, GSSL and the address of the said broker was incidentally the address of the two companies. Based on these crucial facts, the Hon'ble Bombay High Court rendered the decision in favour of the revenue. None of these factors were present in the facts of the assessee before us. Hence it could be safely concluded that the decision ....