TaxTMI 
TaxTMI 
2021 (1) TMI 93
X X X X Extracts X X X X
X X X X Extracts X X X X
.... under section 68 of loans, addition of interest on loans. The grounds raised by the assessee are similarly worded except for the amounts. For the sake of reference we are reproducing hereunder the grounds of appeal raised in the case of Kalpana Mukesh Ruia for assessment year 2013-14 where all the grounds raised are referred and emanating. 1. The learned Commissioner of Income Tax (Appeals) erred in holding that even though the assessment for this year was not abated and no incriminating material was found during search, additions can be made in respect of long term capital gain on sale of alleged penny stock declared by the appellant in the previous year relevant to this assessment year-NIL. 2. The learned Commissioner of Income Tax (Appeals) further erred in not following the judgement of Hon'ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd., 374 ITR 645, to hold that in the absence of any incriminating material found during search in unabated assessment, no addition can be made while passing order under section 153A read with section 143(3)- NIL 3. The learned Commissioner of Income Tax (Appeals) fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 9. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions under section 68 on account of long term capital gain by relying on statement of appellant's husband Mr. Mukesh Ruia recorded u/s 132(4) and not accepting the retraction made by him and not holding that in absence of incriminating material found during search proceedings, making additions under section 68 is not justified particularly when circular of CBDT in its INSTRUCTION F. NO. 286/2/2003-IT (INV. II), DATED 10-3-2003 and LETTER [F.NO.286/98/2013-IT (INV.II)], DATED 18-12-2014 prohibits taking of confessional statements during search proceedings.- NIL 10. The learned Commissioner of Income Tax (Appeals) further erred in rejecting the ground of appellant for not allowing cross examination of parties on whose statements assessing officer is relying and not following the judgement of Hon'ble Supreme Court in case of Kishinchand Chellaram (125 ITR 713) and Andaman Timber Industries v. Commissioner of Central Excise (281 CTR 241) wherein it has been clearly held by Apex court that relying on statement recorded on the back of the assessee without allowing cross exam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accepting and giving any finding on judgement of Hon'ble Bombay High Court in the case of Pr.CIT Central-2 Vs. Skylark Build in ITA No. 616 of 2016 dated 24.10.2018, 2018-TIOL-2323-High Court-Mum-IT wherein it has been held that when the amounts borrowed by the assessee which are alleged as unexplained cash credit to make additions by invoking section 68, no addition can be made when such borrowings are repaid - NIL 18. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance under section 69C of Rs. 22,47,3217- on account of interest paid on alleged bogus loans taken in last year and loan taken from Saraf Nivesh Pvt. Ltd. during this year.- Rs. 6,96,670/-. 19. The Appellant craves leave to add to, alter or amend any ground before or at the time of hearing.- NIL 3. In the revenues appeal following grounds are raised:- 1. Whether learned CIT(A) is justified in deleting the addition amounting to Rs. 1,93,60,000/- made u/s. 69 of the I.T. Act on account of variation in purchase value of the property purchased by assessee and market value of the property. Tax effect Rs. 63,88,800/- 2. The appellant craves ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The assessee filed return of income in response thereto on 29.8.2016 declaring total income at Rs. 39,09,702/-. The Assessing Officer thereafter issue notice u/s. 143(2) of the Act. He noted that the assessee is an individual and derives income from salary and income from other sources. Thereafter, he referred that the inquiry and information gathered by the department on the issue of long term capital gain as under :- "On the issue of Long Term Capital Gain the department has conducted certain enquiries and gathered information to arrive at the conclusion that the said transaction was bogus. The salient issues unearthed during the search and survey, post search survey and during the course of assessment proceedings are inscribed as under :- During the course of survey at M/s. Shekhawati Poly Yarn Pvt Ltd the flagship company of the Shekhawati Group evidence has been gathered that the assessee was generating cash in manufacturing activities and scrap sale. During the course of search proceedings, statement on oath of Shri Mukesh Ruia and Smt. Kalpana Ruia have been recorded who have admitted to have transaction in Bogus LTCG. Survey u/s. 133A we....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 'Exit Providers' and their statements. He also referred to the statement of Shri Bipin Divecha, Director of Finalysis Credit & Guarantee Limited. After making the general discussion about the modus operandi of long term capital gains generation, he referred to the role of share brokers. He referred to the statement of Shri Anuj Agarwal, Director of Korp Securities Limited. Thereafter he referred to the survey action in the case of M/s. S.M. Khetan by the Investigation wing. He noted that M/s. S.M.Khetan is a broker company through which bogus exit providers have traded in share market. He noted that in the statement of Shri Rajesh Khetan, son of Shri S.M. Khetan had admitted that he traded in the shares of Unno Industries on behalf of the Shri Mukesh Ruia. Referring to the above, the Assessing Officer referred that Shri Mukesh Ramaniranjan Ruia (assessee's husband) has agreed to the modus operandi and that bogus long term gains were generated. He again went on to the modus operandi of bogus share operation. Thereafter the Assessing Officer noted that the assessee has not offered long term capital gains which were accepted by the husband of the assessee. Thereafter he referred to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer referred to Special Investigation wing report on black money. Thereafter he referred to the ITAT Delhi Bench decision in the case of Harsh Win Chadha Vs. DCIT (ITA Nos. 3088 to 3098 & 3107/Del/2005). He also mentioned the following case laws : * Sumati Dayal Vs. CIT (214 ITR 801) * Durga Prasad More (82 ITR 540) * Mc.Dowell & Co. Limited (154 ITR 148) * ACIT Vs. Som Nath Mani (100 TTJ 917) * Govinda Rajulu Mudaliar Vs. CIT (34 ITR 807) * Sreelekha Banerjiee & Others Vs. CIT (49 ITR 112) * Kalekhan Mohameed Hanif Vs. CIT (50 ITR 1) * CIT Vs. Biju Patnaik (160 ITR 674) * CIT Vs. P. Mohanakala & Others (291 ITR 278) 8. Thereafter he referred to Hon'ble Bombay High Court decision in the case of Sanjay Bimalchand Jai Vs. Pr. CIT. Finally he held that long term capital gain claimed by the assessee is non-genuine and held that the same was unexplained cash credit u/s. 68 of the Act. Thereafter the Assessing Officer noted that from the statement of various share brokers and entry operators, it was clear that the assessee has paid commission @ 5% for obtaining said gains. Hence, he added 5% for comm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the outset assessee challenged the validity of additions made under assessment framed under section 153 A without reference to any incriminating material seized in the course of search. 12. The learned CIT(A) observed that the grounds relating to the validity can be taken up together as they are related to the issue of jurisdiction of the assessing officer in making addition without the incriminating documents. In this regard learned CIT(A) noted that assessee has challenged that since no incriminating documents were found assessing officer could not have made addition on account of bogus long-term capital gains LTCG. In this regard learned CIT(A) noted that assessee has relied upon following case laws. * CIT Vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (374 ITR 645) * CIT(C), Nagpur Vs. Nurli Agro Products Ltd. (49 Taxmann.com 172) * CIT Vs. Deepak Kumar Agarwal (298 ITR 586) * All Cargo Global Logistics Ltd. Vs. DCIT (137 ITD 287) 13. The learned CIT(A) observed that in this regard he would analyse in depth the provisions of section 153A and the case laws. He referred to the honourable Delhi High Court decision in the case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....finally she upheld the addition on account of long term capital gain done by the assessing officer. 15. The learned CIT(A) similarly confirmed the addition of 5% commission paid for bogus long-term capital gain. Thereafter she referred to the addition of unsecured loan. In this regards she referred to his CIT(A)'s order for the assessee for assessment year 2012-13. She quoted therefrom. The quotation included that the bogus entry providers had not disclosed much income. That entire TDS is claimed as refund. That same IP address in filing of return of income and common postal address. Thereafter she referred to the distinction of case laws. 16. Thereafter she considered provisions of section 68 of the Act and finally dismissed the assessee's appeal in this regard. Thereafter she noted that ground relating to disallowance under section 69C of the Act of Rs. 22,47,321/- being interest on loans taken. In view of previous discussion she dismissed this ground also. 17. Against the above order assessee is in appeal before us. 18. We have heard both the counsel and perused the records. As regards the issue of incriminating material, learned Counsel of the assessee submits that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the payments for purchase of shares and receipts against the sale of shares. Pursuant to sale of shares the broker issued contract notes for sale of impugned shares vide various bills. There was no privy of contract between the assessee and the buyer of the shares as the assessee does not know to whom the shares have been sold and hence the long term capital gain on sale of shares cannot be treated as non-genuine. The assessee has received entire sales proceeds through regular banking channels from the stock broker registered with SEBI which establishes the identity of the payer, sources of funds on sale of the same shares and the genuineness of the transaction. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. The AO & Ld. CIT(A) have relied on the statement u/s 132(4) recorded of the appellant and her husband Mr. Mukesh Ruia to hold that capital gain earned by appellant is bogus. In this regard, we submit that the statements were recorded under threat, coercion and undue influence. Therefore the contents of the same cannot be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rough which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence. 3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T.Act,1961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion shall be viewed by the Board adversely." 23. Learned counsel further submits that the AO & CIT(A) relied on the statements of following persons to conclude that long term capital gain earned by the appellant is bogus:- a. Statements of Shri Pankaj Dave, Sagar Kadam and Dharmendra H Bhojak who are referred as exit providers, b. Statements of Shri Anuj Agarwal share broker, c. Statement of Shri Arun Kumar Gupta who is director of 5 companies who are alleged to be exit providers. 24. It was submitted that these persons have not mentioned assessee's name in their statement which proves that their statements are general i....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... That it is well settled law that any information collected at the back of assessee cannot be used against him for any proceedings without providing opportunity of cross-examination as held in the following decisions:- * Kishinchand Chellaram (125 ITR 713) * Andaman Timber Industries Vs. CCE (62 taxmann.com 3) * H.R. Mehta Vs. ACIT (387 ITR 561) * ITO Vs. M. Pirai Choodi (334 ITR 262 27. Learned Counsel of the assessee further submits that the assessee has discharged the burden to prove the genuineness of the long term capital gains earned during the year under consideration by providing all necessary evidences and hence long term capital gain on sale of shares cannot be treated as bogus. In this regard learned Counsel of the assessee has relied upon following case laws :- * Shri Vijayrattan Balkrishan Mittal Vs. DCIT (ITA no. 3427 to 3429/Mum/2019 dated 1.10.2019 * CIT Vs. Shyam R. Pawar (229 Taxman 256) * Farrah Marker Vs. ITO (ITA No. 3801/Mum/2011 dated 27.4.2018) * GTC Industries Ltd. Vs. ACIT (164 ITD 1) * Shri Brij Bhushan Singal Vs. ACIT (ITA No. 1415 to 1417/Del/2018 dated 7.12.2018) 28. Learned....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh which shares were sold did not respond to AO's letter. (ii) At the time of acquisition of shares, payments were made in cash. (iii) Address of both the penny stock company were same. (iv) Authorised signatory of both the companies were same. (v) Address of broker and penny stock companies were same. 31. As regards addition u/s. 68 of the Act of Rs. 20 lakhs loan taken learned Counsel of the assessee submits that during the course of assessment proceedings u/s 153A r.w.s 143(3), the assessee has submitted detailed explanation and documentary evidences in respect of the loan taken from M/s. Saraf Nivesh Pvt Ltd vide her letter dated 27.12.2017 wherein the assessee has submitted the following details :- a) Identity of loan parties : (i) Name and complete address of the parties (ii) PAN of the parties (iii)Details of directors of the lender companies b) Genuineness of transactions: (i) Loan confirmations (ii) Details of repayment of loans (iii)Copy of bank statements reflecting entry of loan taken and repaid c) Creditworthiness of parties: (i) Copy of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rely on the submission and judgements relied on in our submission for AY 2012-13. 34. Lastly learned Counsel of the assessee refers to the ITAT decision in the case of Vijayrattan Balkrishan Mittal (ITA No. 3429, 3428, 3427/Mum/2O19 dated O1.1O.2019). Learned Counsel of the assessee submits that this case is very analogical to the one dealt with by the Revenue authorities in the present case. Learned Counsel of the assessee has extensively quoted from the same. 35. Per Contra learned departmental representative relied upon the orders of the authorities below. He extensively quoted from the order of assessing officer and the order of learned CIT appeals. As regards the issue of jurisdiction of assessment under section 153(A) without incriminating material he submitted that the statement was very much obtained under section 132 (4) wherein there is clear admission of undisclosed income. He further submitted that learned CIT(A) has fully dealt with this issue in his appellate order. Furthermore the learned departmental representative submitted that honourable jurisdictional High Court in the case of continental warehousing (supra) has held that only in case of assessments whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Catena of case laws including that of continental warehousing (supra). 40. The learned departmental representative and the learned CIT appeals have tried to distinguish this decision from Hon'ble Bombay High Court by referring to Hon'ble Delhi High Court decision in the case of Kabul Chawla (supra). 41. In this regard we are of the considered opinion that the decision from honourable jurisdictional High Court in Continental Warehousing (supra) is clear and unambiguous. It was clearly held in that case that assessments which are not pending and which have attained finality, addition under section 153(A) cannot be done without reference to incriminating seized material. We may gainfully refer to the relevant order of the honourable High Court as under: "On a plain reading of section 153A, it becomes clear that on initiation of the proceedings under section 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under section 132 or making requisition under I section 132/4 stand abated and not the assessments/reassessments already finalised for those assessment years covered under section 153A. By a Circular No. 8 of 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 143(3) that addition under section 153(A) cannot be done without reference to incriminating seized material. Honourable jurisdictional High Court has clearly mentioned that it is those assessments which are unabated, that is not pending, to which the above said ratio will apply. Assessments which are not pending are not only those which have been completed under section 143(3) but also those for which the time for issuing notice under section 143(2) have already elapsed. In other words the references is to those assessments in whose case assessment under section 143 (3) cannot now be done. It is not at all the case of the revenue that in the appeals which have been claimed as unabated here there was time for assessment under section 143(3). In this view of the matter, in our considered opinion, the submission of the learned counsel of the assessee succeeds that addition in the case of unabated assessment without reference to incriminating seized material for assessment u/s.153(A) is not sustainable on the touchstone of above said honourable jurisdictional High Court decision. Therefore, the learned CIT appeals and the learned departmental representative plea in trying to distingu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the evidences were gathered after issuing notice under section 133(6) that assessee has carried out synchronized trades for obtaining bogus LTCG. In our opinion, the said information/data is collected after the date of search and does not constitute incriminating material found and seized during the course of search. Keeping in view the said facts and circumstances, we are of the considered view that addition to the income of the assessee can only be made on the basis of incriminating record found during the course of search. In the present case, there is no such incriminating material and therefore, the AO has no jurisdiction to make addition in the unabated assessment. The case of the assessee is squarely covered by the decision of Hon'ble Bombay High Court decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra), wherein the Hon'ble Bombay High Court held as under: - "a) Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs. 3,91,55,000/- under section 68 of the Act in respect of share application money and addition of Rs. 11,24,964/- under section 14A made by the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment order Hence, in all cases of unabated assessment the assessment fails on jurisdictional defect. Thus, ITA No. 6519/MUM/2019, 6520/MUM/2019, 6515/MUM/2019, 6516/MUM/2019, 6513/MUM/2019 & 6514/Mum/2019 are dismissed on account of jurisdictional defect. 49. As regards the issue of additions on merits for the bogus long-term capital gain, we note that the same is based upon the modus operandi of earning bogus long-term capital gain in general mentioned by the assessing officer. It is further more based upon the statements obtained upon survey. Furthermore it is based upon Assessing Officer's analysis of the impugned companies financials wherein the assessing officer is of the opinion that the increase in value is unjustified. Furthermore assessing officer has referred to general SEBI action in case of bogus long-term entry operators. However none of the brokers or the persons or the companies dealt in these appeals have been referred in the above said SEBI enquiry noted by the AO in his order. As regards the merits of additions based upon the statement obtained from Survey from 3rd parties the same is not at all sustainable without any corroborative material. This....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and furnished. No defect in the same has been refereed by the Revenue. 52. Further, it is undisputed that the assessee has asked for cross examination doing assessment proceeding itself. However, the same remained unresponded by the A.O. as well as ld. CIT(A). These information collected on the back of the assessee without opportunity to cross examine, cannot be a basis for addition. They have been held to be vitiating the assessment itself and rendering it a nullify. Here, the Hon'ble Supreme Court's decision in the case Andaman Timber Industries (supra) is germane and supports this proposition. 53. In this regard we also place reliance upon the co-ordinate bench decision in the case of Shri Vijayrattan Balkrishan Mittal (supra), wherein similar addition was deleted by following adjudication: 28. We also noted that as per provisions of section 68 of the Act, where any sum is found credited in the books in any previous year and assessee offers no explanation about the nature and source thereof or the explanation offered is not satisfactory to the AO, the sum credited may be charged to tax under Sec. 68 of the Act. The assessee is required to prove: (i) the ident....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and alleged exit providers are having no nexus or connection with the company, their directors, promoters etc. and there is no price or volume manipulation in these scripts. This also explains the genuineness of the transactions and discards the theory of manipulation or accommodation to take tax advantage illegally. 29. We have also noted the facts further that the assessee has received total amount of Rs. 14,16,80,449/- on account of sale of shares of PAL during the year, in the account with Axis Bank from Geojit, registered broker of BSE with whom the assessee is dealing from last more than 10 years. The assessee has been regular investor in shares & securities and his portfolio comprises of various shares and the aggregate value of investments for 5 years have been as under: - AY ( as on date) Total investment in shares - Amount (in Rs.) 31.03.2011 3,77,21,394 31.03.2012 3,33,40,018 31.03.2013 2,66,87,649 31.03.2014 2,91,24,876 31.03.2015 2,58,84,431 Copies of Balance Sheet of the assessee for the above mentioned years showing the investments made in shares were submitted to the AO vide submission dated 15.03.17 as well as before ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent or connection or collusion with the brokers, exit providers, accommodation providers or companies or directions etc. For making the addition, it is necessary to bring on record evidence to establish ingenuity in transactions or any connection of the assessee or its transaction with any of the alleged parties. The assessee has discharged his onus by establishing the identity of the payer, source of the credit and genuineness of the transactions. 30. We noted that the learned CIT Departmental Representative also relied on the decision of the Hon'ble Bombay High Court, Nagpur Bench in the case of Sanjay Bimalchand Jain vs. Pr. CIT (2018) 89 taxmann.com 196 (Bom), wherein the decision on the impugned issue was discussed. Hon'ble High Court has considered the facts of Sanjay Bimaichand Jain supra from where 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eferring to General findings of investigations wing at Kolkata entry operators providing bogus loans the revenue authorities cannot fasten liability of undisclosed income upon the assessee, unless the assessing officer makes enquiry of his own and rebuts the documentary evidences submitted by the assessee. The assessee has duly discharged its onus by submitting the loan confirmation, income tax details and bank statements and financial statement of the loan creditors. Without making enquiry of his own the Assessing Officer has rejected them which is totally unsustainable. In this regard we note that honourable Bombay High Court in the case of CIT Vs. Orchid industries p ltd in ITA No 1433 of 2014 vide order dt. 5/7/2017 has similarly held as under :- "1] The Revenue has filed the appeal on following questions; 6.3 Whether on the facts and in the circumstances of the case and in law, orders of the Tribunal was perverse in deleting the addition of Rs. 95,00,000/- made u/s. 68 of the Act, relying only on the documentary evidence produced by the Respondent Company while ignoring the key factor that these entities were not traceable at their given addresses. 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....structure (P.) Ltd., reported in [2017] 80 Taxmann 272 (Bombay) and the order of the Apex Court in case of Commissioner of Income Tax vs. Lovely Exports (P.) Ltd., reported in [2008] 216 CTR 195 (SC). 4] We have considered the submissions. 5] The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application for....