TaxTMI 
TaxTMI 
2021 (3) TMI 50
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....ed in the business of accommodation entries and hence AO was correct in concluding that the assessee was a beneficiary of the accommodation loans. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground and/or add new grounds which may be necessary." 4. The brief facts of the case are that the assessee filed its return of income on 12.09.2011 declaring total income to the tune of Rs. Nil for the A.Y. 2011-12. The return was processed u/s 143(1) of the I. T. Act, 1961. Thereafter, the case of the assessee was reopened u/s 148 of the Act. The reasons for reopening of the assessment was given to the assessee. The assessee received the accommodation entry in form of bogus unsecured loans from Bhanwarlal Jain Group run entities during the previous year in consideration. The assessee filed the objection vide letter dated 17.05.2018. The AO rejected the objections by virtue of order dated 01.06.2018. The AO completed the assessment by making an addition of Rs. 24.35 crores u/s 68 of the Act treating the loans received by the appellant as bo....
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....ad vide its order dated 10.08.2018 in I.T.A. No.6099/Mum/2016 dismissed the Appeal of the Department and upheld the order of CIT(A), which had deleted the addition made by the AO u/s 68 of the Act. 13.4 For the A.Y. 2013-14, an addition of Rs. 34.35 crores was made by the AO u/s. 68 of the Act for loans received by the Appellant from various parties belonging to the Bhanwarlal Jain group. The Appellant preferred an Appeal before CIT(A), who had vide order No. CIT(A)-47/E10046/2012-13 deleted the addition made u/s.68 of the Act and other connected additions. The Department preferred an Appeal before the Hon'ble ITAT and the Hon'ble ITAT, Mumbai, 'F' Bench, vide its order dated 16.01.2019 in ITA No.5637/Mum/2017 dismissed the Appeal of the Department and upheld the order of CIT(A) deleting the addition made by the AO. In this judgment, the Hon'ble ITAT had discussed the order of the Hon'ble ITAT in the case of the Appellant for the A.Y. 2012-13 and had also referred to the order passed by the Ld. CIT(A). The relevant portion of the said judgment of Hon'ble ITAT Mumbai being comprehensive and detailed the same is reproduced, as under: "we have heard both the part....
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....nuineness to the transactions. He submitted that the modus operandi adopted by this group has been Cleary established by the revenue and the same methodology has been adopted by all the lenders. K was also proved that the directors of various companies are only employees of Shri Bhanwarial Jain. This group ensured that the transactions are arranged in a perfect manner in order to avoid even slightest of doubt. He submitted that the search team has, however, unearthed the bogus nature of all transactions, which has also been confirmed by Shri Bhanwarial jain and other persons. 6. The Ld D.R submitted that the appellate authorities are also duty bound to conduct necessary enquiries, if there ts any deficiency in the enquiry conducted by the AO, as held by Hon'ble Delhi High Court in the case of jansampark Advertising @ Marketing (P) Lid (ITA 525/2014 dated 11-03-2015). He further submitted that the Hon'ble Delht High Court has highlighted in the case of Pr. CIT Vs. Bikram Singh (ITA 55/2017 dated 25-08.2017) there is constant use of deception of loan entries to bring unaccounted money into banking channels and the device of loan entries continues to plague the legiti....
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.... are filled with dummy directors. All these factors strengthen the admission made by Shri Bhanwarlal Jain that he and his group of companies are engaged in _ providing accommodation entries only. 9. Accordingly the Ld D.R submitted that the order passed by Ld CIT(A) should be reversed. Alternatively, he suggested that the matter may be restored to the file of the AO for examining it afresh by conducting further enquiries. 10. The Ld A.R submitted that the assessing officer has made the addition u s 68 of the Act. He submitted that the assessee is required to discharge the initial onus placed upon it u/s 68 of the Act. He submitted that the assessee has furnished all the documents in order to prove the identity and creditworthiness of the creditors. All the transactions have been routed through the banking channels ana hence genuineness of the creditors is also proved. The ld A.R submitted 'the revenue did not find any incriminating material during the real of survey operations conducted in the hands of the assessee that the assessee, vide its letter dated 03-03-2015, has all the documents relating to the loan creditors, viz., copy of their ITR, their financial sta....
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....ential additions. The Ld A.R submitted that the assessing officer has mainly placed on the report given by the search officials, who conducted the salt EB ales the hands of Shri Bhanwarlal Jain. which consisted of certain documents and sworn statements recorded from him and the, employees. The assessing officer, however, did not confront those materials and sworn statements with the assessee. He submitted that the assessee, vide its letter dated 13-03-2015 (copy placed at page 89 of the paper book), has requested the AO to furnish copies of information, statements, reports or any document on which the AO has placed reliance. Further the assessee has also requested the AO to allow reasonable opportunity to give submissions and explanations on those materials. The assessee has also specifically asked for an opportunity to confront and cross examine the parties who gave the Statements. The assessee again made similar request in its letter dated 19-03-2015. The Ld A.R submitted that the AO, however, did not furnish the copies of documents and also did not allow the opportunity to cross examine the parties who gave adverse statements. 13. The La A.R submitted that the ....
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....tled to make addition u/s 68 of the Act under these facts as held by Hon'ble Supreme Court in the case of Orissa Corporation (P) Ltd (159 ITR 78)(SC). 15. The Ld A.R submitted that the assessee has repaid most of the loans and the same has been noted down by the Ld CIT(A) in paragraph 6.3.32 of his order. The Ld A.R further submitted the statements given by Shri Bhanwarlal Jain has been claimed to have been retracted. He submitted that the co-ordinate bench of the Tribunal has rendered its decision in the case of M/s Vama International (ITA No.7315, 7316 & 7317/Mum/2016 dated 15-02-2018), wherein the issue was related to the disallowance of purchases made from M/s Bhanwarlal Jain Group. In the said decision, the Tribunal has recorded that the statements have been retracted by them subsequently. The co-ordinate bench has further held that the purchases could not be treated as bogus simply relying on the statements given in the case of Bhanwarlal Group. Accordingly the La | A.R submitted that the AO could not have placed reliance on the statements given by Shri Bhanwarlal Jain and others. 16. We have heard rival contentions and perused the record. We also notice....
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....or such an addition leads to the following questions: a. What is the nature of evidence that has been brought on record to show that the lender parties, who advanced the impugned loans to the appellant, were benamis of Shri Bhanwarlal Jain? b. Is there any material that has been brought out by the Assessing Officer to show that the loans in question are paper entries purchased against payment of unaccounted cash? c. Has the Assessing Officer brought any material on record to show that commission was paid to Shri Bhanwarlal Jain? 6.3.2 First of all, it would be worthwhile to examine the impugned assessment order with regard to material that shows that the hawala racket was run through benami entities of Shri Bhanwarlai Jain, In this regard it may be mentioned that: a. In sub-paragraph 4.18 of the. assessment order, the Assessing Officer claims that in their respective statements, recorded u/s 132(4) all Directors/ Proprietors/Partners of the alleged benami entities run by Shri Bhanwarlal Jain have admitted to being dummies, business in whose names was actually being run by Shri Bhanwarlal Jain. b. In the very next sub-paragraph 4....
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....he loans in question have actually been obtained against payments made by the appellant in cash outside regular books of account. There is no evidence brought on record for payment of any commission or fee having been made by the appellant to the alleged hawala givers. All this goes to support the contentions of the appellant that Assessing Officer has. passed the order on the basis of mere conjectures and surmises, without bothering to bring any concrete material on record. 6.3.5 Survey Action u/s 133A of the Act at the appellant premises: Material, brought on record by the appellant before the Assessing Officer in the course of assessment proceedings clearly shows that about a year after search action of 2013 in the case of Shri Bhanwarlal Jain, the appellant was surveyed by the Investigation Wing on 16-10-2014. The survey party found that the impugned loans of * 24.75 crore from the aforesaid 17 entities were incorporated in the Pare 6 of account of the appellant. Statement on oath of Shri Hemal Jhaveri, Key Person, was recorded on the 16th, the 17th and the 18th of October, 2014. Shri Hemal Jhaveri maintained that these loans were genuine and were not part of ....
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....r Lal Jain should not be treated as merely accommodation Ans. As stated by me in reply to earlier question, there ts no base for that presumption to treat loans received by M/S. Jainam Investment ay merely accommodation entry. Q.30 As it has been stated by Shri. Bhanwar Lal Jain that all trading activity done by his concerns are nothing but only accommodation entries. It simply clarifies the fact that there is no real trading activity going on in these concerns. It simply explains that balance sheet which explains source of loan doesn't prove credit worthiness of concerns. In view of this please explain why the unsecured loan taken by M/s Jainam Investments from the group concerns of Shri Bhanwarlal Jain should not be treated as just accommodation entry? Ans. In view of my reply to earlier question I can't comment on this. Q.31 Please go through the Q. No 29 to 34 of Shri. Bhanwar Lal Jain. In this statement Shri. Bhanwar Lal Jain has admitted that concerns operated by him has certain transactions which are not recorded in regular books of accounts. These transactions had not been routed through banks but through angdiya account in cash. Shri. Bha....
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....sible to draw an adverse inference of hawala regarding the Impugned loans. The appellant, subsequently furnished to the Investigation Wing various details regarding the lenders - their names, PAN, constitution, names of Proprietor/Partner/Director. Further, the appellant provided confirmatory letters issued by the lenders, copies of acknowledgement income tax returns, Balance Sheets, and relevant Bank pits of all the lenders. Obviously, other than a general case of Shri Bhanwarlal Jain that had reportedly retracted specific material to suggest the loans: are hawala entries. There was nothing to show that there was any actual exchange of cash between the appellant and the alleged hawala giver, before the impugned loans were incorporated in the books of account of the appellant. Also, there was no material to show that any commission for arranging the hawala had been paid by the appellant to the said Shri Bhanwarlal Jain. The situation retrained unaltered in the course of the assessment proceedings and the Assessing Officer did not in any manner improve upon what had been done by the investigation Wing. 6.3.7 Non-observance of Principle of Natural Justice: Not making availab....
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....ot justified in making the addition without having first given the assessee an opportunity to cross examine the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 and 17 of the High Court's order, is reproduced below: "16: In the instant case although the appellant assessee has called upon us to draw an inference that the burden shifted to the revere in the present case once it was established that the payments were made and repaid by cheque we need not hasten and adopt that view after having given our thought to various Issues raised and the decisions cited by Mr. Tralshawalla and finding that on a very fundamental aspect, the revenue was not justified in making addition at the time of reassessment without having first given the assessee an opportunity to cross examine the deponent on the statements relied upon by the A CIT. Quite apart from denial of an opportunity of cross examination, the revenue did not even provide the material on the basis of which the department sought to conduct that the loan was a bogus transaction. 17. In our view in the light of the fact that the monies were advanced apparently ....
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....ments made by him. 6.3.12 On Principles of Natural Justice it has been held by the Apex Court in the case of Swadeshi Cotton Mills vs Union of India in 1981 AIR 818 that phrase "Natural justice" is not capable of a static and precise definition." "Two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as preeminently necessary to ensure that law is applied impartially objectively and fairly. These twin Principles are (i) audialterm pattern and (ii) nemo judex in re-sua. Audi alterm partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act healthy check on the abuse or misuse of power." "The maxim pattern has many facets. Two of there are (a) notice of met and (b) opportunity to explain. "In facts and 6% genuineness of a particular case when non-alliance with the implied requirements of the audialterm partem, rule of natural justice at decisional stage, the impugned order can be struck down as invalid on that score atone" 6.3.13 It has also been held by the Apex Court in the case of Delhi Transport Corpor....
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....parable." 6.3.15 Going by the discussion contained above, it is obvious that the inference drawn by the Assessing Officer against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any access to the material (reports, intimations, statements etc.) used against it. Secondly, by withholding the said material, the Assessing Officer has denied to the appellant an opportunity to rebut the evidence by cross examining the witnesses, statements, if any made by whom, incriminated the appellant. On both counts, the impugned assessment order fails squarely. 6.3.16 The case law relied by the assessee of Rushabh Enterprises vs. Asst CIT WRIT Petition No. 167 of 2015 is not applicable to the present case as in that case the assessee filed petition against the reopening u/s 148 of the Act and in present the assessment is made u/s 143(3) of the Act. 6.3.17 Absence of material to show that the Loan Entries are Unexplained: From the forgoing, it is obvious that there is no scope for arriving at a conclusion that the appellant had taken hawala ent....
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....80F (SC), the assessee gave the names and addresses of the creditors. It was in the knowledge of the Revenue that the creditors were income-tax assessees. The revenue apart from issuing notices under section 131 did not pursue the matter further. It aid not examine the source of income of the alleged creditors to find out whether they were creditworthy. Therefore, it was held that in these circumstances, assessee could not do any further and it had discharged the burden laid on it. In the case of Rohini Builders [2002] 256 ITR 360 [2003] 127 taxman 523 (Guj) it was held that if the identity of the creditors is Proved and the amounts are received by account-payee cheques, the initial burden of proving credit is discharged and the source of credits need not be proved. 6.3.23 In the case of CIT vs. Smt. Sushiladevi Khadaria [2009] 319 ITR (Bom), Hon. Bombay HC held that when loans were taken 'by account payee cheques and the record indicated that there was no cash payment in the account of the borrower prior to the issuance of such cheques, the loans and interest paid on such loans were not includible in the total income of the assessee u/s.68 of the Act. 6.....
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....f the Act to prove the contrary, it was sufficient reason to delete the addition. 6.3.26 In the case of CIT v. Jal Kumar Bakliwal [2014] 366 ITR 217 (Raj), it was held by the Rajasthan High Court that all the cash creditors were assessed to Income-tax and they provided a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash creditors appeared before the Assessing Officer and their statements under section 131 of the Income-tax Act,.1961, were also recorded on oath. There was no clinching evidence nor had the Assessing Officer been able to prove that the money actually belonged to non but the assessee. The addition of Rs. 17,27,250 under section 68 was not justified. 6.3.27 In the case of CIT v. Kinetic Capital Finance Ltd. [2013] 354 ITR 296 (Del), it was held by the Delhi High Court that the assessee had discharged that initial onus. The assessee was not required thereafter to prove the genuineness of the transactions as between its creditors and the creditors' sourc....
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....ted in the books of account of the creditors.] VI. Relevant bank statements of the creditors [These show that the loan amounts were paid through legitimate banking channels. Further these bank statements do not reflect any movement of cash, essential to hawala transactions.] VII. Details of interest paid to the creditors VIII. Details of TDS deducted and paid 6.3.32 As such, in so far as the appellant is concerned, it has provided all possible documentary evidence to prove identity of the creditors from whom the impugned loans of * 24,75,00,000 were obtained. This case also proves creditworthiness of the creditors and the ness of the transactions. Moreover all the loans were repaid its bank, in the same year or in the subsequent year and those proceedings which was reproduced as under: Name Date MODE LOAN RECIVED LOAN REPAID AASTHA IMPEX 02-06-2011 RTGS 50,00,000 AASTHA IMPEX 27-06-2011 RTGS 50,00,000 AASTHA IMPEX 20-03-2012 RTGS 1,00,00,000 AASTHA IMPEX 20-03-2012. RTGS 1,00,00,000 AASTHA IMPEX 05-03-2012 RTGS 50,00,000 AASTHA IMPEX 24-08-2012 RTGS - 40,00,000 AASTHA IMPEX 12-10-2012 RTGS 10,00,000 AASTHA IMPEX --:16-10-2012_ RTGS. 1,00,00,000 AASTHA IMP....
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....ficer was not satisfied with what had been given to him by appellant, he was duty bound to specify what more material he wanted the appellant to furnish. The Assessing Officer never asked for any further material, though time and again the appellant asked in their submissions. This leads to the inescapable conclusion that the Assessing Officer could not think of any further material to ask for and proceeded to reject the appellant's claims, relying upon the information/material, which he never even brought to the notice of the appellant for any rebuttal. The unequivocal conclusion that all the three ingredients having been satisfied, the impugned loans of Rs. 24.75 crore have to be treated as explained satisfactorily and the Assessing Officer was wrong in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, the impugned addition of Rs. 24,75,00,000/-, made in the Assessment Order, fails on several counts - (1) reliance on evidence that is totally inadequate; (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the Assessing Officer; (3) ....
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....ny material on record to show that the various evidences furnished by the assessee are not reliable and instead rested fully upon the Sworn Statements and the alleged incriminating materials. Hence, in our view, the question of deficiency in the enquiry of the AO does not arise in the instant case. 19. The Ld DR also placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Sumati Dayal (supra) and Durgaprasad More (supra) to contend that the surrounding circumstances and human probabilities should also be taken into consideration by the tax authorities. He contended that these loan transactions are deceptive transactions. There should not be any doubt with this proposition of law. In the instant case, the Ld CIT(A), as well as the Tribunal in the case of Vama International (supra) has observed that the sworn statements given by Shri Bhanwarlal Jain and others have been retracted. The question whether the revenue is entitled to place reliance on the retracted statements remains unanswered. Further, the assessing officer has placed reliance on the various observations made by the search officials like, sharing of common address by various....
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....vidence to show that the cash equivalent to the loan transactions has been given by the assessee to various lenders. 21. The Ld A.R placed his reliance on the decision rendered by Hon'ble Supreme Court in the case of Kishinchand Chellaram (supra) in order to contend that the AO could not have used the materials, which were not put to the assessee., In the instant case, we notice that the assessee has specifically requested the AO twice to give the materials that were relied upon by the assessing officer to take adverse view. Despite the request so made, the AO has not furnished copies of materials to the Hence, as per the decision rendered by Hon'ble Supreme in the above said case, the AO could not have placed his reliance on those materials, which were not confronted with the assessee. 22. The assessee has also asked for copies of sworn statements Given a by Shri Bhanwarlal Jain and others. The assessee also asked for an opportunity to cross examine them. However, the AO has failed to furnish copies of sworn statements and also did not afford opportunity, to cross examine the deponents. Hence the decision rendered by Hon'ble Supreme Court in the case ....
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....upon the inferences drawn by the search officials. Hence, in our view, the decision rendered by Hon'ble Supreme Court in the case of Orissa Corporation (P) Ltd (supra) will also come to the support of the assessee. 24. We notice from the operative portion of the order passed by Ld CIT(A) that the first appellate authority has placed reliance on various other case laws also. In effect, the Ld CIT(A) has examined the documents furnished by the assessee and has held that the assessee has discharged the initial burden of proof placed upon it u/s 68 of the Act. He has also held that the non-furnishing of documents relied upon by the AO and non-providing of opportunity to cross examine the Shri Bhanwarlal Jain and others would make the addition to fail. Even in respect of documents relied upon by the AO, the Ld CIT(A) has found the same to be inadequate to warrant the additions made u/s 68 of the Act. Hence, we are of the view that the Ld CIT(A) has passed a reasoned order by considering the facts of the case, applicable case lawsand has taken a justifiable view in this matter. Hence we do not find any infirmity in the order passed by Ld CIT(A). Accordingly we confirm the or....
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....ebut the claim of the assessee and even no findings were recorded by the AO to the effect that the evidences produced by the assessee were untrustworthy or lack credibility. Although it was claimed by the AO that during the course of search at the residence of Shri Bhanwarlal Jam, a pen drive (Sony 4 GB) was seized and as stated in para-5.1 on page-8 of the impugned order. It was also claimed that after decryption of the data stored in the said pen drive, a database containing details of loans advanced by all 70 benami concerns of Shri Bhanwarlal Jain and Shri Rajesh Bhanwarlal Jain from F.Y.2006-07 and onwards was prepared by the Investigation Wing, Mumbai. cat. areas on the repeated request made by the assessee to furnish of print outs of date of transactions pertaining to the assessee of relevant to A.Ys.2012-13 and 2013-14. Apart from that the AO was also asked to furnish any other evidence in his possession in regard to the unsecured loans procured by the assessee from various entities of Shri Bhanwarlal Jain Group. But the AO did not supply the same. 9. Apart from that the AO had also failed to provide copy of "partywise ledger account" of the assessee containing det....
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....: "6. Assessee The High Court has, in our view, rightly criticized this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy ru....
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....er appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section.35-E (1) or (2) to keep the interests of the department. alive. If the officer's view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail." 13.8 Thus, the decision of higher authority needs to be followed in-the case of a quasi-judicial authority and, therefore, a lower officer is bound to follow the decision. of the higher authority. Unless, in Appeal the order of the authority is stayed, it operates as a valid binding decision to the lower uh. not only in the case of the same assessee but also in other cases same law point is involved. In the present case at hand, no stay has been granted by any Court on the operation of the appellate orders * passed by the Hon'ble ITAT and hence, the same are binding on the undersigned. 13.9 The law on Judicial Precedents & Contempt of Court has been el....
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....ounsel for the respondent did not attempt to support the judgment of the Judicial Commissioner on the ground that no manifest injustice resulted from the refusal of the respondent to carry out the directions of a superior tribunal. He conceded that even if the order of the Tribunal was wrong, a subordinate and inferior. tribunal could not disregard the readily recognized the sanctity and importance of the basic principle that a subordinate tribunal. must carry out the directions of a superior tribunal. He argued, however, that the order of the Tribunal was unintelligible and the respondent did his best to understand it according to his light. This argument advanced on behalf of the respondent appears to us to be somewhat disingenuous. ........" 13.10 Further in the case of Tej International Private Limited Vs. DCIT (69 TTJ Del 650), the Hon'ble Delhi High Court has held that in the hierarchical judicial system that we have in India, the wisdom of the court. below has to yield to the higher wisdom of the court above. The relevant excerpts of the judgment referred supra, are reproduced below:- "7. It may be mentioned that some Benches of the Tribunal have either tak....
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....ingly, this issue is decided in favour of the assessee against the revenue. In the result, the appeal filed by the revenue is hereby dismissed. ITA. NO.4474/Mum/2019:- 7. The revenue has filed the present appeal against the order dated 10.04.2019 passed by the Commissioner of Income Tax (Appeals)-50, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the A.Y.2016-17. 8. The revenue has raised the following ground: - "1. Whether on the facts and circumstances of the case and in law the CIT(A) was right in deleting the disallowance of Rs. 4,71,19,785/- on of sale shares of M/s. Mahavir Advanced Remedies without appreciating the fact that various operators in their statement had admitted of providing accommodation entries in the form of predetermined losses. 2. Whether on the facts and circumstances of the case and in law the CIT(A) failed to appreciate that the company was not financial sound as per the valuation of the company and did not have real business activity. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. The appellant craves leave to a....
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....ken up together for adjudication. No misuse of an Exemption provision under the Act 9.0 In the assessment order, the AO had made an addition of Rs. 4,71,19,785/- by holding that the Appellant had claimed bogus Business Loss. At the outset, it is brought on record that the Appellant firm is engaged in the business of share trading. It had not claimed any exemption on its income under any of the provisions of the Act and had paid taxes on the net profit / loss of the firm from the business of share trading. Thus, in the present case at hand, there is no misuse of any of the provisions of exemption available under the Act. Total Lack of Specifics in the Assessment Order 10.0 I have gone through the entire assessment order framed by the AO, a substantial portion of which is already reproduced above and noted that the AO had disallowed the loss on the shares Mahavir Advanced Remedies Ltd., by only stating that it is a penny stock. 10.1 The Paras titled "Suspicion of Revenue", "Findings of the Investigation Wing", "Findings in the case of Assessee", "Investigations in the case of Operators", "Analysis of cash trail" etc. in the assessment orde....
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....r share) and then selling the scrip when its prices were almost touching the bottom (Rs. 10 per share) appears a predetermined move which had sole aim of being an exit provider to the some persons who had to obtain artificial LTCG and also appears to be a move to reduce its tax liability. ....... " 10.5 It had been held by the AO in the above paragraph that it appears that the Appellant had made a pre-determined move to act as an Exit Provider for some persons. However, the AO had failed to bring on record as to who are the persons on whose behalf the Appellant had acted as an exit provider. Thus, the AO had failed to place on record any evidence for holding the Appellant as an exit provider. 10.6 In fact, the Exit Provider is one, who takes unaccounted cash from the Beneficiaries and routes the same through various concerns (layering of funds) and finally, pays the cheque amount to the Beneficiaries. Thus, the Exit Providers in general are Entry Operating Concerns / Shell Companies / Bogus Companies, which is not at all the case of the Appellant, who is genuinely into the business of share trading. It is pertinent to note here that the Appellant had provided the ....
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....sses of the shareholders, their PAN/GIR numbers and had also given the cheque numbers, name of the bankers. The assessing officer ought to have found out the details through PAN cards, bank account details or from their bankers so as to reach the shareholders. Thus, the view taken by Tribunal could not be faulted." No Pre-arrangement evident from material on Record I have noted that in general the entities booking bogus loss take a single entry, which is not the case of the Appellant. I have noted that the Appellant had entered into several purchase transactions on each of the 13 different days starting from 26.08.2014 to 11.12.2014. During the proceedings, the Appellant had stated that average purchase price of the scrip for Aug 2014 to Oct 2014 was Rs. 354/per share and to bring the average cost down purchases were made in Nov 2014 and Dec 2014 at an average price of Rs. 285 per share. Thus, it had been contended that contrary to the charge of the AO, the Appellant as tried to reduce and hence, maximize his profit. 12.1 The Appellant had contended that before he could book profit by selling the shares, the scrip got suspended by SEBI in Jan 2015. I have....
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....nels and shares purchased were duly credited in the Demat account of the Appellant. After going through the evidences filed before the AO, I find that the transaction for the purchase of shares of Mahavir Advanced Remedies Ltd. is sufficiently documented and supported by a number of evidence in the form of Contract notes, Bank Statement reflecting payment for purchase of shares as well as the Demat statements in which the shares were credited and the Ledger account of the share broker. "13.4 It needs a special mention here that the case of the Appellant was picked up in scrutiny for the A.Y. 2015-16 on the ground of suspicious share transactions "Penny Stock tag in ITS". During the course of the assessment proceedings for the A.Y. 2015-16, the Appellant had filed a detailed letter dated 07. 07.06. 2017 on the issue of penny stock and [| have noted that no adverse in inference was drawn by the AO in relation to the penny stock transactions M/s Mahavir Advanced Remedies » or M/s PS IT Infrra & Service Ltd. I have gone through the assessment order dated 21.06.2017 passed by the AO relevant to the A.Y. 2015-16 and noted that the adverse finding on the issue of penny stoc....
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....at. 25-9-2012) (xiv) CIT v. Sumitra Devi (2014) 268 CTR 3 1 (Rajasthan) (xv) Ganeshmull Bijay Singh Baid HUF y, Dy. CIT ITA Nos. 544/Kol/2013 (Kolkata ITAT) (xvi) Meena Devi Gupta & Others v. ACIT -ITA Nos, 4512 & 4513/Ahd/2007 (Ahmedabad ITAT) 13.8 In the case of CIT v. Maheshchandra G. Vakil [2013] 40 taxmann.com 326 (Gujarat), the Hon'ble Gujarat High Court had held that where the assessee had proved the genuineness of share transactions by contract notes for sale and purchase, bank statement of broker, demat account showing transfer in and out of shares, as also abstract of transactions furnished by stock exchange, the Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit. Manner in which business is conducted b Appellant can't be challenged by AO 14.0 I am of the considered opinion that the AO is not right in questioning the rationale of trading in the shares of Mahavir Advanced Remedies Ltd. by the Appellant. It may be noted that the provisions of the Act have to be implemented, administered and interpreted only with reference to its specific provisions and the Income-tax Authority is....
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....s an undisputed fact that the Appellant had been regularly trading in the equity market with high volumes of trades and the same is duly corroborated by the profit and loss account and Balance Sheet of the Appellant placed on record. It can be seen from the details on record that the Appellant had in the earlier years also earned profit by trading 15.0 It is pertinent to note that there is no evidence on record, which directly links the Appellant with any of operators/intermediaries or proves that the Appellant was involved in any price rigging of the shares, or that they received any cash for getting the bogus loss. A perusal of the assessment order reveals that there is not even an tota of evidence had been brought on record to show that the counter parties in relation to the purchase and sale of the impugned penny stock are Entry Operators / Exit Providers / Shell company / Bogus Concerns. From, the assessment order passed by the AO, it is not at all clear as to what is the material evidence on the basis of which the purchase and sale of the shares had been held to be bogus by him. 15.1 In fact, the AO had failed to bring on record, the counter party in relatio....
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....l as the quality and credibility of evidence brought on record. Reliance is placed on Ashish Batham v. State of MP, AIR 2002 SC 206. 17.2 Itis a trite law that the suspicion howsoever strong cannot partake the character of legal evidence. Reference in this regard is made to the decision of Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram vs. CIT [37 ITR 288 (SQ)]. 17.3 In this context, further reference be made to judgment of Hon'ble Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. v. ACIT [164 ITD I (Mum)(SB)j, wherein the Hon'ble Tribunal observed as under: "Ultimately the entire case of revenue hinges upon the presumption that assessee is bound to have some large share in so called secret money in the form of premium and its circulation. However this presumption or suspicion how strong it may appear to be true but needs to be corroborated by some evidence to establish in actually had some kind of share in such secret money. It is quite trite suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability is applied to weig....
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.... 1382 and J.A. Naidu v. State of Maharashtra AIR 1979 S.C. 1537, 17.7 The principles of the Indian Evidence Act are equally to the Income-tax proceedings. The Hon'ble Supreme Court in Chuharmal v. CIT [1988] 172ITR-250 stated, as under: 'what was meant by saying that the Evidence Act did not apply to proceedings under the Income-tax Act, 1961, was that the rigour of the rules of evidence contained in the evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so." 17.8 The Hon'ble Supreme Court in Dhakeshwari Cotton Mills v. CIT {1954] 26 ITR 775 at 782 observed as under: "As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 o....
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....8] 11 DTR (Delhi)(Trib.) 281. Dhiraj Lal Girdhari Lal Vs. CIT 26 ITR736 '° Lalehand Bhagat Ambika Ram Vs CIT 37ITR288 18.3 The Hon'ble Supreme Court in the case of Sreelekha Banerjee v. CIT [1963] 49 ITR 112 had held as under: ".......The very words "an undisclosed source" show that the disclosure must come from the assessee and not from the department. In cases of high denomination notes, where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee prima facie discharges his initial burden when he proves the balance, and that it might reasonably have been kept in high denomination notes. Before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good profit into no proof. It is within the range of these principles that such has have to be decided. We do not think that ....
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....ts furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions could not be a ground to treat the transactions as sham transactions. 19.2 In the case of Commissioner of Income-tax, Agra Vs. Anirudh Narayan Agrawal [2013] 38 taxmann.com 367 (Allahabad), the Hon'ble Allahabad High Court had held that where assessee sold shares in ordinary course through stock exchange and received sale consideration by way of demand draft, in such circumstances merely because share broker could not any evidence in support of said transaction because same was already seized by Department, it could not be a basis of making addition under section 68 in respect of capital gain arising from sale of said shares. 19.3 In the case of Commissioner of Income-tax, Central-II, Calcutta VS. Lakshmangarh Estate & Trading Co. Ltd. [2013] 40 taxmann.com 438 (Calcutta), it was held that where none of grounds assigned by Tribunal to show genuineness of transaction, was even commented upon by revenue, transaction could not be suspected as colourable. The relevant excerpts of the said judgment are reproduced hereunder: "5. Mr. Dutta, learned A....
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....en the assessee and the broker or any other person including the alleged exit providers, no presumption can be drawn. In the said case, the Hon'ble High Court had held that in absence of any tangible material to show that huge cash was transferred from one side to another, addition cannot be sustained. Similar view had been taken in the following cases: i. Brijnath Agarwalla: vs. ACIT[2010] 40 SOT 475 (Agra Third Member) ii Ganeshmull Biijay Singh Baid HUF vs. DCIT - ITA No.544/Kol/13 dated 04/12/2015 (Kol Tribunal) iii, Malti Ghanshyambhai Patodia Vs. ITO No.3400/Ahd Tribunal) iv. Pratik Suryakant Shah vs. ITO-[2017] 77 taxman.com 260 (Ahd Tribunal) v. Padduchari Jeevan Prashant VS. ITO-ITA No.452/Hyda/2015 (Hyd Tribunal) vi Anil Anand Kishor Goyal VS. ACIT-ITA Nos.1256/PN/2012(Pune Tribunal) Sham Transactions need to be proved with Cogent Material Evidence 20.0 It may also be submitted here that there are various judicial precedents to the effect that the act of questioning the very basis of a transaction and to brand it as illegitimate or sham has to be based on substantial, concrete and cogent evidence wher....
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....ased a year before can be held to be a pre-arranged method employed by the Appellant in connivance with the operators to avoid taxes, Firstly, | have noted that the Appellant had started purchasing the shares of Mhavir &, advanced Remedies Ltd. on 26.08.2014 onwards. If it would have been a pre-arranged transaction, for booking of business loss, then the price of the scrip should have fallen. On the contrary, I have noted that the scrip had maintained a consistently high level till the end of Nov 2014. Thus, it is not the case of the AO that as soon as the Appellant had invested in the impugned: scrip, it had started going down. It may be noted that for booking of the business loss in the scrip there is no stipulation that the Appellant need to hold the scrip for a particular period. The very fact that the Appellant had held the shares for a very long period of time i.e. more than a year, in it-self shows that the transactions of purchase and sale in the scrip are not arranged one. 21.2 It is also preposterous to hold that the Appellant was aware in August 2014 i.e. at the time of purchase, of the very fact that the trading in the scrip of Mahavir Advanced Remedie....
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.... the Tribunal's order are not vitiated by any error of law apparent on the face of the record either. 7. As a result of the above discussion, we do not find any substance in the contention of Mr. Suresh kumar that the Tribunal misdirected itself and in law. We hold that the Appeals do not raise any substantial question of law. They are accordingly dismissed. There would no order as to costs." 22.1 In the case of Mukesh Morolia v. Addl. CIT-6 SOT 247 (Mum), the addition on account of long term capital gain on sale of shares was deleted by holding it to be a genuine transaction. In the said case, the AO had held that the long term capital gain shown by the assessee was unexplained since in the said share broker had confirmed in a statement before the AO that he never sold any shares to the assessee. However, taking note of the evidence as available on record, the Hon'ble Tribunal held that the AO had not disproved the genuineness of the transactions. The said decision of the Tribunal was later upheld by the Hon'ble Bombay High Court in the case of CIT V. Mukesh Marolia - ITA 456 Of 2007 dated 07.09.2011. The SLP against the said decision filed by the Department ....
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....ries. The CIT(A) after relying on the various decision of the coordinate bench wherein on similar facts and circumstances issue was decided in favour of the assessee came to the conclusion that transaction entered by the assessee was genuine. Detailed findings recorded by CIT (A) at para 3 to 5 has no controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT(A). Moreover, issue is also covered by the decision of jurisdictional High Court in the case of Shyam R. Pawar (supra), wherein under similar facts and circumstances, wherein under similar facts and circumstances, transactions in shares were held to be genuine and addition made by AO was deleted. Respectfully following the same vis-a-vis finding recorded by CIT(A) which are as per material on record, we do not find any reason to interfere in the order of CIT(A)." 22.3 In the case of Commissioner of Income-tax, Jamshedpur vs. Arun Kumar Agarwal (HUF) 210 Taxman 205 (Jharkhand High Court), the AO had i) on the basis of finding in the SEBI enquiry, consequent to which releven stock brokers & their trading were suspended by the Kol....
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....the books of the accounts of the assessee which was duly proved by the bank statement." 22.5 In CIT v Orchid Industries Ltd. (ITA 1433 of 2014), vide order dated 5(r) July, 2017, while dealing with the documents filed, the Hon'ble Bombay High Court had observed that the transaction was genuine as the assessee produced voluminous documentary evidence. 22.6 The Mumbai ITATF' Bench in its' decision in ITA No.3801/Mumbai/2011 in case of M/s. Farah Marker v/s. ITO dated 2704-2018 held as under : "3.4.8 From the appreciation of the facts of the case, the material evidence placed on record by the assessee and in the light of the discussion of the factual and legal matrix of the case as discussion from para 3.1. to 3.4.7 of this order (supra), we are of the considered opinion that the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicion and surmise in respect of penny stocks, disregarding the direct evidence placed on record and furnished by the assessee in the form of brokers contract notes for purchase and sale of the "said shares" of M/s. Shukun Constructions copies of the physical share cer....
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.... Moreover in the case of Shri Sanjay Bimalchand (Supra) shares were purchased in cash. Thus, facts of the Appellant are totally different from the case of Shri Sanjay Bimalchand, referred supra. 23.0 Another plea raised by the Appellant is that the copy of documents & evidences received from Investigation Directorate, Kolkata relied upon by the AO were not provided to them and further, no opportunity to cross examination the witnesses were provided. Thus, it was claimed that there was was violation of the principles of natural justice. A perusal of the material on record shows that during the course of assessment proceedings, the Appellant had specifically asked the Assessing Officer to make available the adverse material constrained to note that at no point of time during the course of the assessment proceedings, did the Assessing Officer have provided the details sought by the appellant, Thus, the Appellant was denied rebut the evidence. Thus there is a clear violation of the principles of natural justice by the Assessing Officer in the present case at hand. 23.2 It may be noted that the principles of natural justice have an ancient ancestry. Law presumes that M....
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....nciples, when it held as under: "The underlying principle of natural justice, evolved under the common law, is to check arbitrary exercise of power by the State or its functionaries. Therefore, the principle implies a duty to act fairly i.e. fair play in action. The aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. They do not supplant the law but supplement it." 23.7 The Full Bench of Hon'ble Supreme Court in the case of State of erala s. K.T. Shaduli Yusuff [1977] 39 STC 478 held as under: 'One of the rules which constitutes a part of the principles of natural Justice is the rule of audi alteram partum which requires that should be condemned unheard. It is indeed a requirement of the duty to act fairly, which lies on all judicial authorities, and this duty has been extended also the authorities holding administrative enquiries involving civil consequences or affecting rights of parties". 23.8 The Hon'ble Supreme Court in Kishan Chand Chela Ram v. CIT reported in [1980] 125 ITR 713 held as under: "....
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....ent on the officer to afford opportunity to the assessee to cross-examine the authors of those books. The petitioner had been denied the reasonable opportunity which was due in law, in relation to the assessment, and that was sufficient to vitiate the order. The order of reassessment was not valid and was liable to be quashed. 23.12 The Hon'ble Calcutta High Court in CIT v. Eastern Commercial Enterprises [1994] 210 ITR 103 held as under: "Cross examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross examine the witness". 23.13 The Income-tax Appellate Tribunal, Hyderabad Bench in Mahaveer Transport Co. v. ITO reported at [1987] Vol. 23 ITD 206 held as under: "further while finalizing the assessment even an opportunity to cross examine those lorry owners from whom the statements and sworn depositions were recorded was prayed for....
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....for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem. 23.19 Further, in Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100, the Hon'ble SC at paras 13 & 14 had held, as under: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of j....
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.... recorded at the back of the assessee without affording an opportunity to the assessee to cross-examine those persons before passing the assessment order, despite specific requests, the proceedings conducted by the A.O after recording the statement of aforesaid persons are set aside; it is open to the A.O to reinitiate the proceedings from the aforesaid stage. 23.25 In CIT & Anr. Vs. Land Development Corporation (2009) 316 ITR 328 (Kar), it was held that where despite specific request therefore, assessee was not given an opportunity to cross-examine witnesses whose incriminating statements had been made available to assessee, matter remanded to the A.O for affording an adequate and proper opportunity. 23.26 In CIT Vs. Rajesh Kumar (2008) 306 ITR 27 (Del), it was held thatthe Revenue having collected material behind the back of the assessee and used the same against him without disclosing the material to the assessee or giving an opportunity to him to cross-examine the person whose statement has been used against the assessee for making the impugned addition, there is clear Violation of principles of natural justice justifying deletion of addition. 27 In H....
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....Delhi High Court in Principal CIT, Delhi 2 Vs. Best Infrastructure (India) Pvt. Ltd. &Others in ITA Nos. 11/2017 to 22/2017, wherein it was held that the onus of ensuring presence of the witness for cross-examination is on the Revenue and that such onus cannot be shifted to the Assessee. It was further held that failure on the part of the Revenue to produce the witness for cross-examination would be sufficient to discard the statement. The relevant excerpt of the order is reproduced hereunder to facilitate ready reference: "37. Fourthly, a copy of the statement of Mr. Tarun Goyal, recorded under Section 132 (4) of the Act, was not provided to the Assessee. Mr. Tarun Goyal was also not offered for the cross-examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross-examination by the assessee, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the assessee clearly stated that they did not know, could not have been shifted to the assessee. The onus was on the Revenue to ensure his presence. Apart from the fact that Mr. Tarun Goyal has retracted his ....
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....ection 132(4A) is limited only to the proceedings under Section 132(5) and not in respect of other proceedings; (ii) that the presumption under Section 132(4A) is only against the person from whom the document was found and not against third parties; (iii) that the presumption under Section 132(4A) is not conclusive and cannot be applied in the absence of corroborative evidence. Let us examine the rival contentions regarding scope and application of Section 132(4A) Whether Section 132(4A)is applicable only for the limitation purpose of Section 132(5)and not for the assessment/penalty proceedings. Section 132(4A) raises certain presumptions and provides that where any books of account or other documents are found in the possession or control of any person in the course of a search, {t may be presumed that such books of account or documents belong to such person and their contents are true. From a reading of Section 132(4A), we do not find any justification to support the contention of the learned counsel for the assesses that the presumption under Section 132(4A) is valid only for the purpose of Section 132(5). Section 132(5)is amended by the Fina....
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....e used against Shri Advani or Shukla but can be used against Shri Jain and may be proved as admission by him. The learned Departmental Representative had contended that the above decision of Hon'ble apex Court was not applicable to income-tax proceedings because the above decision was based upon the interpretation of u/s. 34 of the Evidence Act, 1872. He contended that Evidence Act is not applicable to income-tax proceedings. However, we are unable to accept the above contention of the learned Departmental Representative in view of the decision of Hon'ble apex Court in the case of Chuharmal y. CIT (1988) 172 ITR 250 (SC). In that case, Their Lordships held as under : "...dismissing the petition and affirming the decision of the High Court, () that what was meant by saying that the Evidence Act did not apply to proceedings under the IT Act, 1961, was that the rigour of the rules of evidence contained in the Evidence Act was not applicable; but that did not mean that when the taxing authorities were desirous of invoking the principles of the Evidence Act in proceedings before them, they were prevented from doing so." We find that similar view was taken by th....
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....of property was Benami or not, while the issue in the case under appeal before us is altogether different. Similarly, the facts in the case of CIT v. Durga Prasad More (supra) are altogether different. There also, the dispute was whether the house property purchased in the name of assessee's wife belonged to her or to the assessee. In view of above, we hold that the various decisions relied upon by the learned Departmental - Representative will not be applicable to the case under appeal before us." 24.2 In Prarthana Construction (P) Ltd. [2001] 70 TTJ 122 (AhdTrib), it was held that the presumption under the provisions of section 132(4A) would in any case not be applicable to a third party from whose possession such papers and documents have not been found by the Revenue. In that case, the Revenue had further relied upon statements of Sri Sureshbhai and Sri Deepak Meha partners of M/s. Gokul Corporation. The Bench opined that it found merit in the contention of the Ld. Counsel that such statements recorded at the back of the assessee would not ipso facto include the case against the assessee particularly when the maker of the statements have not been lowed to be interr....
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.... [2000] 244 ITR 422 and answered the question in favour of the assessee. 4. The admitted facts in this case are that the details of purchase and sale of shares are furnished. The payment and receipt are by account payee cheques. The identity of seller and purchaser is not in dispute. The disallowance is basically made on the ground that the assessee failed to produce the brokers for verification of the transaction. Following our view in the earlier case referred to above non-production of the share broker by the assessee does not disentitle the assessee for claim of loss in a genuine transaction of shares face the aforesaid facts and our view expressed in the case industrial Holdings Ltd. (supra), we answer question No. whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer in the negative, ie., in favour of the assessee and against the revenue' Conclusion. 27.0 I have noted that the AO had failed to bring on record any evidence or cogent material to prove that the business loss in the impugned scrip is bogus. The entire assessment order is based on presumptions surmises....