TaxTMI 
TaxTMI 
2018 (10) TMI 1912
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....of this issue are that the the assessee is a company carrying on business of dealing in shares and loan transactions. The assessee filed its return of income for the Asst Year 2014-15 on 22.9.2014 declaring total income of Rs. 22,42,340/-. This return was processed u/s 143(1) of the Act on 17. 6. 2015 determining refund of Rs. 20/-. The return was selected for scrutiny by issuance of notice u/s 143(2) of the Act on 28. 8. 2015 which was duly served on the assessee by speed post. There was a search and seizure operation conducted u/s 132 of the Act at the residential, office premises,bank lockers etc of the Patni Group of cases on 8. 3. 2016. A search warrant was executed in the name of the assessee. Consequent to the search, notice u/s 153A of the Act was issued on the assessee for the Asst Year 2014-15. In response to the said notice, the assessee filed its return of income on 21.10.2016 declaring total income of Rs. 22,42,340/-. Hence as on the date of search, the assessment for the Asst Year 2014- 15 was pending would fall under the category of abated assessment and hence the total income could be determined by the ld AO in the assessment to be framed u/s 153A of the Act irrespe....
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....e by booking this trading loss had practically set off the same with the interest income which would be separately taxed otherwise, among others. During the course of search and seizure operations, a statement was recorded u/s 132(4) of the Act from Shri Akhilesh Kr Jain, Director of the assessee company. On the basis of this statement, the ld AO came to a conclusion that the shares traded by the assessee are to be classified as penny stocks and the entire trading loss was pre-arranged one with a malign intention to evade tax on other income of the assessee. Accordingly, he proceeded to disallow the trading loss on sale of shares claimed in the sum of Rs. 30,26,421/- in the assessment. This action of the ld AO was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us for the Asst Year 2014-15. 7. We have heard the rival submissions. It is not in dispute that the entire purchase and sale of shares transactions have been routed through recognized stock broker and traded in recognized stock exchange and are duly supported by contract notes for purchase and sale separately, transactions had duly suffered service tax, securities transaction tax (STT) , brokerage etc. Th....
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....formation on what has not been disclosed or is notlikely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, assessing officers should rely upon the evidences/materials gathered during the course of search/survey operations or thereafter while framing the relevant assessment orders Yours faithfully, Sd/- (S. R. Mahapatra] Under Secretary (Inv. II) 7.1. We find lot of force in the arguments advanced on behalf of the assessee that retracted statements of third parties have been relied upon without giving any opportunity to the assessee to cross-examine such third parties. In response, the ld DR vehemently relied on the orders of the lower authorities by stating that extensive enquiries were made by the investigation wing of income tax department and disallowance has been made based on such reports and statements recorded from various parties. He argued that the retracted statements shou....
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....ties and allow the common grounds of assessee's appeal. This is essentially a finding of the Tribunal on fact. No material has been shown to us which would negate the Tribunal's finding that off market transactions are not prohibited. As regards veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analysed the set of facts in coming to its findingm we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition , accordingly, shall stand dismissed. There shall be no order as to costs. 7. 2. We find that the statement recorded u/s 132(4) of the Act cannot be considered as an evidence or material found during the course of search and in this regard would like to place reliance on the decision of Hon'ble Delhi High Court in the case of PCIT vs Best Infrastructure (India) Pvt Ltd reported in 397 ITR 82 (Del). The Hon'ble Delhi High Court further in the case of CIT vs Harjeev Aggarwal reported in 290 CTR....
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....found to be false by the Assessing Officer. In fact no contrary evidence to prove that these documents have no evidentiary value has been collected by the Assessing Officer. The entire addition has been made on the basis that the prices of shares have been rigged by certain individuals. No evidence is brought on record to connect the assessee with the alleged rigging of prices of shares. No evidence is brought on record to demonstrate that the assessee was involved in the rigging of shares in the stock market or was closely involved with the persons who are allegedly connected in rigging of the prices of shares. The entire addition has been made on probabilities, human behaviour, the alleged unnatural fluctuation in prices of the shares etc. , but not based on any evidence connecting the assessee with such allegations. The addition have thus been made on conjectures and surmises. 6. 2. The Hon'ble Jurisdictional High Court in the case of Commissioner Of Income Tax vs M/S. Alpine Investments ITA No. 620 of 2008, GA No. 2589 of 2008, judgment dt. 26th August, 2008, held as follows:- "It appears that the share loss and the whole transactions were supported by contract notes, bil....
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....TO, Ward-35(3), Kolkata; I. T. A. No. 2281/Kol/2017; Assessment Year: 2014-15, held as follows:- "12. The assessing officer as well as the Ld. CIT(A) have rejected these evidences filed by the assessee by referring to "Modus Operandi" of persons for earning long term capital gains which his exempt from income tax. All these observations are general in nature and are applied across the board to all the 60,000 or more assessees who fall in this category. Specific evidences produced by the assessee are not controverted by the revenue authorities. No evidence collected from third parties is confronted to the assesses. No opportunity of cross-examination of persons, on whose statements the revenue relies to make the addition, is provided to the assessee. The addition is made based on a report from the investigation wing. 13. The issue for consideration before us is whether, in such cases, the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should g....
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....iples of legal import laid down by the Courts of law. 15. In our view modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee. Unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected by the assessee. The Hon'ble Supreme Court in the case of Omar Salav Mohamed Sait reported in (1959) 37 ITR 151 (S C) had held that no addition can be made on the basis of surmises, suspicion and conjectures. In the case of CIT(Central), Kolkata vs. Daulat Ram Rawatmull reported in 87 ITR 349, the Hon'ble Supreme Court held that, the onus to prove that the apparent is not the real is on the party who claims it to be so. The burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidences, which would directly prove the fact of bogusness or establish circumstance unerringly and reasonably raising an interference to that effect. The Hon'ble Supreme Court in the case of Umacharan Shah & Bros. Vs. CIT 37 ITR 271 held that suspicion however strong, cannot take the place of evidence....
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....uspicion and in absence of any evidence to support the same. The Hon'ble Court held: "Adverting to the various probabilities which weighed with the Incometax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellant earning considerable amounts in the year under consideration was a pure conjecture on the part of the Income-tax Officer and the fact that the appellant indulged in speculation (in Kalai account) could not legitimately lead to the inference that the profit in a single ....
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.... The State of Maharashtra and Ors. "23. A Constitution Bench of this Court in State of M. P. v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T. R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors. , AIR 1964 SC 708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and Anr. v. State of West Bengal and Anr. AIR 2010 SC 142; and State of Uttar Pradesh v. Saroj Kumar Sinha AIR 2010 SC 3131). 24. In Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634, this Court, while dealing with a case under the Central Exc....
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....ade available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross-examination is an integral part and parcel of the principles of natural justice. " b) Andaman Timber Industries vs. Commissioner of C. Ex. , Kolkata-II wherein it was held that: "4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the Assessee disputed the correctness of the statements and wanted to cross-examine, th....
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....IGH COURT in the case of BLB CABLES & CONDUCTORS [ITA No. 78 of 2017] dated 19. 06. 2018. The High Court held vide Para 4. 1: "............we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transaction as bogus. In view of above, we reverse the order of the lower authorities and allow the common grounds of assessee's appeal. " [quoted verbatim] This is essentially a finding of the Tribunal on fact. No material has been shown to us who would negate....
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....tion between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. " d) The BENCH "D" OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No. 569/Kol/2017] order dated 15. 11. 2017 held as under vide Page 12 Para 8. 1: "In the light of the documents stated i. e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore also fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and b....
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.... facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: "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 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. " f) The BENCH "A" OF KOLKATA ITAT in the case of SHALEEN KHEMANI [ITA No. 1945/Kol/2014] order dated 18.....
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....ons in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. 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 finding recorded by CIT (A) at para 3 to 5 has not been 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). " h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14. 11. 2011 vide Page 2 Para 3 held as under: "On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16. 3. 2001 and sale thereof on 21. 3. 2002. The transactions of sale and purchase were as per the valuation prevalent in the Stocks Exchange. Such finding of fact has been recorded on the basis of evidence produced on record. The Tribunal has af....