TaxTMI 
TaxTMI 
2022 (3) TMI 663
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....other of the assessee). The assessment was completed u/s 143(3) of the Act on 29.12.2017 determining total income at Rs. 13,04,82,190/-. 3. During assessment proceedings, Assessing Officer noticed that assessee had declared long term capital gain on sale of Shares of Parasrampuria Credit and Investment Limited (PCIL), now it is known as MaaJagdambe Trade Links Ltd (MJTL) during the year and claimed exemption u/s 10(38) of the Act. The quantum of claim made by the assessee made the Assessing Officer to make the detailed investigation. The Assessing Officer heavily relied on the investigation made by the Investigation Wing, Kolkata, discussed in detail on the aspects of making profit by the various operators, the modus operandi etc., in his order, it is general in nature not specific to the assessee. He also investigated with the share broker who had dealt with the shares sold by the assessee. 4. Coming to the specific enquiry made in the case of assessee, Assessing Officer observed that PCIL is one of the scrips identified by the Kolkata Investigation Wing and it was being used to provide accommodation entries to the beneficiaries. Therefore, he heavily relied on the findings ....
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.... transactions in the scrip of MJTL were available with Mr. Dharmendra Karia, However, Mr. Dharmendra Karia did remember that he started business as sugar trader and later on shifted his business towards builders and developers in early 1990s. He also deposed that he had made approx. 100 buildings in Mumbai and Navi Mumbai. But when he was asked about the transaction in the scrips of MJTL, he submitted that he did not remember most of the details. (c) Mr. Dharmendra Karia had made false deposition regarding sale of shares of MJTL through share broker M/s.Focus Shares & Securities Pvt. Ltd. It was thus evidently clear that the reality of the transactions was not such which was represented by the documents submitted by the appellant. Further, it also proved that there were deliberate attempts to hide the truth behind the transactions. (d) The appellant and his family members had made investment in unknown scrips in respect of whom they did not know directors, nature of work and address of the company. As per statement of Mr. Dharmendra Karia, he did not even know as to whether M/s.PCIL was a profit making company or loss bearing. Such huge investment in an unknown co....
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....similar entries had been taken by other family members of the appellant, the total amounting to several crores. (q) Neither the appellant nor his family members had any knowledge about the basics of this stock. (r) As the trading in these shares were at a pre-determined time between pre-determined brokers at a pre-determined price, there was virtually no scope of any genuine trades in share to buy or sell these shares. As private sales of these shares were made by the brokers with ab-initio mala fide intentions of providing accommodation entries in the nature of bogus LTCG/loss, there was no scope of any genuine person to acquire these scrips in off market transactions. (s) Thus whoever had benefitted on large scale from transaction in these shares had transacted in accordance with the scheme and had admittedly converted his unaccounted cash equal to the sale proceeds of shares in to white in the guise of exemption under section 10(38) of the I.T. Act, (t) The appellant declared transactions in his name but as per his statement, he knew very meagre details or knew nothing about the transaction in the shares of MJTL. This showed that a kind of ben....
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....s his brother who had looked after the whole affairs of investment in the alleged share transactions, had failed to show of having any knowledge about the shares traded and having any knowledge about the fundamentals of the penny stock companies (aa) The earning per share and profits for the relevant period were negligible and in contrast with the price rise of the share of the company which were unusually high. (bb) The investigations carried out by various investigation directorate had revealed that in the accounts of the entry providers, the cash had been routed from various accounts to provide accommodations to appellant. (cc) The transactions entered by the appellant involved the series of preconceived steps, the performance of each of which was dependent on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sold intent to evade taxes. (dd) The appellant had failed to appreciate that how a company who had no substantial business was being traded at such a high value and increase in sale price. In the circumstances the modus ope....
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....540) (SC). (iii) McDowell & Co. Ltd., Vs. CTO (154 ITR 148) (SC). (iv) CIT vs. P. Mohankala & Others (291 ITR 278 (SC). (v) Shamin M. Bharvani (1TA No.4906/Mum/2011) of Hon'ble ITAT, 'E' Bench, Mumbai. (vi) Hersh Win Chadha Vs. DCIT (ITA No. 3088 to 3098 & 3107/Del/2005 of Hon'ble ITAT, Delhi. 6. Aggrieved assessee preferred an appeal before Ld CIT(A) and filed detailed submissions for each of the points discussed by the Assessing Officer. Ld.CIT(A) considered the detailed submissions of the assessee and in his order he acknowledged that assessee has invested along with his family members in the shares of MJTL and he also acknowledged that assessee has followed instruction of his brother to make investments. Further he analysed the SEBI report. The SEBI investigation was undertaken to investigate whether there was connection between the company and the entities which had been identified by the integrated surveillance department. SEBI has investigated all those peoples who are involved in manipulating the prices within the small group of persons. In the SEBI investigations the name of the assessee's brother Shri Dharmendra Karia....
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....ation of Shri.Vipul Vidhur Bhatt, even though his statement was reproduced in the assessment order and heavily relied upon while making addition. 7. BECAUSE, the Ld. CIT(A) has erred in law and on facts in denying that the Appellant was an unintended beneficiary of the long-term capital gain, without their being on record, any evidence to establish his complicity in any wrong doing. 8. BECAUSE, the Ld. CIT(A) has erred in law and on facts in presuming that 2.5% of the total sale consideration has been paid as commission (i.e. 2.5% of Rs. 12,28,62,584) and sustaining an addition of Rs. 30,71,564/- u/s 69C." 9. At the time of hearing, Ld. AR made the submissions in detail and also filed the written submissions for the sake of brevity, written submissions are reproduced below: - "2.1.1. The Assessee, aged 56 years, is assessed to tax since last more than 25 years. He is in the business of real estate and proprietor / partner / director of various concerns. 2.1.2 He is staying in a joint family, along with his family, his parents and the family of his brother with joint business in real estate development and consultancy. As per the family traditi....
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....essee. All necessary evidences like Broker's note, Contract notes, Demat statement, Bank statements evidencing receipt, copy of ledger account of the Assessee in the books of broker, etc. were filed and remain undisputed. 2.2.6 Apart from the details as discussed above, the Assessee also filed details of source of purchase of the shares (Letter dated 05.09.2017) and also explanation regarding purchase of the shares (Letter dated 12.12.2017). 2.2.7 The Assessee declared long - term capital gains on sale of the shares and claimed exemption u/s 10(38) of the Act with respect thereto. III. SURVEY OPERATION AGAINST THE ASSESSEE ON 13.09.2016 3.1 Very significantly, absolutely no incriminating material was found during course of the survey, much less indicating any undisclosed income, undisclosed expense or undisclosed investment. 3.2 Only statements of the Assessee and his brother were recorded, in which both denied involvement in any alleged price manipulation. No copy is provided to the Assessee. However, some statements reproduced in the assessment order. IV. ASSESSMENT PROCEEDING 4.1 The Assessee filed various replie....
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.... by its absence in the assessment order. 5.5 The most crucial aspect is that the A.O. emphatically refused to give any opportunity of cross - examination. Refer Sr. No. 12 & 13 at Pg. 81 - 82 of the assessment order. Importantly, he categorically mentioned that the statements were not the sole basis for reaching any judgement / for taking any adverse view in the case of the Assessee. He has referred a summons sent to the Assessee to remain present on 27.12.2017 (just two days prior to the date on which he passed the assessment order covering around 100 pages) and purportedly asking the Assessee to take cross - examination of certain Mumbai based parties. This is wrong and misleading. A bare perusal of the summons so issued (Annexure - 'A') would reveal that this was a simple summons sent u/s 131 of the Act directing the Assessee to remain present for his examination. There was not a whisper about any cross - examination. 5.6 A.O. relied upon various case laws, laying down general propositions. VI. BEFORE CIT (A) Refer: Statement of Facts, Grounds of Appeal and documents annexed along with Form 35. Among other, specific ground was raised c....
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....lication, the appellant himself' 7. SOME OBSERVATIONS 7.1 At the outset, it is not brought on record / made clear what action, if any, is taken by the Department against the persons named / the counter - parties / purchasers of the shares and what addition, if any, is made in their case. The Assessee understands that the entire purchase amount (corresponding to the sales of shares by the shareholders) has been added (on substantive basis) in the hands of the buyers of the shares. This clearly amounts to double addition which is not permissible under the law. The Assessee craves leave refer and rely to one such order of assessment u/s 143(3) r.w.s 153A in the case of Shipra Fabrics P. Ltd. which gets referred in the Assessee's case at Sr. 31 at Pg. 57 of the assessment order. 7.2 In any case, most respectfully, the Assessee draws attention to the following aspects which highlights the biased and pre - determined approach while framing the assessment, apart from attempts to mislead. Some such examples are as under: (i) First of all, in the assessment order it has not been acknowledged / brought to the knowledge the vital fact that the very ....
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....vant sections of the Act / Rules of the SEBI concerning coverage of the persons under such enquiry. More importantly are the relevant provisions of SEBI Act and Rules under which the investigation was ordered by the SEBI. Refer para 21 - 24 at page 11 to 13 of the SEBI Report annexed in the P.B. at Pg. 242 to 242 back. As such, a bare perusal of these provisions will reveal that the scope of enquiry and the persons / entities covered are very wide. More particularly, it is not confined merely to the persons who had allegedly manipulated the price but include any person / entity who had purchased / sold shares in a fraudulent / manipulative manner. In other words, by virtue of this, not only the persons who manipulated the price but also the persons who, as party to such manipulation, buy and sells such script are also put on the same footing. Consequently, they are equally amenable for all the actions and the consequences under the SEBI Act and Rules. Under the circumstances, not proceeding against the Assessee and exonerating Dharmendra and Meena is a conclusive proof of their non -involvement in any wrong doings with respect to the sale transactions. 1.2 Further....
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....h BSE and seeking its Report. The examination also covered counter parties of the suspected entities. [Refer, for example, Para 1 1 (1), para 13 (7), (17), (18) of the Report] 2 General As far as the allottees of preference shares are concerned - which included the case of the Assessee - the categorical findings of the SEBI are as under (Refer Pg.255, Para 16): '1. Company allotted 13725000 shares to 77 preferential allottees. 44 preferential allottees have sold shares In market. No connection could be established between preferential allottees and entities who manipulated the price. After stock spilt they sold 24841557 shares worth Rs. 237.75 crores. 2. Details of trades of preferential allottees are given in Annexure - 06. Details of counter parties to preferential allottees and promoter related entities are placed In Annexure - 07 3. It was observed that the top 10 net sellers by value during post-split period were preferential allottees of the company. 4. As this case has been referred by DIT, hence details of trades of these entities and list of their counterparts may be referred to DIT.' In other words, th....
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....ded as sellers. Only nine out of 17 entities of Group I traded. 5. Twenty - eight entities covered 5.1 SEBI formed 4 groups to examine on the basis of UP analysis. [Top 10 Contributors]. Refer Para 11.2 to 11.5 of the Report. Group 1 (21 entities), Group 2 (2 entities), Group 3(2 entities) & Group 4(3 entities) Total of 28 entities. The most crucial aspect is that the Assessee is not named in any of the lists. Patch -I: LTP analysis were made of all 28 entities as Trading by group entities, UP contributor as buyer, Top 10 LTP contributors as buyer and no manipulative pattern was observed in trades. Top 10 sell LTP contributors were examined, analysed and only 9 entities from Group 1 violated PFUTP regulations. Even here, these parties had contributed only 69% of total trade. In any case, the charge was: Hence, it is concluded that these five entities created a misleading appearance of trading and price rise in the scrip by such trades whereas in actual, these five entities took turns and placed 57 orders and on 57 trading days with volume in small quantity of single digits and price above LTP and with each trade manipulated the scrip pri....
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....tion wing, which was brought on record by Assessee suo moto, to establish that he was never part of any manipulation, if any, in rise of the prices of shares of MJTL in any of the three phases selected & examined by SEBI. 3. The SEBI appointed an adjudicating officer for holding inquiry for determining if there had been violation of the relevant provisions of SEBI (PFUTP regulations, 2003) while dealing in the scrip of MJTL. Specifically, the Adjudicating Officer was to enquire whether (names of six parties) had violated regulations 3(a)(b)(c)(d) and regulation 4(1),4(2)(a) and (e) of PFUTP regulations. Absolutely incorrect and misleading averment. A bare perusal of the SEBI Report would reveal that SEBI had covered three phases of the transactions in its entirety, more particular covered more than 100s of entities. It was only that, after full in depth enquiry, SEBI found only six entities guilty of violation of SEBI Act and Rules. 4. Shri Dharmendra Karia's lack of knowledge of the share market, his lack of basic due diligence in the investment of such a large amount into worthless scrip and his making of the said investment at the behest of some un....
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....impossible to know the other side of the trade. Secondly, during the assessment proceeding and even survey proceeding, the Assessee had denied having known Mr. Vipul Vidur Bhatt and that he had no privy of contract with the buyers of the shares on online platform of the BSE. Even otherwise, there is nothing on record which establishes any nexus between the Assessee and Mr. Vipul Vidur Bhatt or any of his entities. In any case, neither any statement of Mr. Vipul Bhatt was brought on record wherein Assessee's name was even mentioned nor any tangible material was produced in support of the allegation. Thirdly, no evidence or even allegation of any cash exchanged between the Assessee and Mr. Vipul Vidur Bhatt or buyers of the shares is brought on record. Fourthly, the so - called accommodation entry provider, Mr. Vipul Vidur Bhatt, in 2016 itself, retracted his statement stating that the earlier statement made was given under coercion and force and due to several mental pressures caused during long nine days of survey/search action. Lastly it has been also admitted by the A.O. also that there were other independent buyers too. 6. Thus, i....
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....ggested levy of penalty only on six persons out of 28 persons examined in Patch-I & II and none other out of more than 35 persons, promoters, Company and 77 preferential allotees of shares examined in Patch -III. SEBI report has not established any vital link between appellant and six notices, even no link of price rigging/ manipulation has been established between appellant and notices. Ld. CIT(A) confirmed the addition merely on the basis of surrounding circumstances [Page 45], circumstantial evidence [Page 47] and by applying the test of human probabilities [Page 471. Even though he accepted that "It is true that appellant has furnished the details of the shares being purchased, the holding period and the details of the sale and in that sense, the paper work for the claim of exemption, appears to be in order." [Page 43 12. Ld. AR submitted several propositions and supported case law, which are given below: - "1. No proper, adequate, fair and reasonable opportunity of being heard provided to the Appellant. Assessee for the above proposition relies on the following case law: - (i). Sona Builders v. UOI [(2001) 251 ITR 197 (SC) ....
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.... Pooja Bhatt v. ACIT - [(2000) 73 ITD 205 (Mum)] 4. In any case, in view of SEBI Report, the very basis got away. All such material / statements -/ information have no base / relevance. Most importantly, even SEBI found the information of the Investigation Wing untrue. Assessee for the above proposition relies on the following case law: - (i). Refer part C of the short Note. 5. In any case, retraction of statements of Shri Vipul Bhat, on which heavy reliance was placed, was not even considered, much less, dealing with them judicially and judiciously. It is a settled legal position, once such statement is recorded, it does not have any evidentiary value. Assessee for the above proposition relies on the following case law: - (i). Vinod Solanki v. UOI (Civil Appeal No. 7407 of 2008) (ii). CIT v. Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H) 6. "Many other well - settled 'legal principles" involved like onus, "how to discharge onus, preponderance of probability, etc. However, in view of the above, it may not be necessary at this stage. The existing sale of shares was in accordance with stock exchange online screen ba....
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....ectly and primarily concerned with genuineness of the stock exchange transactions. Even as on today, neither such transaction is held to be bogus by any such authorities nor any adverse view has been taken by such authorities concerning this transaction. No evidence is brought on record by the A.O. that this transaction is held to be invalid or irregular by any regulatory authorities. The Appellant had brought on record very exhaustive submission on record, on fact as well as on law, highlighting various fallacies committed by the A.O. while making impugned additions. Most significantly, no specific rebuttal / denial of the factual and legal submissions of the Appellant, including retraction of the statement by Shri Vipul Bhatt and the analysis of the seized material. Absolute non - application of mind on the part of the A.O. / the Ld. CIT (A) on the exhaustive submissions submitted by the Appellant, in which the Appellant had brought on record various legal and factual submissions. Not referred most of the submissions of the Appellant, much less, dealt with them judicially and judiciously. Assessee for the above proposition relies on the following case l....
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....e lower authorities and he also relied on the case referred by the Assessing Officer. (i) SumatiDayal Vs. CIT (214 ITR 801) (SC). (ii) Durga Prasad More Vs. CIT (82 ITR 540) (SC). (iii) McDowell & Co. Ltd., Vs. CTO (154 ITR 148) (SC). (iv) CIT vs. P. Mohankala & Others (291 ITR 278 (SC). (v) Shamin M. Bharvani (ITA No.4906/Mum/2011) of Hon'ble ITAT, 'E' Bench, Mumbai. (vi) Hersh Win Chadha Vs. DCIT (ITA No. 3088 to 3098 & 3107/Del/2005 of Hon'ble ITAT, Delhi. 14. With regard to cross examination he brought to our notice Page No.67 of the Assessment Order and submitted that it is a general modus operandi operated by the operators. Therefore, there is no need of any cross examination. 15. Considered the rival submissions and material placed on record, we observe from the record that Assessing Officer observed that assessee has claimed exemption u/s. 10(38) of the Act on the huge long term capital gain from the sale of scrip MJTL, based on the above observations Assessing Officer discussed in detail the investigations made by the investigation wing (Kolkata) and narrated the modus operandi operated by these op....
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....ight on the suspicious transactions done by the assessee. Here it is pertinent to mention that these statements are not the sole basis of reaching on any judgement in the case of the assessee. However, even then, summons were issued to the Mumbai based parties. The assessee and his brother were also summoned to be present on 27.12.2017 to take cross examination of Mumbai based parties at this Office. However, neither the assessee himself nor his brother Shri Dharmendra V Karia has attended the office and filed a letter that Shri Dharmendra V Karia is unwell." 18. From the above paragraph it can be noticed the Assessing Officer expressed in clear term that that assessee has not utilized the opportunity extended by the Assessing Officer on the summons dated 27.12.2017 issued by him for the purpose of cross examination at his office. 19. In this regard, Ld. AR has brought to our notice the show cause notice issued by the Assessing Officer for the above date and copy is filed before us for the sake of clarity it is reproduced below: - Summons to Assessee/ Witness under section 131 of the income-Tax Act, 1961 To Date: 26.12.2017, PAN: AHFPK2679F Sh....
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....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, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to....