TaxTMI 
TaxTMI 
2020 (1) TMI 1562
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....produced as under:- ITA No. 625/Chd/2019 1. That the learned Commissioner of Income Tax (Appeals) has erred on facts and in law by upholding the addition on the ground that assessee appellant has surrendered the amount of capital gain during the search without properly appreciating the facts that surrender was a conditional i.e. subject to no penal action and with a right to contest the taxability thereof in view of any new development in the matter. As such, addition confirmed is unjustified. The same be deleted. 2. That the learned CIT(A) has erred on facts and in law by upholding the addition made in the assessment u/s 153A of the Income Tax Act without appreciating the facts that no incriminating material was found during the search in context with impugned addition especially when the assessment has already been completed u/s 143(1) of the Act. As such, addition confirmed is unjustified. The same be deleted. 3. That the learned CIT(A) has erred in not deciding the ground no. 2 of the appeal. The same is reproduced here as under:- "That the leaned AO has erred in law and on facts by disallowing the claim of the assessee appellant under sec....
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....O has not brought on record any evidence which may relate to the compensatory payments made by the assessee appellant to the buyer of the shares. As such, addition confirmed without any evidence is against the principle of natural justice. The same be deleted. 10. That the assessee appellant craves to add or amend the grounds of appeal. 4. The Ld. Counsel for the assessee has submitted that since ground No.2 is legal ground, the same should be adjudicated first. The Ld. DR has not objected to the same. Hence, we have heard on the legal issue raised vide ground No.2 of the appeal. 5. The brief facts of the case are that the assessee is an individual having salary income from M/s Royal Lifestyle Jewellers Pvt. Ltd. in the capacity of director. The assessee during the year earned long term capital gain by sale of shares of M/s Presha Mettallurigical Ltd., company, amounting to Rs. 26,68,215/- and the same had been claimed as exempt u/s 10(38) of the Act in the return of income filed on 24.06.2013. The return of the assessee had been processed u/s 143(1) of the Act. However, on 11.02.2016, a search action had been carried out at the premises of assessee and during the se....
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.... contention of the assessee and dismissed the appeal of the assessee by confirming the additions so made by the Assessing Officer; observing as under;- "4.2 Grounds of Appeal Nos. 2 to 7 relate to disallowance of claim made by the assessee u/s 10(38) of the Act on Long Term Capital Gain shown to have been earned on the sale of shares and addition of Rs. 26,68,215/- u/s 68 of the Income Tax Act, 1961. The AO has mentioned that a search u/s 132 was conducted in the case of M/s. Royal Lifestyle Jewellers Group of Bathinda on 11.02.2016 and various incriminating documents were found and seized from the various residential and business premises of the group. The notice u/s 153A was issued on 16.05.2017 and the assessee filed return declaring an income of Rs. 14,94,580/- on 19.05.2017. The AO has further mentioned that the assessee is not maintaining books of accounts and during the year under consideration, declared Long Term Capital Gain of Rs. 26,68,215/- which was claimed exempt u/s 10(38) of Income Tax Act, 1961. As per the details furnished regarding the purchase and sales of shares, the assessee purchased 7500 shares of M/s. Presha Metallurgical Ltd. on 05.02.2011 @ 2.50/....
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....-. In the revised return, the assessee paid tax on bogus Long Term Capital Gain of Rs. 18,78,643/- earned on trading of shares of M/s. Kappac Pharma Ltd. However, for assessment year 2013-14, the assessee has neither revised the return nor deposited the tax. The AO mentioned that the two concerns M/s. Presha Metallurgical Ltd. and M/s. Kappac Pharma Ltd. have similar financial facts and behavior as listed company at the time of trading. The AO reproduced the similarities in terms of financial statements, share price pattern, share volume pattern of the two companies to show the similarities. Both the concerns have Nil gross receipts, nil/very low expenses and are loss making for the financial year 2012-13 with Nil stock and very less share capital. The share price pattern was bell shaped for both the concern with similar pattern in share trading volume The AO also referred to the modus operandi to generate bogus Long Term Capital Gain as per the report of the Investigation Wing, Kolkata. This modus operandi has been deduced by SEBI and other Government Agencies and the findings of the SEBI have also been reproduced by the AO. The AO has also referred to the report of the SIT of Hon....
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....ment recorded u/s 132(4) of the Act. The claim of the assessee for exemption u/s 10(38) with respect to Long Term Capital Gain on the sale of shares of M/s. Presha Metallurgical Ltd. was thus found bogus and the" same was treated as unexplained credit u/s 68 of the Income Tax Act, 1961 and Rs. 26,68,215/- was added to the income of the assessee. The facts of the case, basis of addition made by the AO and the arguments of the AR during the course of appellate proceedings have been considered. The AR has argued that the assessee earned Long Term Capital Gain on the sale of shares of M/s. Presha Metallurgical Ltd. which was claimed exempt u/s 10(38) of the Act. As per the submission, the assessee agreed to surrender the Long Term Capital Gain just to avoid litigation and to buy peace of mind and the surrender was made with a condition that no penal action will be taken and right to contest the taxability in view of the new development in the matter. It is argued that all the prerequisite for claiming exemption u/s 10(38) are fulfilled in this case and no material has been brought by the AO to disprove the claim. It is also mentioned that name of the company M/s. Presha Metall....
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....s 10(38) of the Income Tax Act, 1961. During the course of statement recorded u/s 132(4), the assessee had submitted that it had earned Long Term Capital Gain as the period of holding was more than 12 months and the sale have taken place in a recognized Stock Exchange viz. BSE and STT on the sale was duly paid, however after discussion with the counsel and to buy peace of mind, surrendered the amount of capital gain of Rs. 26,68,215/- in assessment year 2013-14 and Rs. 18,78,643/- in assessment year 2014-15 to Income Tax as 'income from other sources' for the relevant assessment years with a right to contest the taxability in view of any new development in the matter. It is however noted that all these facts have remained the same and there is no new development regarding the sales and purchase of shares, the income from which was surrendered and in fact for assessment year 2014-15, the assessee revised the return and paid the tax. Since, the facts for the two years are similar, there is no reason for not paying the tax for assessment year 2013-14. It is duly brought on record by the AO that M/s. Presha Metallurgical Ltd. is also a penny stock and its weak financial positio....
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....e level of proof required is that of 'preponderance of probability' and if the Assessing Officer is able to substantiate his action upto this level, then the addition is required to be upheld. In the present case, on the test of 'preponderance of probability', it is not believable that assessee would earn such a huge profit on the sales of these shares. It is also not understood how the assessee came to know about these shares which were traded at faraway place and the company is not a prominent one. The assessee has past experience of trading in shares but never had such profit in the past or in the future except these two years. It is highly improbable that such huge profit is earned on the shares of an unknown company making losses or having nominal income. Such type of profit is unrealistic, is also supported by the fact that even the Government of India is advising the Citizens not to be allured by the promise of high returns. The Citizens are cautioned that such high returns are not possible and investment should not be made on the promise of such high returns. For this, an Investment Protection Program is run by the 'Investor Education and Protection Fund....
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....ities around and the reality is that nobody can earn such huge profit as claimed by the assessee. In fact, it is assessee's own unaccounted money which has been reintroduced as capital gains claimed as exempt income. If what has been claimed by the assessee was a reality, then what the broker, who arranged the transactions, waiting for? He should also have earned such profit instead of charging nominal commission. The story of the assessee is not found acceptable on the test of human probability. The matter gains further strength from the order of Bombay Stock Exchange order referred by the AO in the assessment order. It has been held by the Hon'ble Supreme Court that "Tax planning may be legitimate provided it is within the framework of law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods. It is the obligation of very citizen to pay the taxes honestly without resorting to subterfuges ". The AO drew adverse inference based upon the investigation carried out by DIT, Investigation, Kolkata. The large increase in the value of shares in....
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....ted. He further submitted that the authorities below have failed in disallowing deduction claimed by the assessee u/s. 10(38) of the Act for Rs. 22,28,172/-. It was further submitted that lower authorities failed to appreciate that the amount of L TCG earned by the assessee on STT paid sales of listed equity shares of M/s CCL International Ltd., ignoring the evidences, documents and case laws relied upon by the assessee. It was further submitted that the nothing has been brought on record to show any linking between the alleged entry operators whose statements have been relied upon and the assessee. The evidences and arguments used by the authorities below are generic in nature and can in no sense be related to the assessee. He further submitted that the addiion made was without any basis and without brining on record any corroborative material found during the course of assessment proceedings and also by completely ignoring the wellestablished law that no addition can be made solely on the basis of statements 8 recorded on oath during the course of survey conducted by the Investigation Wing of Income Tax, Kolkata and departmental^ communicated to the A.O., without making his own i....
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....of penny stocks and claimed the same to be exempted under section 10(38) of the Act. In this case the Investigation Wing at Kolkata had carried out country wise investigation to unearth the organized racket of generating bogus entries of long term capital 10 gains which is exempt from tax. It was further submitted that the assessee had purchased 5000 equity shares of M/s CCL International Ltd. for Rs. 2,00,000/- on 15.4.2013 in off market transaction @ Rs. 40.00 per share from Sai Securities. These shares were sold by the assessee through stock broker M/s Mansukh Securities and Finance Ltd. ranging from Rs. 492.50 to 481.20 per share. He further submitted that the payment for purchase of shares has been debited from assessee account through cheque for a sum of Rs. 2,00,000/- was debited whereas the sale note was dated 15.4.2013, which proves that the transaction was an afterthought and the buyer has back dated the transaction. The shares were purchased through off market deals of unknown company. In view of the above assessee failed to prove the genuineness of the alleged long term capital gain claimed to have been earned by the assessee. He further stated that the case laws relied....
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....nal Ltd. and movement of its price are abrupt, unrealistic and based upon any realistic parameters. From the perusal of financial statements of the aforesaid company M/s CCL International Ltd. from the Ministry of Corporate Affairs website (MCA) examining the information available in the public domain from where it was observed that there is no extraordinary increase in the profits of the company to justify the increase in value of the shares. I further note that Investigation Wing had recorded the statement of Sh. Jai Kishan Poddar who is one of the Director of M/s Consortium Capital Pvt. Ltd. which is one of the entities utilised for providing entry of bogus long term capital gain of M/s CCL International Ltd. who had admitted that he was involved in scam of providing bogus long term capital gains through shares of M/s CCL International Ltd. had also admitted that they were also 13 involved in trading of these Jamakharchi Companies through which manipulative transactions in securities to either artificially raise or lower the market rate of the shares are being done. I also note that the independent findings of the AO, which are corroborated by the information given by the Invest....
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....s in the real word and contextualize the same to such transactions in the real market situation. The following observations of the Hon'ble ITAT are worth mentioning here:- "It is essential on the part of revenue authority, to look into the real nature of transaction and what happens in the real word and contextualize the same to such transaction in the real market situation. It is pertinent to state here, the judicial wisdom of Hon 'ble Supreme Court in CITvs. Arvinds Raju (TN) 120 ITR 46 (SC) wherein it was held that "one day in our welfare state geared to social justice, this clever concept of avoidance as against evasion may have to be exposed. In the present case, there is an obvious and plain transaction of tax evasion which has been clothed with the smoke screen of subterfuges, by the assessee appellants. " The Relevant observations and findings of Hon'ble Supreme Court, in the matter of discharge of onus of proof and the relevance of surrounding circumstances of the case are that though an appellant's statement must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where th....
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....transaction as a whole. The burden of proving the source of a cash credit is on the assessee and the Assessing Officer is not required to prove the source. Mere furnishing of particulars is not enough, mere payment by account payee by cheque is not sacrosanct as held in Hindustan Tea Trading Co. Ltd. vs CIT 2003 [263 ITR 289, 297 (Cal)]. Where there is unexplained credit, it is open to the Assessing Officer to hold that it is income of the assessee and no further burden lies on the Assessing Officer to show that the income is from any particular source as held in CIT vs. Devi Prasad Viswanath Prasad 1969 72 ITR 194 (SC). The case laws quoted by the AR are not applicable to the facts of the present case as in the present case the genuineness of the transaction has not been established because on investigation, the existence of the company M/s. Presha Metallurgical Ltd. has not been established and it was revealed that the company was not carrying out any business activities and nobody knew about the existence of the company at the given address. From the facts, it is clear that the assessee has infact re-introduced its unaccounted income in the shape of Long Term Capital Ga....
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....nting adequate opportunity to the appellant and after duly rebutting the submissions of the appellant. Moreover the amount himself surrendered by the assessee in the statement u/s 132(4) during the course of search and in fact paid tax and revised return for assessment year 201415. Therefore, under the facts and circumstances of the case, the arguments of the AR are not found acceptable and the action of the AO in making the addition of Rs. 26,68,215/- u/s 68 of the Income Tax Act, 1961 is found sustainable. The AO has duly mentioned the facts and the legal position in support of the addition made on the issue and hence the addition is confirmed. Accordingly, these grounds of appeal are dismissed. 4.3 Ground of Appeal No. 8 is of general in nature and it has been contended that the reversal of surrender was on account of fulfillment of other conditions and it cannot be made a ground for making the addition. It is however a fact accepted by the appellant that a surrender u/s 132(4) was made during the search which was however not honored later on for the year under consideration. The AO has relied upon the statement recorded during the search as per the provisions ....
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.... u/s 143(2) had already expired and the return filed by the assessee had attained finality or to say that assessment for the year under consideration had already been concluded and not abated as on the date of search. The Ld. Assessing Officer has relied upon the report of the Investigation Wing of Kolkata and the addition has been made on the basis of the preponderance of probabilities. No incriminating documents directly reflecting the entries of the bogus share transactions were either found during search action or otherwise during the post search assessment proceedings. The assessee in this case has relied upon the various judicial decisions including the decision of the Hon'ble Bombay High Court in the case of 'CIT Vs. Murli Agro Products Pvt Ltd', (2014) 49 taxman.com 172 (Bom.), ITA No.36 of 2009 and in the case of 'CIT Vs. Continental Warehousing Corporation' ITA No. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay) and of the Hon'ble Delhi High Court in the case of 'CIT Vs. Kabul Chawla' 234 Taxman 300 (Delhi) and subsequent decision of the Delhi High Court in the case of 'Principal CIT Vs. Meeta Gutgutia Prop M/s Ferns 'N' Petals", ITA 306/2017 and others decid....
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....inted out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission. 39. For all the aforementioned reasons, the Court is of the view that the ITAT was fully justified in concluding that the assumption of jurisdiction under Section 153A of the Act qua the Assessees herein was not justified in law." Further, The Hon'ble A.P. High Court in the case of "Naresh Kumar Agarwal" (2015) 53 taxmann.com 306 (Andhra Pradesh) has observed that where, in the absence of any incriminating material etc. found from the premises of the assessee during the course of search, statement of assessee recorded u....
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....seizure action u/s 132 of the Act, offered a summary discloser of income as undisclosed and the department accepted the summary surrender of income and thereafter advance tax for the said surrendered of income was also deposited, but thereafter it was contended by the assessee that the surrender was made under threat or coercion and that no incriminating material was found during the search action. The stand of the department was that the admission was voluntary and was not under a mistaken belief of fact or law and that the assistance had enough time to go through the facts of their case, law applicable in their case and take advice from their counsels and advisors before filing the letter of surrender of undisclosed/unaccounted income and that the admission by them was final and binding on them; The co-ordinate Jaipur Bench of the Tribunal, after overall appreciation of the fact and evidences before it, observed that the assessee's surrender was not based on any incriminating material and that the discloser being not voluntary and extracted by the department in creating a coercive situation cannot be relied solely to be basis of addition as undisclosed income. The coordinate benc....
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.... which leads to information on what has not been disclosed or is not likely 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," 13. A perusal of the above circular also shows that it is in the notice of the statutory controlling body of the Income Tax Authorities that the revenue officials are used to take confessional statements from the person searched under force, pressure or threat and that is why they have made it mandatory that additions solely on the basis on such statements should not be made and that corroborative evidences should be collected or obtained before making such additions. The circular of the CBDT is binding on the revenue officials. In the facts and circumstanc....
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....ppeals); that both the assessee as well as the department have a right to file an appeal/cross objection before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. 15. The facts of the case in hand are on better footing. In the case in hand, though under consistent pressure, the assessee offered the additional income for taxation in the assessment proceedings but when he was burdened with many more additions, he at the first instance during the appeal before the Ld. CIT(A), challenged the offer of additional income on the basis of statement recorded under section 133A. Even the said ground was also admitted by the Ld. CIT(A) for adjudication though finally decided against the assessee. The full bench of the Hon'ble Bombay High Court in the cases of "Ahmedabad Electricity Company Ltd. vs. CIT" and "Godavari Sugar Mills Ltd....
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....of the Ld. CIT(A) in rejecting the claim of the assessee on this ground was not justified. He has further relied upon the decision of the Hon'ble Gujarat High Court in the case of "Gujarat Gas Ltd. vs. JCIT" (2000) 245 ITR 84. In the said case, the words of the Circular No.549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon'ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers, was not bound by the said circular and should have exercised his powers independently. The Hon'ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' ITA No.3908 of 2010 ....