TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 670
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....ITAT/87/2021 IA NO: GA/2/2021 IA NO. GA/2/2021 IN ITAT/88/2021 IA NO. GA/2/2021 IN ITAT/89/2021 IA NO. GA/2/2021 IN ITAT/101/2021 IA NO. GA/2/2021 IN ITAT/103/2021 IA NO. GA/2/2021 IN ITAT/122/2021 IA NO. GA/2/2021 IN ITAT/128/2021 IA NO. GA/2/2021 IN ITAT/129/2021 IA NO. GA/2/2021 IN ITAT/130/2021 IA NO. GA/2/2021 IN ITAT/136/2021 IA NO. GA/2/2021 IN ITAT/138/2021 IA NO. GA/2/2021 IN ITAT/139/2021 IA NO. GA/2/2021 IN ITAT/150/2021 IA NO. GA/2/2021 IN ITAT/151/2021 Principal Commissioner Of Income Tax-15, Kolkata Versus Dinesh Kumar Bansal (Huf), Smt. Babita Agarwal, Principal Commissioner Of Income Tax Central -1, Kolkata Versus Suraj Sahana, Tapati Sahana, Souvik Sahana, Krishna Kumar Parsuramka, Principal Commissioner Of Income Tax-12, Kolkata Versus Mukta Agarwal, Principal Commissioner Of Income Tax-5, Kolkata Versus Jemish Shah, Sonal Saraf, Ramakant Beriwala, Mukesh Saraogi (Huf), Sunita Goyal, Pooja Jhunjhunwala, Aayush Jhunjhunwala, Aayush Jhunjhunwala Huf, Smt. Shilpa Daulat, Suman Kumar, Sajjadbhai Nuruddin Nandarbarwal, Shri Mahendra Kumar Periwal, Ranjika Gupta, Principal Commissioner Of Income Tax-9, Kolkata Versus Gopal Prasad Tikmani, M/S Gitesh Tikmani Huf, M/S. G....
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....15 in ITA NO.2623/Kol/2018. In certain other cases the Tribunal has followed other earlier orders of Coordinate Bench of the Tribunal which was also decided broadly on the same lines of Swati Bajaj. The revenue has preferred appeals against the common order passed by the Tribunal and the grounds raised are all identical and as against the lead case, the revenue has preferred ITAT No. 06 of 2022 .Thus, in absence of any separate findings rendered by the Tribunal in respect of each of the assessee's case, which is not disputed by the Learned Advocates appearing for the assessees, by consent of the Learned Advocates on either side ITAT No. 06 of 2022 is taken as the lead case where the assessee is Mrs. Swati Bajaj. Therefore, we propose to note the facts in the lead case and then proceed to discuss the issues canvassed before us and take a common decision in all the appeals. 2. The revenue in ITAT No. 6/2022 has raised the following substantial questions of law for consideration:- (i) Whether on the facts and circumstances of the case and in law the Learned Income Tax Appellate Tribunal erred in ignoring the direct and circumstantial evidence brought on record by the Assessing Offi....
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....officer after scrutiny of the documents produced, directed the assessee to submit the details of shares purchased and sold during the year under consideration and immediate three preceding years in respect of STT paid in LTCG/STCG and was directed to explain with evidence that the transactions were genuine as the assessee had earned LTCG. On verification of the computation of income the assessing officer noted that the assessee had shown long term capital gain of Rs. 28,23,500/- and claimed the same as exempt. The assessee was directed to file complete details as well as the evidence with respect to such claim of exempt income. The assessee filed copy of contract notes in support of purchase and sale of shares of Surabhi Chemicals on which the long-term capital gains was claimed. From the details furnished by the assessee, it was seen that the assessee had purchased 50,000 shares of the company for Rs. 1,00,000/- on 16.03.2012 and 14.08.2012. Soon after the expiry of the period to become eligible for long term capital gains, the assessee sold those shares for Rs. 29,23,500/- and such sales were effected during the period from 04.12.2013 to 07.12.2013 and the long term capital gains....
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.... share broking entities who have accepted that they were actively involved in bogus LTCL/STCL scam. Surveys were also conducted in the office premises of many accommodation entry providers and their statements were recorded in which they have admitted their role in the scam. The beneficiaries of more than Rs. 38,000 crores have been identified and segregated, totally 60,000 Pan Nos. of the beneficiaries have been identified which is in the process of being reported to the assessment wings through the DGITs. Further the report states that in numbers more than 5000 paper/shell companies are involved in providing bogus accommodation of various kinds. Statements from most of the Directors of the Companies have been recorded and were appended to the Report. The report also states that the massive cash trail of Rs. 1,570 crores has been traced from the point it is being deposited to an undisclosed proprietorship bank accounts to the accounts of share brokers. This led to recording statements from the share brokers who have accepted that the said cash has been used for providing accommodation entries of bogus LTCG. The report further states that it is not full and final as they intend to ....
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....nd anyone's imagination. 5. In the background of all these investigations, the case of the assessee was discussed by the assessing officer pursuant to the show cause notice dated 29.11.2016. The assessee sent reply through her advocate stating that she fails to understand the nature of investigation carried out by DIT against Surabhi Chemicals and the nature of specific information which is received so as to contemplate a genuine transaction as a sham transaction. The assessee further stated that there is no mention of any specific information against or the company and the letter is general in nature. Therefore, the assessee requested to give specific details of manipulations or connivance carried out by either of the concerned persons directly related to the equity shares of the company in which the assessee had traded. Thus, the assessee's case was, based on suspicion the transaction cannot be termed as in-genuine. The assessee further stated LTCG arising from transfer of penny stocks cannot be treated as bogus merely because SEBI has initiated an enquiry with regard to the company as well as the brokers as the shares have been purchased by her from the stock exchange and payme....
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.... through account payee cheque. The assessee to show that she is a regular trader and investor in equity share for several years, produced the details of the investment made by her. Further, it was stated that the 500 equity shares were transferred in the name of the assessee on 18.07.2012 and were sent for D-Mat on 14.12.2012 and dematerialised on 29.12.2012. The assessee is stated to have allotted bonus share from the company on 14.08.2012 in the ratio of 9 shares for every 1 share held and since she had purchased 500 equity shares she received 4500 further equity shares as bonus which were also transferred to D-Mat account. Further it was stated that the equity shares of the company were sub-divided i.e for every one share having nominal value of Rs. 10, the equity holders got 10 shares of Rs. 1 and the assessee got 45,000 equity shares thus, totally holding 50,000 equity shares in the said company. The assessee placed reliance on the various decisions of the tribunal as well as the High Courts for the proposition that when purchase of shares was found to be genuine and were sold through proper banking channel no adverse inference can be drawn against the assessee and the additi....
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....tter has to be considered by applying the test of human probability. 7. For the same proposition, the Assessing Officer also referred to the decision of the Hon'ble Supreme Court in Sumati Dayal Versus CIT (1995) 214 ITR 801 (SC). Taking note of the said legal principle, the Assessing Officer points out that considering the surrounding circumstances and applying the test of human probabilities coupled with the report of the Directorate of Investigation which was discussed in the assessment order, it was held that the assessee had been a party to a pre-designed mode of transaction and invested in the shares of M/s. Surabhi Chemicals to convert unaccounted cash under the guise of LTCG amounting to Rs. 28,23,500/- and therefore, the said amount is considered as income from undisclosed sources denying the claim of exemption as LTCG. Further, the assessing Officer stated that the share brokers/ entry operators charged Rs. 10/- to Rs. 540/- per Rs. 100/- of cheque amount and calculated the unexplained expenditure trade commission charged by the operators and worked out the sum of Rs. 14,118/- and the total addition was computed at Rs. 28,37,618/-. The assessee was informed that penalty ....
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.... Court of Delhi in Sajan Dass & Sons Versus CIT 264 ITR 435 (Del.), wherein it was held that a mere identification of the donor and showing the memo of the gift amount through bank channel was not sufficient to prove the genuineness of the gift and the claim of gift having been made by the assessee the onus is placed on the assessee to establish the identity of the persons making the gift and also his capacity to make a gift and that it has actually be received as gift from the donor. The CIT(A) referred to a decision of the Bombay Bench of the ITAT in the case of M/s. Mont Blane Properties and Industries Pvt. Ltd., ITA No. 614/Bom/87 A.Y. 1983-84 wherein the Tribunal held that the word "evidence" as used under Section 143(3) covered circumstantial evidence also and cannot be confined to direct evidence and in tax jurisprudence the word "evidence" had much wider connotations. Further, the use of the word "material" in Section 143(3) showed that the Assessing Officer not being a Court could rely upon material which might not strictly be evidence admissible under the Indian Evidence Act, for the purpose of making an order of assessment. Further, the CIT(A) held that the payment throu....
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....l Ltd. (2001) 250 ITR 539 and the decision of the High Court of Bombay in CIT Versus Shri Mukesh Ratilal Marolia ITA No. 456 of 2007 Bombay High Court. Ultimately, the learned Tribunal concludes by stating that it adopts the reasoning given by the Coordinate Bench of the Tribunal and allows the appeal in the lead case namely, that of the assessee Mrs. Swati Bajaj. With regard to remaining 89 appeals the learned Tribunal states that the same order will apply to the remaining 89 appeals in the absence of any distinction pointed out by the revenue. Aggrieved by such order, the revenue has preferred this appeal before this Court. 11. Mr. Aryak Dutta, learned Senior Standing Counsel appearing for the revenue in the lead case submitted that the learned Tribunal ignored the direct and circumstantial evidence brought on record by the Assessing Officer to establish that the share price of Surabhi Chemicals have been manipulated leading to fictitious LTCG of Rs. 28,23,500/- which the assessee has claimed to be exempt from taxation. It is submitted that the order passed by the learned Tribunal suffers from perversity as it ignored the facts brought on record establishing manipulation of shar....
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....ine. Reliance was placed on the decision in CIT Versus N.R. Portfolio Pvt. Ltd. (2012) SCC Online (Del.) 6466 which decision was approved by the Hon'ble Supreme Court as reported in (2019) 15 SCC 529. This decision is pressed into service to explain as to the manner and mode of conducting assessment proceedings, the application of the principle of preponderance of probabilities as to how the entire material would be germane for completing the assessment and that certificate of incorporation of a company, payment by banking channels etc. cannot in all cases tantamount to satisfactory discharge of the onus on the assessee to prove the genuineness of the transaction. To explain as to how the expression "when the assessee offers no explanation" occurring in Section 68 has to be interpreted, reliance was placed on the decision in CIT Versus P. Mohanakala 2007 6 SCC 21 With regard to the burden of proof/ onus of proof reliance was placed and decision of the Hon'ble Supreme Court in Roshan Di Hatti Versus CIT 1977 2 SCC 378. For the same proposition reliance was placed on the decision of the Hon'ble Supreme Court in Kale Khan Mohammad Hanif Versus Commissioner of Income Tax 1963 50 ITR 1 ....
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....nies like Surabhi Chemicals have been found to be penny stock companies and their names find place in the investigation report. Specific reference was made to the pictorial representation to explain the nature of transaction as to be "bell" shaped and how the share prices steeply fall after the expiry of the eligibility period for claiming LTCG. Therefore, it is submitted that the profit earned is clearly due to manipulation done in the stock market and the onus is on the assessees to prove the transactions to be genuine which has not been discharged by them and the Tribunal erroneously reversed the order passed by the Assessing Officer as confirmed by the CIT(A). Reliance was placed on the decision in Sanjay Kaul Versus Principal Commissioner of Income Tax, Delhi-8 MANU/DE/1506/2020 wherein an identical test was considered, a view taken by the Assessing Officer while referring to the surrounding circumstances, the human conduct and preponderance probabilities and lack of financial logic coupled with the modus operandi was approved by the Court by dismissing the appeal filed by the assessee. In the said decision, the decision of the Hon'ble Supreme Court in Suman Poddar Versus ITO ....
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.... the report of the special investigating team which has been extensively referred by the Assessing Officer. Further, the Assessing Officer has listed out the companies in which the stock brokers have made manipulative and deceptive dealings and Kailash Auto Finance Limited is one such company. The Assessing Officer has also elaborately discussed the various decisions and ultimately, completed the assessment and denied the claim for LTCG. The said order was affirmed by the CIT(A). However, the Tribunal by a common order in 9 appeals, allowed the appeals following the decision in Mahavir Jhanwar, the correctness of which decision has been canvassed in the other appeals before this Court. It is further submitted that none of the findings recorded by the Assessing Officer or the CIT(A) had been controverted by the learned Tribunal. In support of this contention, the learned Standing Counsel referred to the decision of the High Court of Delhi in CIT Versus Nipun Buliders & Developers Pvt. Ltd. ITA NO. 120 of 2012 dated 07.01.2013. This decision was pressed into service to explain the concept of burden of proof and upon whom the burden lay qua Section 68 of the Act. In the cases on hand,....
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....fers from material irregularities without independent reasons and the Tribunal has glossed over the relevant facts and therefore, the order of the Tribunal suffers from perversity. In support of such contention, reliance was placed on the decision of the High Court at Madras in PCIT Versus Rakesh Sarin TCA NO. 1060 of 2019. 15. Mr. Om Narayan Rai, Learned Senior Standing Counsel appearing for the other appellant submitted that the case of the assessee from the inception is that the revenue has acted on generalized report of the investigation done by the department and there is nothing specific relatable to the assessee. Secondly, it was contended that copy of such investigation report was not furnished to the assessee. Learned Counsel submitted that circumstantial evidence can be the sole basis for taking the decision in the matter. In this regard, reliance was placed on the decision of the Hon'ble Supreme Court in SEBI Versus Kishore R. Ajmera (2016) 6 SCC 368 wherein the Court has pointed out as to the important aspect with regard to the proximity of time between the buy and sell orders, prior meeting of minds, unnatural rise in the prices of the scripts and how the conclusion c....
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....ty to see, comment and criticize the evidence, statement or record on which the charge is being made against him, the demands and the test of natural justice are satisfied and cross examination in that sense is not a technical cross examination in a Court of Law. For the same proposition reliance was placed on the decision of the Hon'ble Supreme Court in State of J&K Versus Bakshi Ghulam Mohammad & Another AIR 1967 SC 122 wherein it was held that a right of hearing cannot include a right of cross examination and the right must depend on the circumstance of each case and must also depend on the statute under which the allegations are being enquired into. Thus, by referring to the above decisions, it is submitted when the statements recorded during the investigation were not against the assessee, they are not entitled to claim any right of cross examination. The next submission of Mr. Rai is on the powers of the Appellate Tribunal under Section 254 of the Act. It is submitted that the nature of the powers were interpreted by the Hon'ble Supreme Court in Hukum Chand Mills Limited Versus CIT AIR 1967 (SC) 455 wherein the Court held that the tribunal had jurisdiction to frame the questi....
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....inted out that a company with poor financial fundamentals in terms of past income or turn-over is able to raise huge capital allotment of preferential allotment of shares is made to various entities, there is sharp rise in price of script once the preferential allotment is done and this is clearly achieved through circular trading of shares among a selected group of companies. These scripts of the companies often have own promoters/brokers. The scripts with thus artificially inflated price are offloaded through companies whose funding is proved by the same set of people who want to convert black-money into white. Therefore, it was stated that there is an urgent need for an effective, preventive and punitive action in such matters to prevent recurrence of such instances. Several recommendations were made by the SIT after noting the relevant facts. It is submitted that in terms of Section 114 of the Evidence Act, the Court may presume existence of certain facts and if read along with Section 4 of the Evidence Act which explains the words "may presume", and the facts of the cases on hand being examined will clearly show the circumstances under which the Assessing Officers have acted a....
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....Commissioner and one of the circumstances which would justify invoking such a power is where the Assessing Officer has failed to conduct any enquiry. The CIT has clearly brought out in his order that no enquiry was conducted by the Assessing officer and mechanically the return filed by the assessee was accepted. Reliance was placed on the order passed by the Hon'ble Supreme Court in Deniel Merchants Pvt. Ltd. Versus ITO in Special Leave Appeal No. 23976 of 2017 dated 29.11.2017 wherein the Hon'ble Supreme Court dismissed a batch of appeals arising out of orders passed by the CIT under Section 263 of the Act. The Hon'ble Supreme Court held that the CIT has observed that the Assessing Officer did not make any proper enquiry while making the assessment and accepting the explanation of the assessee insofar as receipt of share application money is concerned and on that basis the CIT had, after setting aside the order of the Assessing Officer, directed the Assessing Officer to carry a thorough and detailed enquiry and this order which had been upheld by the High Court was not interfered. With the above submissions, the learned Standing Counsel adopted the argument made by the other Stand....
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....hich states that stocks market prices are essentially unpredictable and research on whether technical analysis offer any benefit has produced mixed result. The learned advocate also referred to a list of top investors in India and submitted that all of them hail from a particular state in the country whose business acumen and the courage to take risk has been well recognized. To explain the concept of fluctuation in the market price, the learned advocate referred to a tabular column culled out from a magazine, "Capital Market" issue of April-May, 2022. It is submitted that the percentage of fluctuation is calculated with the formula, viz, price divided by earnings per share and referring to the figures therein, by way of illustration, it is explained that the percentage of fluctuations between 200 to 600 is realistic. 20. It is submitted that the four basic principles of law as has been consistently adopted by courts are: (i) The person who alleges should prove, (ii) All adverse material is required to be supplied to the person against whom the allegations is made, (iii) No findings can be recorded on surmises and conjectures, (iv) Adverse action can be initiated only b....
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....d to show as to how the SEBI had banned off-market transaction of shares done by brokers through power of attorneys and other than that there is nothing wrong to enter into off-market transaction. To explain the concept of divergence, reference was made to an article published in Investopedia. Similarly, an article published on "Delan" was referred to and it is submitted that stocks that display a usually are blue chip stocks and once that for lower volatility and more predictable behavioural patterns. Investors used in normal probability distribution of stocks past returns to make assumptions regarding expected future returns. 21. Mr. Agarwal next referred to compilation of decisions and firstly took us through the decision in Sumati Dayal and referred to the facts as mentioned in paragraphs 8 and 12 of the judgment and submitted that the facts in the said case was entirely different and could not have been applied to the assessees case. Nextly, the learned counsel sought to distinguish the decision in Durga Prasad More and submitted that in the said decision the Hon'ble Supreme Court held that the case of the assessee was based on self-serving documents which is not the case of ....
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....sus Lakshmangarh Estate and Trading Company in ITA No. 270 of 1999 dated 07.10.2013 for the proposition that suspicion can never be taken as proof. Reliance was placed on the decision of the Division Bench of this Court in PCIT Versus Rungta Properties Private Limited ITAT No. 105 of 2016 dated 08.05.2017 wherein the Court affirmed the view taken by the First Appellate Authority holding that the assessing officer has not doubted the genuineness of the documents placed on record by the assessee therein as in the case of the assessee before this Court. Reference was made to the decision of the High Court of Bombay in ITA No. 456 of 2007 in CIT Versus Mukesh Ratilal Morolia dated 07.09.2011 wherein the Court refused to interfere with the decision of the Tribunal holding that the purchase and sale of shares are genuine. The appeal filed by the revenue before the Hon'ble Supreme Court in Special Leave to Appeal (Civil Appeal No. 20146 of 2012) was dismissed by the order dated 27.01.2014. For similar proposition as to how the assessee has discharged the burden of proof, reliance was placed on the decision of the High Court of Punjab and Haryana in ITA No. 18 of 2017 in PCIT Versus Hitesh....
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....ce alleged that the dealing of penny stocks by the assessee was nothing but manipulation to book manufactured loss in connivance with entry operators through stock brokers, though the three companies were alleged to be such penny stocks after reply was submitted by the assessee the assessing officer reconciled to the fact that one of the three companies cannot be branded as a penny stock. Further it is submitted that the assessee had held the stocks for more than 6 months. Further by referring to the paragraph 3.5 of the assessment order, it is submitted that the statements has been relied upon but the copy of the statement was not given to the assessee in spite of specific request that apart in the statement there is nothing alleged against the assessee, despite which, the addition was made. It is submitted that the assessee in the return of income had also mentioned about the short term capital gains on account of receipt of compensation received from the Government of Haryana for the land acquired from the assessee and this portion of the return has not been doubted. Further it is submitted that specific request was made by the assessee not only before the assessing officer but ....
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....e Supreme Court in Sahara India Versus CIT (2008) 14 SCC 151 and Kothari Filaments Versus CC (2009) 2 SCC 192. It is further submitted that in spite of specific request made by the assessee to provide the persons from whom statements were recorded for cross examination, they have not been produced and this clearly amounts to violation of principles of natural justice. To support such argument reliance was placed on the decision in Andaman Timber Industries Versus CCE (2015) 324 ELT 641 (SC), Kishinchand Chellaram Versus CIT (1980) Supplementary SCC 660, Arya Abhushan Bandhar Versus Union of India (2002) (143) ELT 25 (SC) and the judgment of this Court in CIT (E), Kolkata Versus Mayapur Dham Pilgrim and Visitors Trust in ITAT NO. 312 of 2017 dated 16.02.2022. 24. To explain the concept of commercial expediency as to how the assessing officer cannot sit in the chair of the assessee, reliance was placed on the decision of the Hon'ble Supreme Court in S.A. Builders Versus CIT (Appeals) (2007) 1 SCC 781. Reliance was also placed on the decision of the High Court of Delhi in Jain Manufacturing (India) Private Limited Versus The Commissioner (2016) 93 VST 326 wherein the Court set aside ....
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.... by the assessee was allowed and the same would not call for any inference. Mr. Bagaria submitted that he has also been instructed to appear in ITAT No. 168 of 2021 wherein the assessee had invested in the shares of M/s. Esteemed Bio Organics though the trading activities of the said company was initially suspended subsequently SEBI had lifted the ban and exonerated the said company. With the above submission the learned advocate prayed for affirming order passed by the tribunal and dismissing the appeal filed by the revenue. 26. Mr. S.M. Surana, Learned Senior advocate appearing for the appellants in ITAT No. 156 of 2021, 157 of 2021 submitted that there is a small distinction in the case of the assessees than the other cases which were argued before this Court as the orders impugned in these appeals, passed by the Learned Tribunal arise out of an order passed by the Commissioner of Income Tax under Section 263 of the Act. Therefore, it is submitted that in the course of his argument he would seek to sustain the order of the tribunal not only on the grounds which were canvassed by the other learned advocates for the assessees but more importantly on the ground that the Commission....
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....on 133(6) of the Act, the assessment was completed and the assessment could not have been set aside by the Commissioner by invoking his powers under Section 263 of the Act. It is submitted that the learned Commissioner had pre-decided the issue even at the stage of issuance of the show cause notice under Section 263 of the Act. In the order dated 10.12.2018 passed under Section 263, the learned Commissioner would state that the assessees return of income was selected for scrutiny on the ground of suspicious LTCG based on inputs from investigation done. Further it was stated that an error was detected in the assessment order and proposal was received by the Commissioner for review of the assessment order under Section 263 of the Act. Further the Commissioner would state that prima facie it appears the assessing officer had failed to take a logical action on the information available with him and accordingly the assessment order is erroneous in so far as it was prejudicial to interest of revenue. It is submitted that this was the basis on which the show cause notice date 06.11.2018 was issued and in the said show cause notice reference was made to an investigation done by the Directo....
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....ccordingly directed the assessing officer to re-assess the income of the assessee for the relevant assessment years. 27. It is submitted that the assumption of jurisdiction by the Commissioner under Section 263 of the Act is unsustainable and the order is in violation of the principles of natural justice as even at the stage of issuance of show cause notice the Commissioner had pre-decided the issue. Furthermore, the allegation against the assessing officer is that he failed to take a logical action which cannot be a ground to invoke Section 263 of the Act. Furthermore, the copy of the report which has been referred to, was not furnished to the assessee. That apart the "report" is not a report and it has been submitted by an authority who is lowest in the hierarchy of authorities in the Income Tax Investigation department. It is submitted that in the Income Tax department more particularly in the investigation wing, the top most authority is the CBDT through its Member Investigation, followed by the Principal Director General of Income Tax (Investigation), Director General of Income Tax (Investigation), Director of Income Tax (Investigation), Additional Director of Income Tax, (In....
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...., ZEE Bis.com had given a buy call widely published in the media and therefore to state that the transaction was bogus is unsustainable, more so when the assessees stock broker is a public sector undertaking. Further it is submitted that merely because there is escalation of the price of the shares, it cannot be stated that the transaction is bogus. In this regard, the various facts and figures were referred to for the purpose of showing the market trend. Nextly, the learned senior counsel referred to the various provisions of the Securities Contract (Regulation) Act 1956, (SCR). More particularly Section 2(a) which defines contract, 2(ac) which defines derivatives to include securities, Section 2(h) which defines securities to include shares, scripts, stocks, bonds etc. Section 2(j) which defines stock exchange. It is submitted that the contract entered into in terms of the provisions of the Securities Contract Act cannot be treated to be bogus. A stock exchange has to be recognized by the Central Government in terms of Section 9 of the said Act and in terms of Sub-Section (2) of Section 9, any recognized stock exchange with the previous approval of SEBI may make by-laws for the r....
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....l/2011 dated 31.05.2012 which order was affirmed by this Court in CIT Versus Rajrani Export Private Limited 361 ITR 162. It is further submitted that the entire disallowance as made by the Commissioner is based on third party information said to have been gathered by the alleged investigation and the same could not have been relied upon without independent verification either by the assessing officer/CIT. To support such contention reliance was placed on the decision of the Hon'ble Supreme Court in Commissioner of Income Tax Versus Odeon Builders Private Limited (2019) 418 ITR 315 (SC). 28. The next argument of the learned senior counsel is that on the grounds mentioned by the Commissioner in the show cause notice, power under Section 263 could not have been exercised and such power could have been exercised only when the assessing officer failed to conduct an enquiry which is not the case of the assessee before this Court. With regard to under what circumstances the power under Section 263 could be invoked and the parameters to be fulfilled, reliance was placed on the decision in Commissioner of Income Tax Versus JN Morison India 366 ITR which was referred to by the learned tribu....
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.... a duty cast upon the CIT(A) to conduct an enquiry which he failed to do. Further, the Commissioner while exercising the power under Section 263 of the Act has to come to a firm decision that the order of the Assessing Officer was erroneous and was prejudicial to the interest of revenue and on a reading of the order passed by the Commissioner, it is clear that no firm decision has been arrived at by the Commissioner more particularly from the language adopted in the said order. To support such contention, reliance was placed on the decision in the case of Commissioner of Income Tax vs. Kanda Rice Mills 1989 178 ITR 446 (P&H). For the same proposition reliance was placed on the decision in Uma Charan Shaw & Bros. Versus CIT 37 ITR 271 SC . Further, the learned Senior Counsel reiterated that suspicion can never take the place of proof. To support such argument, reliance was placed on the decision of CIT, Central-II, Calcutta Versus 67 Lakshmangarh Estate & Trading Co. Ltd. ITA No. 270 of 1999 dated 7th October, 2017. Reliance was placed on the decision in CIT Versus Smt. Jamna Devi Agarwala 328 ITR 656 (Bom), wherein the Court had distinguished the decision in Sumati Dayal. In suppo....
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....amework as published by SEBI to explain as to how the share market functions. With the above submissions, the learned Senior Counsel prayed for sustaining the order passed by the Tribunal. 30. Mr. Pratyush Jhunjhunwala, learned Advocate appearing for the assessee in ITA No. 139 of 2021 submitted that the Assessing Officer in his order states that there is direct evidence, if so, such evidence ought to have been furnished to the assessee. Further the assessee had given a detailed explanation on 15.11.2017 which has been completely ignored by the Assessing Officer. The contention raised by the assessee before the Assessing Officer was reiterated before the CIT(A), which has been noted in paragraph 4.2 of his order. That apart in paragraph 4.3, the CIT(A) notes that documents were produced by the assessee. However, in paragraph 4.24 the CIT(A) erroneously came to a conclusion that there was no documentary evidence. That apart, the assessee had invested in the purchase of shares of M/s. Jackson Investment Ltd. during October, 2012 and the shares were sold only in the assessment year 2015-16 and not immediately after the expiry of one year. It is pointed out that similar investment mad....
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....ent contained in it by seeking opportunities to cross-examine such persons from whom statement was recorded. Therefore, it is submitted that considering the fact that the assessee has proved the genuinity of the transaction, the Tribunal rightly allowed the assessee's appeal and prayed for sustaining the order. 31. Mr. Arif Ali, the learned Advocate appearing for the assessee Gupta Agarwal respondent in ITAT 44 of 2020 submitted that the grounds raised by the revenue in the memorandum of appeal does not relate to the assessee's case as the assessee's case is not one of LTCG, the assessee did not trade in the shares of M/s. Blue Print but had purchased shares of Sulav Engineering and the facts are entirely wrong. Further, the assessee had purchased the shares through online mode and not through offline mode and availed the services of a reputed broker, the assessee is a regular trader and the assessee had effected the transaction through disclosed source and to the said effect, materials were produced. However, the assessing officer erroneously brushed aside all these by holding that human conduct raises a presumption of bogus claim. Therefore, it is submitted that considering thes....
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....sessing officer was justified in making the addition. It is further submitted that Mr. Bagaria had argued that the law laid down in K.R. Ajmera is no longer good law which submission is incorrect and to demonstrate the same Paragraph 47 of the decision in Balram Garg was referred to and submitted that the law laid down in K.R. Ajmera is good law and has not been overruled. 34. Furthermore, in a later decision in Chintalapati S. Raju, the decision in R. Ajmera was referred to and therefore the decision in R. Ajmera has not been overruled. Hence the test laid down in R. Ajmera more particularly in paragraph 26 has to be fulfilled. Referring to paragraph 13.2 of Chintalapati S. Raju, it is submitted that in the said case the onus was on SEBI whereas under Section 68, the onus is on the assessee and the requirements under the SEBI Act were totally different from that of the requirements to be complied with under the Income Tax Act. It is reiterated that the credit worthiness of the company has not been proved and therefore one of the crucial tests has not been fulfilled and the assessing officer was justified in making the addition. In support of such contention, reliance was placed o....
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.... 89 appeals as well. The second category of cases are those where the assessee challenged the assumption of jurisdiction by the Commissioner of Income Tax under Section 263 of the Act. Even in those cases there are certain findings rendered by the tribunal which are more or less identical to the batch of 90 appeals which were allowed by the tribunal. With regard to the correctness of assumption of jurisdiction under Section 263 of the Act, we shall deal with them separately in the course of this judgment. Reverting back to the case of the assessee Smt. Swati Bajaj, it is seen that she had filed her return of income declaring a total income of Rs. 6,57,300/-. The return was selected for scrutiny, notices under Section 143(2) and 142(1) of the Act were issued, served on the assessee pursuant to which she was represented by her authorized representatives and produced the documents in compliance with the notice issued under Section 142(1) of the Act. The assessing officer states that during the course of assessment proceedings, the assessee Smt. Swati Bajaj was asked to produce the details of shares purchased and sold during the assessment year under consideration and immediate three p....
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....s and also the profit before tax and the tax paid by the company in the year of sale of the shares by the assessee. Further the Surabhi Chemicals has sufficient business and financial assets and therefore the allegations made against the company are unfounded and misleading. Further the assessee stated that she is a regular investor in equity shares and mutual funds in companies listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and she has been earning capital gains and they have been accordingly taxed as per the provisions of the Act. Further the investment made by the assessee is based upon feedback/tips of the peers of the investment industry and also based on research reports published in business newspapers/journals/analyst report. Further the assessee stated that in that process she had made investment in the equity share of Surabhi Chemicals quoted on the BSE. Further it was mentioned that the assessee fails to understand as to on what basis they had classified the shares of Surabhi Chemicals as a penny stock though the assessee received bonus from the said company, dividend from the said company and the prominent share analyst and research company ....
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....er proceeded to take note of the letter of a Directorate of Investigation dated 03.07.2015. After elaborately referring to the said letter wherein it was reported that prices of shares of some penny stocks were artificially rigged to benefit some assessees through bogus claim of LTCG, the assessing officer notes that the prices of the shares of Surabhi Chemicals were also rigged for providing bogus LTCG and all the features of the companies which were used for providing bogus LTCG are clearly matching with the trend of the shares of M/s. Surabhi Chemicals and the trade pattern of the shares follow a "bell shape". The company Surabhi Chemicals had hardly any business activity, splitting of shares had taken place and after splitting of shares the prices of the shares on the exchange goes down automatically in proportion with the ratio of split and one does not seem anything adverse happening in the scrip. This according to the assessing officer was adopted by the company to avoid any hype on such rise in the prices of the shares. Further the shares of Surabhi Chemicals were very thinly traded and gradually jacked to a desired level in a period of one year so as to provide desired amo....
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....documents produced by the assessee are self-serving. Further CIT (A) holds that merely because a transaction was done through banking channel itself cannot validate the same and the burden of proof is on the assessee to prove genuinely of the claim. After referring to the decisions of the Hon'ble Supreme Court in Mohanakala, Durga Prasad More, Sumati Dayal and the decision of the Delhi High Court in Sajan Dass, CIT (A) holds that the documents relied on by the assessee should pass the test of normal behaviour of the assessee in the course of business, namely human conduct, preponderance of probability and surrounding circumstances and if they do not then the addition is justified. The CIT (A) referred to the decision in N.R. Portfolio to explain the role of the assessing officer, he being both an investigator and adjudicator. Further the CIT(A) holds that in Section 143 (3) the word used is "evidence" which will include circumstantial evidence also and in tax jurisprudence the word evidence has much wider connotation and further the word "material" used in Section 143(3) of the Act, showed that the assessing officer not being a court could rely upon material which might not be stri....
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....sideration to rival contentions. Learned departmental representative vehemently supports both the lower authorities' identical action holding the assesses STCL as bogus since derived from rigging of the scrip prices in issue and involving accommodation entry in collusion with the concerned entry operators. Hon'ble apex court's decision in Sumati Dayal vs. CIT (1995) 80 Taxmann.89/214 ITR 801 (SC) and CIT Versus Durga Prasad More (1971) 82 ITR 540 (SC) are quoted before me during the course of hearing at the Revenue's behest. It strongly argues that the department has disallowed/added the impugned STCL based on circumstantial evidence unearthed after a serious of search actions/investigations undertaken by the DDIT (Inv). I find no merit in Revenue's instant arguments. The fact remains that the assessee has duly placed on record the relevant contract notes, share certificate(s), detailed corroborative documentary evidence indicating purchase/sale of shares through registered brokers by banking channel, demat statements etc. The Revenue's only case as per its pleadings and both the lower authorities unanimously conclusion that there is very strong circumstantial evidence against the ....
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....en elaborately dealt with by the CIT (A) which was completely ignored by the learned Tribunal and the learned tribunal held that the assessee had placed on record contract notes, share certificates, shown to have traded through registered brokers, payment effected through banking channels and D-Mat statements and that the revenue's only the case is that there is a very strong circumstantial evidence against the assessee and there is not a single case which could pin-point against the assessee and therefore was of the view that the decision in Mahavir Jhanwar could be applied to the assessees case as well. We note that in the decision in Mahavir Jhanwar four decisions of the High Court have been referred to, two of which are of this Court namely Carbo Industrial Holdings Limited and Emarald Commercial Limited, the other two decisions are of the Bombay High Court in Shri Mukesh Ratilal Marolia and that of the Punjab and Haryana High Court in Prempal Garg. Thus, the predominant issue which falls for consideration is to ascertain whether the claim of LTCG would be considered as genuine. The assessee pleads absolute innocence, a regular trader in shares and stocks, payments effected and....
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....nesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Investigation Unit -II and III, Kolkata. Before we examine the report, we shall deal with the objection raised by Mr. Surana, learned senior advocate as regards the effect of such report, whether at all it is a "report" and can the assessing officer or the CIT (A) can proceed on the basis of such "report". The above submission is sought to be buttressed by placing reliance on the decision in Sesa Sterlite and Odeon Builders. 44. In Sesa Sterilite, all the assessees were traders and exporters of iron ore and some of them were also miners and processors of the ore. Allegations of large-scale illegal mining and trading necessitated the Government of India to appoint a Commission of Inquiry under Section 3 of the Commission of Inquiry Act, 1952. The Commission so appointed by the Union of India submitted three reports wherein finding was rendered with regard to the violation of various statutes and other infirmities and that there were illegal exports particularly by means of....
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....the report of the Commission of Inquiry. 46. Mr. Surana, learned senior counsel relied on the decision of the Allahabad High Court in Smt. Kavita Gupta and submitted that the report of the Deputy Director of Income Tax, Investigation (DDIT) cannot be the basis of the assessment more so when the report was not furnished to the assessee, there is no finding as against the asessee in the report which was produced for the first time before this Court during the course of the arguments of these appeals. It is submitted in Smt. Kavita Gupta, it was held that a mere report of the DDIT suggesting that some of the gifts received by the assessee therein may be non-genuine and that to when not confronted to the assessee was not sufficient to conclude that the gifts obtained by the assessee were not genuine. It was further argued that the report of the DDIT is a third-party information which has not been independently subjected to further verification by the assessing officer who has not provided the copy of the statements to the appellants. Thus, the appellant thereby denying opportunity of cross examination to the assessee therein who had in the said case discharged the initial burden of su....
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....f could not be cast entirely upon the revenue and such onus would shift on the revenue only if the assessee produced some material to show that what she states may be correct. On facts the Court, in the said case, found that the onus had shifted to the revenue as the assessment was completed by the assessing officer after inquiry and in such factual position, the Court held that a mere report of the Deputy Director (Intelligence) suggesting that some of the gifts obtained by the assessee therein were not genuine and such report having been not confronted to the asessee therein was not sufficient to conclude the gifts were not genuine. The said decision is distinguishable for several reasons. Firstly, the Court considered as to whether the assumption of jurisdiction under Section 263 of the Act by the CIT (A) was justified and on facts the Court was satisfied that when the scrutiny assessment was completed under Section 143(3) the assessing officer had conducted a proper inquiry. Therefore, the Court found that there was no cause for invoking power under Section 263 of the Act by merely relying upon the report of the Deputy Director (Investigation) which was not furnished to the ass....
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....se suitable control over the economy and the society would vanish. Large unaccounted for monies are generally an indication of that. These matters before us relate to issues of large sums of unaccounted for monies, allegedly held by certain named individuals, and loose associations of them; consequently we have to express our serious concerns from a constitutional perspective. The amount of unaccounted for monies, as alleged by the Government of India itself is massive. The show-cause notices were issued a substantial length of time ago. The named individuals were very much present in the country. Yet, for unknown, and possible unknowable, though easily surmisable, reasons the investigations into the matter proceeded at a laggardly pace. Even the named individuals had not yet been questioned with any degree of seriousness. These are serious lapses, especially when viewed from the perspective of larger issues of security, both internal and external, of the country. 50. The Hon'ble Supreme Court proceeded to frame two issues the first of which was the appointment of a Special Investigation Team (SIT) and the justification for appointing a Special Investigation Team was made by t....
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....he CBDT had directed conduct of an investigation by the DDIT who is the lowest in the rung of officers in the investigation wing of the Income Tax department. To examine, this we had perused the preamble portion of the report. The report has been prepared by the DDIT and it has been forwarded to the DGIT (Investigation) in all the states in the country as well as the Director General of International Tax, Mumbai. The report prepared by the DDIT is on behalf of the Directorate of Investigation, Kolkata, and this is evident from the report dated 27.04.2015. Therefore, to discredit the report as if to be initiated by the DDIT on his own accord is in an incorrect submission. The learned senior counsel referred to the penultimate paragraph of the report and submitted that the officer who prepared the report himself mentions it to be a "write" up and therefore it is not a "report" in the strict sense. We are unable to agree with the said submission as substance over form has to be looked into and preferred. Therefore, to pick up the words "write up" and to brand the report to be a personal opinion of the DDIT is not tenable. Therefore, on the grounds raised by the learned senior counsel,....
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.... (Investigation-I) Delhi had conducted investigation and the results were circulated. The report mentions 22 entities who are brokers who were covered in the investigation involved in the purchase/sale and price rigging of the penny stocks of the 84 companies. The report states that it is pertinent to note that the list includes some of the big names like Anand Ratithi, Religare and SMC. The report further states that the figure of the total transaction of the brokers is only above Rs. 15,970 crores as against the total trade in the script which is more than Rs. 38,000 crores. The reason being that there are other brokers from other cities including some leading names who have traded in these scripts but they could not be covered in the investigation. Further the report states that the department was able to establish full cash trail starting from cash deposit account to the accounts of the beneficiary for nearly a sum of more than Rs. 1575 crores and the broker wise split up was provided in a tabular form. The report explains the modus operandi in the following terms:- Modus Operandi The whole business of providing entries of bogus LTCG over the years have become much more or....
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....rent approach/methodology was adopted by the department, by commencing the investigation not from the individuals who traded with the penny stocks but investigation has started targeting the individuals who dealt with those penny stocks. This concept can be mentioned to be one of "working backwards". This is one of the modes of causing an investigation, considering its magnitude. The approach of the department cannot therefore be faulted. Therefore, a different approach is required to be taken on the effect and efficacy of the report according to the department is in the nature of a project. The Court sit in judgment over the methodology adopted by the department as no taxpayer is entitled to any benefit which shall not accrue to him under the provisions of the Act. If any dubious methodology has been adopted for the purpose of availing certain benefits not admissible under law, the same will not come within the ambit of tax planning but shall be a case of tax avoidance by adopting illegal methods. Therefore, we are of the view that the department was justified in proceeding to take up the cases, not only within the jurisdiction of the state of West Bengal but other states as well.....
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....domain would vitiate the proceedings on the ground that the assessee was put to prejudice. 56. In State Bank of Patiala and Others Versus S.K. Sharma, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent employee or the order passed by the disciplinary authority except in cases falling under no notice, no opportunity and no hearing categories. Further it was held that if no prejudice is established to have resulted from such violation of procedural provisions no interference is called for, against the ultimate orders. The test laid down was whether the person has received a fair hearing considering all things as the ultimate test is always the test of prejudice or the test of fair hearing as. Further the Hon'ble Supreme Court pointed out a distinction between a case of no opportunity and a case of no adequate opportunity and while examining the latter case, it was held that the violation has to be examined from the stand point of prejudice, in other words the Court or the tribunal has to see whether in the totality of the circumstances, the delinquent offi....
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....ssessees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial number of cases the assessees have not been specifically indicted by those persons from whom statements have been recorded. 59. We are conscious of the fact that there may be exceptions however nothing has been brought before us to show that there was an exception in any of these appeals heard by us. In a few cases the assessee has been made known of the statement of the Director of the penny stock company or the stock broker, entry operator despite which those assessees could not make any headway. While on this issue, we need to consider as to whether and under what circumstances the right of cross examination can be demanded as a vested right. In Kishanlal Agarwalla, the Hon'ble Division Bench of this Court pointed out that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regu....
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....m to study unusual rise of stocks prices of Companies while such a rise is taking place. We understand that SEBI has a strong IT infrastructure which can generate red flag for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume financial background of firms through their annual returns and any other indicators SEBI may develop. We believe that with effective and timely monitoring by SEBI a significant number of such instances can be checked in time. Once such instances are detected, SEBI should invariably share this information with CBDT and FIU. Barring such entities from securities market would not be of strong deterrence in itself. In case it is established, the stock platforms have been misused for taking LTCG benefits, prosecution should invariably be launched and relevant sections of SEBI Act. Section 12A read with section 24 of the Securities Exchange Board of India Act 1992 are predicate offences. Enforcement Directorate should then be informed to take action under Prevention of Money Laundering Act for the predicate offences. 64. From the above it is seen that there is a discussion about the "modus operand....
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.... made both oral and in writing and thereafter the assessments have been completed. Nothing prevented the assessee from mentioning that unless and until the report is furnished and the statements are provided, they would not in a position to take part in the inquiry which is being conducted by the assessing officer in scrutiny assessment under Section 143(3) of the Act. The assessee were conscious of the fact that they have not been named in the report, therefore made a vague and bold statement that the non-furnishing of report would vitiate the proceedings. Therefore, merely by mentioning that statements have not been furnished can in no manner advance the case of the assessee. If the report was available in the public domain as has been downloaded and produced before us by the learned standing counsel for the revenue, nothing prevented the assesses who are ably defended by Chartered Accountants and Advocates to download such reports and examine the same and thereafter put up their defence. Therefore, the based on such general statements of violation of principles of natural justice the assessees have not made out any case. 66. While on this issue, it is important to take note of ....
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....dard of integrity, promptitude and fairness in the conduct of all investment business and shall act with due skill and care and diligence in the conduct of all investment business. The Code also enumerates different shades of duties of stock brokers towards the investor and those duties pertain to high standard of integrity that the stock broker is required to maintain in the conduct of his business. It was further pointed out that it is a fundamental principle of law that prove of an allegation levelled against a person may be in the form of direct substantive evidence or as in many cases such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/ charges made and levelled. It was further held that direct evidence is a more certain basis to come to a conclusion yet in the absence thereof the courts cannot be helpless. It was further pointed out that it is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion theref....
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....ed from various circumstances like that volume of trade effected; the period of persistence in trading in particular scrips; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors. 69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all t....
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....tled by the Hon'ble Supreme Court in Chintalapati S. Raju. Therefore, it would be incorrect to submit that the decision in K.R. Ajmera has been overruled. This position becomes clearer as the decision in K.R. Ajmera was referred to in Chintalapati S. Raju as could be seen in paragraph 30 of the said judgment. Therefore, we hold that the law laid down in K.R. Ajmera continues to be good law. 72. In the light of the above discussion, the only conclusion that can be arrived at is that the opinion can be formed and the decision can be taken by taking note of the surrounding circumstances which had been elaborated upon in K.R. Ajmera. 73. It is very rare and difficult to get direct information or evidence with regard to the prior meeting of minds of the persons involved in the manipulative activities of price rigging and insider trading. We can draw a parallel in cases of adulteration of food stuff, more than often action is initiated under the relevant Act after the adulteration takes place, the users of adulterated products get affected etc. Therefore, a holistic approach is required to be made and the test of preponderance of probabilities have to be applied and while doing so, we ....
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....s not shift to the revenue to prove otherwise. It is incorrect to argue that the assessees have been called upon to prove the negative in fact, it is the assessees duty to establish that the rise of the price of shares within a short period of time was a genuine move that those penny stocks companies had credit worthiness and coupled with genuinity and identity. The assesses cannot be heard to say that their claim has to be examined only based upon the documents produced by them namely bank details, the purchase/sell documents, the details of the D-Mat Account etc. The assesses have lost sight of an important fact that when a claim is made for LTCG or STCL, the onus is on the assessee to prove that credit worthiness of the companies whose shares the assessee has dealt with, the genuineness of the price rise which is undoubtedly alarming that to within a short span of time. The revenue had placed heavy reliance on the decision in McDowell to show that the claim of the assessee is not case of tax planning to be one of the tax avoidance by indulging in dubious methods. Mr. Bagaria had argued the rule in McDowell was considered in Azadi Bachao Andolan and Vodafone International and it ....
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....een privy to the information or modus adopted. In our considered view, what is important is that it is the assessee who has to prove the claim to be genuine in terms of Section 68 of the Act. Therefore, the assessee cannot escape from the burden cast upon him and unfortunately in these cases the burden is heavy as the facts establish that the shares which were traded by the assessees had phenomenal and fanciful rise in price in a short span of time and more importantly after a period of 17 to 22 months, thereafter has been a steep fall which has led to huge claims of STCL. Therefore, unless and until the assessee discharges such burden of proof, the addition made by the assessing officer cannot be faulted. 76. It was argued that unless there are foundational facts, circumstantial evidence cannot be relied on. This argument does not merit acceptance as wealth of information and facts were on record which is the outcome of the investigation on the companies, stock brokers, entry operators etc. Based on those foundational facts the department has adopted the concept of "working backward" leading to the assessees. While at that relevant stage the sounding circumstances, the normal hum....
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....at previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. It was further held that in such a case, the prima facie evidence against the assessee namely, the receipt of money and if he fails to rebut, the said evidence being unrebuted, can be used against him by holding that it was a receipt of an income nature. The Hon'ble Supreme Court proceeds to discuss the facts of the case where the dispute was whether the winnings of the assessee therein were from horse races. Pointing out as to how this matter has to be examined, it was held that the matter has to be considered in the light of human probabilities and by applying the said test it was held that the assessee's claim therein about the amount being her winnings from horse races was not genuine. 79. It was argued on behalf of the assessees that the decision in Durga Prasad More and Sumati Dayal cannot be relied upon by referring to the factual scenario in those cases. The question would be as to whether the interpretation sought to be given by the learned Advocates for the assessees as regards the principle laid down by the Hon'bl....
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....planation offered by the assessee which finding was approved by the Hon'ble Supreme Court as it was based on the material available on record and not on any conjectures and surmises. 81. In Roshan Di Hatti, it was held that the onus of proving the source of money found to have been received by an assessee is on him, if he disputes, it is not liable to tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation and in the absence of such proof the revenue is entitled to treat it as taxable income. Further, it was held that where the nature of and source of a receipt whether it be of money or of the property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. 82. In Kale Khan Mohammad Hanif, one of the questions referred was whether the burden of proof, source of cash credit is on the assessee. It was held that the answer to question must be in the affirmative and that is how it was answered by the High Court therein. It was held that the onus of proving the sour....
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....daliar Versus CIT (1958) 34 ITR 807 (SC) wherein the Hon'ble Supreme Court observed that it is not the duty of the revenue to adduce evidence to show from what source income was derived and why it should be treated as concealed income and the assessee must prove satisfactorily the source and the nature of cash received during the accounting year and it is not necessary for the revenue to locate the exact source. Further, it was observed that the Court was conscious of the doctrine of "source of source" or "origin of origin" and pointed out as follows: "We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctr....
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....ease Private Limited (2012) 342 ITR 169 (Delhi) wherein it was held that in view of the link between the entry providers and incriminating evidence, mere filing of PAN, acknowledgement of IT Returns of the entry providers, bank account statements etc. where not sufficient to discharge the onus under Section 68 of the Act. Further it was held that credit worthiness cannot be proved by mere issue of a cheque or by furnishing a copy of the bank account and circumstances might require that there may be some evidence of positive nature to show that the said subscribers had made a genuine, investment as well as angel investor after due diligence or for personal reasons and the findings or a conclusion must be practicable, pragmatic and might in a given case take into account that the assessee might find it difficult to unequigibly established credit worthiness of the shareholders. After noting the several decisions, it was held that the Court or the Tribunal should be convinced about the identity, credit worthiness and the genuineness of the transactions and the onus to prove the three factoms is on the assessee as the facts are within the assessee's acknowledge. Mere production of incor....
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.... Versus PCIT Nagpur (2018) 89 Taxmann.com 196, in the said case the assessee had purchased shares from the penny stocks companies for a lower amount and within a year, sold such shares at higher amount and the assessee had not tendered cogent evidence to explain as to why the shares in unknown company had jumped to such a higher amount in no time and also failed to provide details of persons, who purchased the said shares and the transaction was held to be an attempt to hedge the undisclosed income as LTCG. In Suman Poddar Versus ITO (2019) 112 Taxmann.com 330 (SC) it was held that the share transactions were bogus because the company whose shares were allegedly purchased was a penny stock and this decision was affirmed by the Hon'ble Supreme Court in (2019) 112 Taxman.com 330. In CIT Versus Oasis Hospitality Private Limited (2011) 333 ITR 119 (Del) it was held that the initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68 and those are: (i) identity of the investors; (ii) their credit worthiness/investments and (iii) genuineness of the transactions and only when these three ingredients are established prima facie, the departmen....
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....(A) in para 4.1 of the impugned order has held that addition has not been made solely on the basis of the statement of those persons/parties. The relevant part of the order of Ld. CIT(A) is reproduced as under: I have considered the submission of the appellant and observation of the AO made in the assessment order on the issue. The appellant has stated that it has not been allowed cross-examination of parties on the basis of whose statement, the addition has been made. On this issue it is observed from the assessment record that the AO has made the addition on the strength of independent analysis of the documents to arrive at the conclusion that the appellant has failed to prove genuineness of the transaction in respect of STCL as discussed above. Statements and other material found in the course of investigation has been used by him as a corroborative material to strengthen his findings. As per the requirements of Section 68 of the Act, the AO has shifted the onus back on the appellant by confronting the adverse findings. Therefore, the appellant has failed to discharge the onus cast upon it u/s. 68 of the Act to explain the transaction. The Investigation Wing has conducted ....
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....e has also transacted. The Assessing Officer thereafter asked the assessee to justify the rationale behind investment in these penny stock companies not having financial worth, however, the assessee failed to justify the same. The Assessing Officer provided as why the investment in the shares transacted by the assessee was not justified in view of the comparison of the other shares available. The Assessing Officer also pointed out the price fluctuation in the shares of the companies over a period, dividend history and other financial parameters to substantiate that there was no term capital loss against receipt of cash money. The Ld. Assessing Officer accordingly concluded that the addition was made on the basis of the material available on record, the surrounding circumstances, the human conduct and preponderance of probabilities. In view of the above facts and circumstances and in law, we find that in instant case addition in dispute is not solely on the basis of the statement of persons and the Assessing Officer has relied on other materials. The statements of the persons who controlled the business of providing accommodation entry have been corroborated with the material, su....
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....nt claims to have sold said shares to obtain Long Term Capital Gains. It is not explained as to why anyone would purchase said shares at such high price. Tribunal goes on to observe in impugned order as follows: With such financials an affairs of business, purchase of share of face value Rs. 10/- at rate of Rs. 491/- by any person and assessee's contention that such transaction is genuine and credible and arguing to accept such contention would only make decision of judicial authorities fallacy. Evidences put forth by Revenue regarding entry operation fairly leads to conclusion that assessee is one of beneficiaries of accommodation entry receipts in form of long term capital gains assessee has failed to prove that share transactions are genuine and http://itatonlin.org could not furnish evidences regarding sale of shares except copies of ITA 841/2019 Page 7 of 10 contract notes, cheques received against overwhelming evidences collected by Revenue regarding operation of entire affairs of assessee. This cannot be case of intelligent investment or simple and straight case of tax planning to gain benefit of long term capital gains earnings @ 491% over period of 5 months is bey....
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....t of Delhi in case of Udit Kalra ITA No. 220/2009 held that company had meagre resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. Ld. AR arguments that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this Case, Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon'ble Supreme Court, our decision is equally applicable to receipts obtained from all three entities. Further, reliance is also placed on orders of various Courts and Tribunals listed below. MK Rajeshwari vs. ITO in ITA No. 17231Bang/2018, order dated 12.10.2018. Abhimanyu Soin vs. Sanjay Bimalchand Jain vs. ITO 89 taxmann.com 196. Dinesh Kumar Khandelwal, HUF vs. ITO in ITA No. 58 & 591 Nag/2015, order dated 24.08.2016. Ratnakar M Pujari vs. ITO in IT no. 995/Mum/2012, order dated 03.08.2016. ITA 841/2019 page 9 of 10....
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....s of the findings recorded by the assessing officer and the CIT(A).The Hon'ble Supreme Court while answering the said issue held as follows:- This question was repeated in its application under s.66(2) but perhaps the High Court thought that questions 2 and 3 or which it directed the Tribunal to state a case would cover the scope and ambit of question 3 on which the revenue had asked for reference. We think that the two questions on which the reference has been made impugn the findings and the validity of the Tribunal's conclusion that Rs. 10,80,000 was not an income from undisclosed sources, but the, product of a genuine sale by the vendor companies. Though this question, in what circumstances will this Court interfere with the finding given by the Tribunal or arrive at different conclusion to that arrived by it. In our view, the High Court and this Court have always the 'jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it....
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....r to the introduction of s. 68 in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the ITO, not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of a relevant previous year. Section 68 was inserted in the I.T. Act 1961 only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions". Section 68 thus only codified the law as it existed before 1.4.1962 and did not introduce any new principle or rule. Therefore the ratio laid down in the three Supreme Court Judgments is equally applicable to the interpretation of Section 68 of the 1961 Act. We may also state that the learned counsel for the assessee vaguely referred to some decision taking the view that it was necessary for the AO, before making the addition under Section 68, to prove that the share application monies actually emanated from the assessee and represented undisclosed income of the assessee. He, however, did not cite any of those decis....
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....d of referring to and relying upon the legal precedence. 97. The revenue relied upon the order passed by the Hon'ble Supreme Court in Daniel Merchant Private Limited Versus ITO and others Special Leave to Appeal No. 23976 of 2017 dated 10.04.2017 wherein the judgment of this Court was confirmed wherein the CIT had passed orders under Section 263 of the Act. It is submitted that in cases where the order impugned before the tribunal where orders passed by the Commissioner under Section 263, independent reasons have been given by the Commissioner as to how the order passed by the assessing officer was erroneous in so far as it is prejudicial to the interest of revenue. In this regard, Mr. Prithu Dhudhoria learned standing counsel has taken us through the order passed by the Commissioner which are subject matter of ITAT No. 122 of 2021 and ITAT No. 156 of 2021. 98. In a few appeals, the order of the Tribunal has been passed in appeals filed by the assessees against the orders passed by the Commissioner invoking the power under Section 263 of the Act. The Learned Senior Counsel for the assessee submitted that the assumption of jurisdiction by the Commissioner under Section 263 is thor....
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....icer turned a blind eye to the project investigation which was carried out by the department. The assessing officer lost sight of the fact that the enquiry did not commence from that of the assessee and more particularly the name of the assessee did not feature in the investigation report. Therefore the assessing officer was bound to cause an enquiry by calling upon the assessee to explain and justify the genuineness of the claim for exemption made by them. If the assesses has not established the genuinity at the "other end" the assessing officer would have no other operation except making the addition under Section 68 of the Act. We find that in these cases the assessing officers missed an important point as to what is the nature of enquiry which he is required to do. The assessing officer merely went by the submission that the stock broker is a public sector company. Unfortunately this is not the manner in which the enquiry should have been conducted. The entire case before the department was the genuinity of the claim for LTCG/STCL and the basis was unhealthy and steep rise of the price of the shares of mostly the paper companies though listed before the stock exchanges their sh....
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....e experts as it is not the expert who has indulged in the transaction but it is the assessee. Therefore by following such experts advice if the assessee gets into an "web" it is for him to extricate himself from the tangle and he cannot reach out to the expert to bail him out. The assessees cannot be heard to say that they had blindly followed advice of a third party and made the investment. Selection of shares to be purchased is a very complex issue, it requires personal knowledge and expertise as the investment is not in a mutual fund. None of the assessees before us have shown to have to made any risk analysis before making their investment in a "penny stock". If according to them they have blindly taken a decision to invest in insignificant companies they having done so at their own peril have to face the consequences. Thus, the conduct of the assessees before us probabilities the stand taken by the revenue, rightly the mind of the assessee as an investor was taken note to deny the claim for exemption. It is in this background that the human probabilities would assume significance. As observed earlier the doctrine of preponderance of probabilities could very well be applied in ....
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....eneral market trend was admittedly recessive and thereafter arrived at a conclusion which in our opinion is a proper conclusion and in the absence of any satisfactory explanation by the assessee, the Assessing Officers were bound to make addition under Section 68 of the Act. 100. It was argued by the learned Advocates for the assessees that their clients are ordinary people who have made meagre investments and they cannot be branded as scamsters when big players in the market have been left scot free and in certain other cases, the big players who were also branded as scammers were allowed to avail the benefit of the Vivad Se Viswas Scheme. In fact, similar argument was advanced when we heard the applications filed by the revenue to condone the delay in filing in some of the present appeals. The argument on behalf of the assessee was that on account of not filing the appeals by the revenue within the period of limitation, their vested right to avail the benefit of the Vivad Se Viswas Scheme was taken away. We have rejected such an argument firstly by holding that there is no vested right for an assessee to come under the Scheme and this finding was rendered by us after examining t....
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....y little business got involved with the stock brokers and it is stated that the share brokers receive commission for allowing the paper entities to trade through their terminal and some of the brokers have also stated to be performing the trading activity themselves on behalf of the paper companies. The report states as to why the department has taken an investigation as a project, largely due to huge syndicate of the entry operators, share brokers and money launderers. The report states that Kolkata is a very distinctive place among the cities of India, so far as the accommodation entry is concerned and action has been initiated against more than thirty share broking entities and more than twenty entry operators working in Kolkata. The report states that almost everyone has accepted its activity, participation in providing accommodation entry of LTCG. The investigation has also indicated as to how the scheme of merger is being misused. Though the scheme of merger is approved by the Company Court, in the event it is found that such merger was done/ obtained by playing fraud, the Company Court is empowered to revoke the order and it appears that the Income Tax Department has not tak....