TaxTMI 
TaxTMI 
2018 (8) TMI 2096
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.... of Om Prakash Modi as a lead case. Therefore, for the purpose of the present discussions, the case of Shri OM Prakash Modi is taken as a lead case. 3. In case of Om Prakash Modi in ITA No. 402/JP/2017, the assessee has taken various grounds of appeal and has effectively challenged the addition made by the AO U/s 68 of the Act by denying the exemption of long term capital gain U/s 10(38) of the Act and also making an addition U/s 69C of the Act. 4. Briefly, the facts of the case are that the assessee has filed his return of income U/s 139(1) of the Act on 24.07.2012 declaring total income of Rs. 12,34,370/-. Thereafter, a search and seizure action U/s 132 of the Act was carried out on the members of Okay Plus-JKD Group on 04.09.2013 of which the assessee is one of the members. Thereafter, notice U/s 153A was issued on 03.03.2014 and in response the assessee filed his return of income on 31.03.2014 declaring the income of Rs. 1,234,370/- as original declared. During the course of assessment proceedings, the AO observed that the assessee has shown long term capital gains of Rs. 26,83,000/- on sale of shares of M/s Quest Financial Services Ltd. which were claimed as exempt U/s 10(3....
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....e made only on the basis of incriminating material found during the course of search. Thus, original jurisdiction as well as jurisdiction as per Section 153A of the Act is retained by the AO. Regarding the assessee's plea that an effective opportunity may be provided for cross examination of persons whose statements have been recorded and taken as a base, the AO held that he is not bound by any technical rules of the law of evidence and it is open to him to collect material to facilitate assessment even by private enquiry. Regarding the assessee's plea that statement of all the persons are on same pattern, the Assessing Officer observed that all the concerns of Shri Prakash Jajodia are being managed by him only and all other directors are dummy and therefore, when all the concerns are engaged in the same kind of activities and are managed by the same person then answer to the question in the statement is also suppose to be the same. 7. The AO thereafter stated that the assessee had purchased shares of M/s Dristi Suppliers Limited and M/s Reward Agencies Limited and later on, in terms of amalgamation sanctioned by the Hon'ble Kolkata High Court, shares of M/s Quest Financial Servic....
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.... rebuttal, the AO has not acted arbitrarily. It was accordingly held that the assessment was validly made though the assessee was not given the right of cross examination. Regarding assessee's plea that Shri Prakash Jajodia has subsequently retracted his statement by filing affidavit dated 20.02.2015, the ld. CIT(A) held that the assessee has not produced any material to show that the admission made by Shri Prakash Jajodia was incorrect. Further, the ld. CIT(A) has held that the shares of M/s Quest Financial Services Ltd. were allotted to the assessee on 27.02.2012, therefore, the period of holding is less than 12 months and the assessee is not entitled for exemption of long term capital gain U/s 10(38) of the Act. Thereafter, the ld. CIT(A) has held in para 3.1.2.10 & 3.2.2 as under:- "3.1.2.10 From the above, it is seen that assessee has not controverted AO's findings nor disproves those facts. Here AO has genuinely doubted the veracity of the purchase bill dt 06.04.2011 & 13.04.2011 from M/s Gangotri Dealers Pvt Ltd on following grounds: a) The bill has got no running no or distinctive no. b) Purchase transaction was not online as share in physical forms through ....
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....Notes in Form A issued by M/s Giriraj Stock Brokings Pvt Ltd. k) Period of holding of M/s Quest financial Services ltd. is less than 12 months. After duly considering above facts and circumstances of the case, I would like to rely on the decisions by the apex court in the case of Sumati Dayal vs. CIT [1995] 214 ITR 801 (SC); Durga Prasad More reported in 82 ITR 540 (SC) and Mc. Dowell & Co. Ltd. 154 ITR 148 (SC), besides by the Tribunal in the case of Asst. CIT vs. Som Nath Mani [2006] 100 TTJ 917 (Chd), the impugned claim of bogus LTCG as unexplained income u/s. 68 of the Act is hereby sustained. 3.2.2. I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. The issue is covered by the findings given for Gr. No. 1. As the purchases of original shares of M/s Reward Agencies Pvt. Ltd and M/s Drishti Suppliers Pvt. Ltd are not genuine, accordingly, it is presumed that assessee has paid commission @ 5 to 6% of the bogus claim of LTCG. Accordingly, in view of facts and circumstances of the case, as discussed above, AO's action is hereby sustained. ....
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....ng all the material facts available on record is not sufficient. It was thus observed by the Hon'ble Court that "The AO has failed to prove through any independent enquiry or relying on some material that the transactions made by the appellant through share P.K. Agrawal were non genuine or there was any adverse mention about the transaction in question in statement of Sh. PawanPurohit." In view of above, it was submitted that heavy reliance placed by the lower Authorities on the so called statements of Sh. Prakash Jajodia without making any direct inquiry is not in accordance with law laid down by Hon'ble Rajasthan High Court. 10.3 Reliance was also placed on judgment delivered by Hon'ble Punjab and Haryana High Court in the case of The Pr. CIT vs Sh. Hitesh Gandhi, wherein it has been observed that when: * shares were actually purchased as these were reflecting in D-mat accounts ; * AO rejected the contention of purchase on the basis of suspicion arising out of reckless/ casual replies given by assessee during assessment proceedings ; * No post search enquiries were conducted in the form of recording statements of broker so as to bring on record any evidence of the said t....
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.... of search on 09.11.1995, whereas retraction was made as late as in November 1996, during assessment proceedings, whereas Sh. Prakash Jajodia has retracted from his statements merely 4 days after the show cause notice was served on him. Therefore, facts of the case relied upon are totally different and thus reliance placed by ld. CIT(A) is misplaced 10.6 The ld. AR further submitted that the statements of Shri Prakash Jajodia were recorded behind the back of assessee, therefore vide reply to the show cause notice, it was requested to the Ld. AO that such person be confronted to assessee and be allowed to cross-examine him so as to verify the veracity / truthfulness of the statements made by him. However, in spite of the dire necessity of cross-examination in the circumstances of the case, the assessee's request for cross-examination was turned down in an arbitrary manner, without specifying any justifiable reason. The Ld. AO merely stated that he was not bound by the technical rules of evidence and therefore, was not under any obligation to provide cross-examination of the aforesaid person. The Ld. AO further referred that there is no provision for permitting crossexamination and ....
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....st itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above." In this regard, it was submitted that :- i. Impugned addition have been made solely on the basis of statements of a third party i.e. Shri Prakash Jajodia who is completely unknown and unrelated to the assessee. There is no corroborative evidence found either during the course of search or assessment proceedings. No other material has been referred to by the Ld. AO. ii. The said statements were not even recorded by Assessing Officer himself, but were recorded by some other authority. Thus, the Ld. AO could not have simply used these statements against assessee without at least examining such person himself during the course of assessment proceedings. iii. The said statements of Shri Prakash Jajodia stood retracted by himself thus has no evidentiary value. iv. Statements of Shri Prakash Jajodia were recorded behind the back of assessee and were not allowed to be cross-examined in spite of the specific requests made by assessee which were turned d....
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....Ahmedabad bench of Tribunal in the case of Smt. Sunita Jain vs ITO quashed the assessment order by placing reliance on Apex Court judgment in the case of Andaman Timber (cited supra) as entire assessment was based upon the statements of Sh. Mukesh Choksi, which were neither supplied to assessee nor was opportunity of cross examination was provided. 10.9 The AO as well ld. CIT(A) have placed reliance on some judicial pronouncements to hold that right to cross examine is not absolute, however such judgments have been passed in different set of facts and furthermore have been superseded by Hon'ble Apex Court judgment in the case of Andaman Timber Industries (supra) which now governs the field. 10.10 The ld. AR also submitted that the transaction of sale of shares by the assessee is completely genuine duly supported by necessary evidences and thus, could not have been held as bogus in view of the following: i. The assessee has acquired shares in lieu of his original holdings, as a result of amalgamation with QFSL. Such acquisition and sale were made under proper documentary evidences in the shape of allotment letter and bills and vouchers which were duly submitted before the ....
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....transaction was not online, and no STT was paid thereon and accordingly not credited to Dmat account, it is submitted that there was no requirement of purchases to be online for claiming exemption u/s 10(38). It has been further alleged that swap ratio for allotment of shares of QFSL was quite high, in this regard it is submitted that the said swap ratio was approved by the Hon'ble Calcutta High Court and assessee had no control over the same. Thus these findings of the Ld. CIT(A) needs to be grossly ignored. 10.11 It was further submitted that the AO has failed to substantiate his case by conducting any independent enquiry or by bringing any material on record to prove that assessee has received his money back. Thus doubts regarding genuineness of transaction are nothing more than suspicion on the basis of so called statements of a third party not related to the assessee in any manner. 10.12 It was submitted that the ld. CIT(A) has confirmed the said transaction as non genuine relying upon various judgments on "preponderance of human probabilities". In this regard, it was submitted that such cases cannot at all be relied upon to draw adverse inference in the case of assessee as ....
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....n drawn in the case of assessee on the basis of such order does not hold good. In this regard, reliance is placed on the decision of Hon'ble Jharkhand High Court in the case of CIT v. Arun Kumar Agarwal (HUF) (2013) 085 DTR 0219 wherein it has been held as under: "10. We have considered the submissions of the learned counsel for the parties and we are of the considered opinion that the learned Assessing Officer was much influenced by the enquiry report which may has been brought on record by the efforts of the Assessing Officer and that enquiry report was prepared by the SEBI and from the observations made by the Assessing Officer himself, it is clear that after getting that enquiry report, the SEBI prima facie found involvement of some of the share brokers in unfair trade practices. Even in a case where the share broker was found involved in unfair trade practice and was involved in lowering and rising of the share price, and any person, who himself is not involved in that type of transaction, if purchased the share from that broker innocently and bonafidely and if he show his bonafide in transaction by showing relevant material, facts and circumstances and documents, then....
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....losed money in the guise of LTCG. Therefore, in the circumstances, it is humbly submitted that the assessee had entered into a genuine transaction of purchases and sales of shares routed through the recognized stock exchange and the funds have been transacted through banking channels and the shares were kept by the assessee in D-mat account and the sales were subject to STT. Thus all the conditions enumerated in section 10(38) for holding the profit from the sale of shares as exempt have duly been fulfilled by the assessee, thus in no circumstances it could be held as bogus or sham transaction more particularly when no corroborative evidence was brought on record by the department to hold that assessee had introduced his undisclosed income in the garb of long term capital gain and the statements of third party relied upon by the department stood retracted by such person himself which fact had not been considered at all by lower authorities. 11. Per contra, ld. DR has submitted that the assessee has shown a huge long term capital gain within a short period of one year from the sale of shares and therefore, as per the rule of preponderance of human probability the transaction of the....
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....e after the amalgamation took place between M/s Drishti Suppliers Pvt. Ltd. and M/s Quest Financial Services Pvt. Ltd. and subsequent to the amalgamation, the assessee was allotted shares of M/s Quest Financial Services Pvt. Ltd. on 21.02.2012 duly reflected in the assessee's Demat statement. Hence, the allotment of 36,000 equity shares of M/s Quest Financial Services Pvt. Ltd. cannot be doubted or disputed as these shares were issued in demat form post amalgamation by a listed company. It is also not in dispute that the shares were issued in exchange of the shares held by the assessee in M/s Drishti Suppliers Pvt. Ltd. Therefore, once the shares issued by M/s Quest Financial Services Pvt. Ltd. cannot be doubted then, holding of the shares in M/s Drishti Suppliers Pvt. Ltd. by the assessee cannot be doubted as the shares could be allotted only on exchange of shares. The holding of the shares of M/s Drishti Suppliers Pvt. Ltd. and allotment of shares of M/s Quest Financial Services Pvt. Ltd. are directly interconnected, therefore, the genuineness of the purchase transaction cannot be questioned. Further, the purchase consideration has also been paid through cheque, therefore, even i....
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....is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share cert....
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....enuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cann....
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....s Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:- "3. Since, the shares were allotted by the company through private placement after completing the formalities o....
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....fficers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: "5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an oppo....
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....r 46 as under:- "46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed fr....
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....n para 12 as under:- "12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- "Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary ....
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.... made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant." In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account." 13. Thus, it is clear that the Bench in the said case has analyzed an identical issue whe....