AI Drafter 
TaxTMI 
TaxTMI 
2018 (8) TMI 2096
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....pecific objection against taking the case 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 Serv....
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...., therefore not necessary that the addition could be 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 Kol....
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.... AO has made available the statements to the assessee for 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. ....
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....gorti Dealers Pvt Ltd and M/s Giriraj Stock Broking Pvt Ltd. It is pertinent to mention that the order time is not mentioned Contract 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 commissi....
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....ant's account, it was held by the Court that simply mentioning that findings were on the basis of appraisal report prepared by Investigation wing after considering 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....
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....party as happened in our case on which heavy and sole reliance is placed for making addition in the hands of assessee stood retracted by him in terms of his affidavit. Further the statements of Ravi Mathur were recorded at the time 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 n....
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....thority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list 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....
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....elied upon the view taken by Hon'ble Apex Court in Andaman Timbers and held that the statements of witness cannot be made sole basis of making assessment without giving an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. 10.8 It was further submitted that 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 h....
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....inst which shares of QFSL were allotted in lieu of amalgamation between the companies. Thus, the holding period for ascertaining whether the shares were short term or long term has to be reckoned from the date when shares were originally purchased by the assessee. Also with regards to the observation of lower authorities that the purchase 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....
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....n price rigging and thereby helping others in purchasing the capital gain. This cannot be considered as conclusive evidence to hold the assessee as liable for making addition in the income tax proceedings. Furthermore, order of SEBI directing investigation in the case of broker was passed much later than the transactions entered in by assessee, thus negative conclusion 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....
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.... time of sale and those purchasers were already disclosed in the Balance Sheet of the assessee, then from any angle, it is proved that the assessees had held the shares much prior to 12 months of the sale of the shares." 10.14 It was submitted that in the case of assessee, no material was found which could support the allegation of the Ld. AO that assessee has converted his undisclosed 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 thir....
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....shti Suppliers Pvt. Ltd. along with other companies were amalgamated with M/s Quest Financial Services Pvt. Ltd. which was duly approved by the Hon'ble Kolkata High Court vide its order dated 22.09.2011. The assessee in the meantime got the physical shares certificate dematerialized into demat account on 21.11.2011. There is thus, no reason to doubt the allotment of shares to the assessee 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....
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....t. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which 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 evidence....
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....f shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness 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 dispu....
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....d company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies 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....
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....aving the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers 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 affe....
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....two witnesses was the only basis of issuing the Show Cause Notice." Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 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 in....
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....e, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon'ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in 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 a....
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....ot help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction 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. ....
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....any material on record that the subject matter of the enquiry has any connection with the transaction of bogus long term capital gain, the same cannot be relied upon by the Revenue. Further, the ld CIT(A) has stated that period of holding is less than 12 months. In this regard, reference can be drawn to the provisions of section 2(42A)(c) which provides that "in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee." In the present case, the original shares in M/s Drishti Suppliers Ltd were bought by the assessee in 2010 against which shares of Quest Financial Services Ltd were allotted to the assessee pursuant to amalgamation between the companies. Thus, the holding period has to be reckoned from the date when shares in M/s Drishti Suppliers Ltd were originally purchased by the assessee. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus ....