TaxTMI 
TaxTMI 
2022 (12) TMI 243
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....ndent application of mind. 3. That the ld. Assessing Officer has erred in passing reassessment order without lawful jurisdiction u/s 148 of the IT Act, 1961. 4. That the ld. Assessing Officer has passed order u/s 147 without providing reason to believe making the order and its proceeding void ab initio. 5. That the ld. CIT(A) has erred in confirming addition made by the Assessing Officer on account of alleged bogus long term capital gain u/s 69A of the IT Act, 1961 of Rs.89,31,724/-. 6. That the appellant has rightly claimed the gain from sale of securities as long term capital gain under the relevant section 10(38) of the IT Act, 1961. 7. That the alleged bogus share transaction cannot be taxed u/s 69A as the appellant has given the documentary evidence of sale and purchase at prevailing market rate on stock exchange. 8. That there has been no evidence as to the why the gain from the sale of securities be treated as unexplained u/s 69A of the Act when the transaction has been explained by complete documentary evidence and accordingly shown u/s 10(38) of the Act being gain from sale of securities transaction and primary onus cas....
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....ries of Long Term Capital Gain on the scrip Twenty First Century (India) Ltd. The assessees had claimed in their returns of income Long Term Capital Gain on the scrip Twenty First Century (India) Ltd. as exempt u/s 10(38) of the Act. It was submitted that the Assessing Officer, on the basis of such report from the Directorate of Investigation, held that the claim of the assessee on account of Long Term Capital Gain was arranged with the help of brokers and certain entry operators and which was not a genuine one and therefore, held the same to be taxable u/s 69A of the Act. It was submitted that Assessing Officer in the assessment order has relied on the statements of few persons including that of Shri Anil Kumar Khemka wherein he has admitted that Long Term Capital Gain entries were provided to one Smt. Anita Singhania in the same scrip of Twenty First Century (India) Ltd. Learned counsel for the assessee submitted that in that case also the Assessing Officer had disallowed the claim of capital gain but which has been deleted by the Kolkata Bench of the Tribunal vide order dated 07/05/2021 in I.T.A. No.45/Kol/2019. It was submitted that I.T.A.T., Kolkata Bench has deleted such addi....
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....er person, cannot be used against the assessees for making additions. It was submitted that in the case of Anita Singhania where name was taken by the persons examined, the Hon'ble Calcutta Bench of the Tribunal has already deleted the additions. Above all it was submitted that such statements, recorded at the back of the assessees, were never confronted to the assessees and therefore, the principles of natural justice have also been violated. Learned counsel for the assessee in this respect heavily placed reliance on the order of Hon'ble Supreme Court in the case of Andaman Timber Industries 281 CTR 241. Further reliance was placed on the following decisions of Hon'ble Supreme Court and jurisdictional High Court of Allahabad for the proposition that before using material against the assessee, the income tax authorities are bound to provide an opportunity to the assessee to cross examine such persons: 1) Kishin Chand Chelaram vs. CIT 125 ITR 713, 4 Taxman 29 (SC) 2) Meneka Gandhi vs. UOI 1978 AIR 597d (SC) 3) NDTV Ltd. vs. DCIT [2020] 116 Taxman.com 151 (SC) 4) Motilal Padampat Udyog Ltd. vs. CIT 293 ITR 656 (All) 2.4 As regards th....
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....ted that in the present cases the assessees have discharged their onus of proving credits u/s 68 of the Act where credits were supported by sales of shares and there is ample evidence of sale of shares through electronic stock exchange and on which necessary taxes were paid. It was submitted that Assessing Officer has not controverted such evidences and neither has made any adverse comments. In view of these facts and circumstances, it was prayed that the appeals filed by assessee may be allowed. 3. Learned D. R., on the other hand, submitted that the additions in these cases have been made on account of denial of Long Term Capital Gain, which was arranged by the assessees with the help of certain stock brokers and certain entry providers. It was submitted that the sudden huge increase in share prices in the scrip of very little known companies, cannot happen without the connivance of brokers and entry providers. It was submitted that the Assessing Officer and learned CIT(A) has elaborately discussed the modes operandi of these brokers and have rightly made and sustained the additions. The learned D.R. heavily placed reliance on the orders of authorities below and argued that in....
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....e nature of such evidences along with paper book pages, where copies of such evidences (submitted to Assessing Officer), are placed has been reproduced herein under in the form of a table: I.T.A. No. 61 I.T.A. No. 62 I.T.A. No. 63 I.T.A. No. 64 I.T.A. No. 65 Name of scrip sold Twenty First Century (India) Ltd. Twenty First Century (India) Ltd. Twenty First Century (India) Ltd. Twenty First Century (India) Ltd. Twenty First Century (India) Ltd. DEMAT account with Standard Chartered Bank pgs. 38 to 49 Standard Chartered Bank pgs. 40 to 42 Standard Chartered Bank pgs. 41 to 44A Standard Chartered Bank pgs. 42 to 44 Standard Chartered Bank pgs. 41 & 42 Brokers' contact notes H. M. Fatepuria Member Calcutta Stock Exchange pages 41 to 81 H. M. Fatepuria Member Calcutta Stock Exchange pages 43 to 92 H. M. Fatepuria Member Calcutta Stock Exchange pages pgs. 45 to 93 H. M. Fatepuria Member Calcutta Stock Exchange pages pgs. 45 to 67 H. M. Fatepuria Member Calcutta Stock Exchange pages pgs. 43 to 92 Copy of bank account where sale proceeds were credited Canara Bank pages 83 & 84 Standard Chartered Bank pg....
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....en rejected nor has been adversely commented and on the other hand the persons on whose statements the Department had relied, were not made available to assessees for cross examination. The Assessing Officer just rejected the claim of assessees on the basis of report of DDIT and statements of certain persons. As regards the request of the assessees to provide opportunity to cross examination of such persons to the assessees, the Assessing Officer held that besides the statements, other substantial evidences also proved that the transactions undertaken by the assessees were not genuine and therefore, he held that the ratio in the case of Andaman Timber Industries was not applicable to the assessees and rejecting all the evidences, the Assessing Officer disallowed the claim of the assessees. 4.3 Before learned CIT(A), the same averments were made and learned CIT(A) also rejected the claim of the assessees. Regarding the grievances of assessees for not providing opportunity to cross examination of the witnesses of Department, the learned CIT(A) held that all the documents have been shown to the assessees and the assessees had not challenged the contents of such documents and theref....
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....see 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 opportunity was sought by the assessee. However no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply Staled that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to ....
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....ansactions. This proves the genuineness of its transactions. The Assessing Officer has no evidence or adverse material to disprove these transactions. Additions cannot be made based on inferences. This bench of the Tribunal has considered similar cases in the following orders: (i) Meena Devi Gupta & Others vs ACIT - ITA Nos. 4512 & 4513/Ahd/2007 (Ahmedabad ITAT). (ii) Manish Kumar Baid ITA 1236/Kol/2017 (Kolkata ITAT). (iii) Mahendra Kumar Baid ITA 1237/Kol/2017 (Kolkata ITAT). This Bench of the Tribunal came to a conclusion that in such circumstances the additions are not maintainable. 6.12. The Hon'ble Calcutta High Court has in cases having similar facts upheld the contentions of the assessee that no addition can be made. A) In the case of CIT vs. Dhawan Investment and Trading Company Ltd. (1999) 238 ITR 486(Cal.) it was held as follows: "7. In appeal the Commissioner of Income-tax (Appeals) has also agreed with the action adopted by the Income-tax Officer. According to the Commissioner of Income-tax (Appeals) it appears that dealings in shares are bogus. He pointed out that the assessee has deliberately sold, 7,000 ....
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....h whom the shares were purchased and to whom the shares were sold is disclosed. Even the broker through whom the shares were purchased was produced. The payment was received by an account payee cheque and the payment was also made by the account payee cheque when the shares were purchased. The identity of the share brokers and the person through whom the shares were purchased and shares were sold is not disputed. Merely because the assessee could not produce a broker through whom the shares were sold or the person to whom the shares were sold, it does not affect the genuineness of shares in case when the assessee came with a fact and disclosed the identity of the persons from whom the shares were purchased and sold. If the assessee failed to produce those persons, that alone does not affect the genuineness of transactions. Summons can be issued under section 131 to compel them to appear before the ITO or the Assessing Officer. But that has not been done. One more factor has been highlighted by the Assessing Officer that the delivery of shares is on 9-11-1982, when the sale was on 22-10-1982. Merely because of the fact that all shares were delivered after 10/15 days from th....
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.... a genuine transaction of shares. Considering the aforesaid facts and our view expressed in the case of CIT v. Carbo Industrial Holdings Ltd. [2000] 244 ITR 422 (Cal), we answer question No. 1 whether the finding of the Tribunal is based on material, in the affirmative and whether this finding of the Tribunal is perverse, we answer it in the negative, i.e., in favour of the assessee and against the Revenue." E) The Calcutta High Court in the case of CIT vs. Kundan Investment Ltd. 263 ITR 626 the Court held: "We may deal with the loss in share transaction first. The grounds disallowing share loss by the AO affirmed by the Commissioner of Income Tax(Appeals) were those that out of the four blocks of shares delivery of three blocks were received after five months and the price was also paid after five months, but were immediately sold at a loss. The other grounds were that the share broker only in respect of one group was produced but the other share brokers did not appear despite notice. The books of accounts of the share broker, who appeared, also show some discrepancies in the entries made. On these grounds this transaction was held to be ingenuine. Whereas the Tr....
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....o. Ltd. In this case, it was held that merely because the assessee could not produce the broker through whom the shares were sold, the same did not affect the genuineness of the transaction when the assessee disclosed the identity of persons from whom the shares were purchased and to whom sold. Even when two views are possible, if the view taken by the learned Tribunal is possible, it cannot be said to be perverse. Having regard to the proposition of law as discussed above and the facts and circumstances of the case, we find that in the present case, the view taken by the learned Tribunal cannot be said to be erroneous or perverse. Therefore, we answer the question No. 3 in the negative in favour of the assessee." 7. Applying the proposition of law laid down in all the case law referred above to the facts of the case, we find that the addition in question is bad in law. 8. In view of the above discussion, we allow the grounds of the assessee and delete the additions made." 4.5 Similar additions were deleted by Kolkata Bench of the Tribunal in the case of Soumitra Chowdhary in I.T.A. No.256/Kol/2019 and in the case of Purshotam Dass Aggarwal in I.T.A. N....
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....able income of Respondent was declared to be Rs. 12,36,120/-. The return was processed under Section 143(1) of the Act and thereafter the case was selected for scrutiny. During the scrutiny proceedings, the AO noticed that for the relevant year under consideration, the Respondent had claimed exempted income of Rs. 96,75,939/- as receipts from Long Term Capital Gain [hereinafter referred to as 'LTCG'] under Section 10(38) of the Act. He inter alia concluded that the assessee had adopted a colorable device of LTCG to avoid tax and accordingly framed the assessment order under Section 143(3) of the Act at the total income of Rs. 1,09,12,060/-, making an addition of Rs. 96,75,939/- under Section 68 read with 115BBE of the Act on account of bogus LTCG on sale of penny stocks of a company named M/s Gold Line International Finvest Limited. The appeal before the CIT(A) was dismissed and additions were confirmed with the observation that the Respondent had introduced unaccounted money into the books without paying taxes. Further appeal filed by the Respondent before the learned ITAT was allowed in her favour, and the additions were deleted vide the Impugned Order, relevant portion whereof r....
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....f the appellants do not find any place. At page 63 of the SEBI order-trading by trading in M/s. Esteem Bio Qrganic food Processing Ltd - a further list of 25 persons is mentioned and once again the names of the appellants do not find place in this list also. 25. As mentioned elsewhere the brokers of the assessee namely ISG Securities Limited and SMC Global Securities Limited are stationed at New Delhi and their names also do not find place in the list mentioned here in above in the SEBI order. There is nothing on record to show that the brokers were suspended by the SEBI nor there anything on record to show that the two brokers of the appellants mentioned here in above were involved in the alleged scam. The Assessing Officer has not even considered examining the brokers of the appellants. It is a matter of the fact that SEBI looks into irregular movements in share prices on range and warn investor against any such unusual increase in shares prices. No such warnings were issued by the SEBI. 26. There is no dispute that the statements which were relied by the Assessing Officer were not recorded by the Assessing Officer in the assessment proceedings but they were pre....
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....f the CIT(A) dated 24th December, 2018 which reads as follows: "4. Even the broker through whom the shares were dematerialized and sold i.e. SMC Global Securities Ltd. was also a part of the scam. This is a Delhi based broker whose regional office was also surveyed. The sub brokers were also surveyed and also statements recorded which confirmed the payment of cash commission by the beneficiaries for being part of the syndicate." 8. Mr. Hossain argues that in cases relating to LTCG in penny stocks, there may not be any direct evidence in the hands of the Revenue to establish that the investment made in such companies was an accommodation entry. Thus the Court should take the aspect of human probabilities into consideration that no prudent investor would invest in penny scrips. Considering the fact that the financials of these companies do not support the gains made by these companies in the stock exchange, as well as the fact that despite the notices issued by the AO, there was no evidence forthcoming to sustain the credibility of these companies, he argues that it can be safely concluded that the investments made by the present Respondents were not genuine. He submits that....
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....cks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, sham and nothing other than a racket of accommodation entries. We do notice that the AO made an attempt to delve into the question of infusion of Respondent's unaccounted money, but he did not dig deeper. Notices issued under Sections 133(6)/131 of the Act were issued to M/s Gold Line International Finvest Limited, but nothing emerged from this effort. The payment for the shares in question was made by Sh. Salasar Trading Company. Notice was issued to this entity as well, but when the notices were returned unserved, the AO did not take the matter any further. He thereafter simply proceeded on the basis of the financials of the company to come to the conclusion that the transactions were accommodation entries, and thus, fictitious. The conclusion drawn by the AO, that there was an agreement to convert unaccounted money by taking fictitious LTCG in a pre-planned manner, is therefore entirely unsupported by any material ....
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.... examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to show actual sale of shares in that case. On such basis, the ITAT had returned the finding of fact against the Assessee, holding that the genuineness of share transaction was not established by him. However, this is quite different from the factual matrix at hand. Similarly, the case of Sumity Dayal v. CIT (supra) too turns on its own specific facts. The above-stated cases, thus, are of no assistance to the case sought to be canvassed by the Revenue. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order. 14. In this view of the matter, no question of law, much less a substantial question of law arises for our consideration. 15. Accordingly, the ....
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....ibunal was right in law and on facts in deleting the addition of Rs. 9,70,468/- made on account of LTCG claimed as exempt u/s. 10(38) of the Act without appreciating the fact that the transaction was pre-arranged as well as sham and was carried out through penny scripts companies/paper companies?" 2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- "9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain. 10. Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee. 11. In support of its contention, learned A.R. also cited an order of Coordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab (P.) Lt....
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....t adversely commented on such evidences. The Hon'ble Supreme Court in the case of Andaman Timber Industries has clearly laid down the importance of cross examination. If the statements of the persons recorded at the back of the assessees and not confronted to the assessees for cross examination are ignored the evidences filed by assessees, definitely prove that the assessees had earned Long Term Capital Gain on the sale of equity shares. 4.12 The findings of Hon'ble Supreme Court in the case of Andaman Timber Industries are reproduced below: "5. 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....
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....mbay High Court in the case of Sanjay Bimalchand Jain in Tax Appeal No. 18 of 2017. We note that in the case relied upon by the Id. D.R, we find that the facts are different from the facts of the case in hand. Firstly, in that case, the purchases were made by the assessee in cash for acquisition of shares of companies and the purchase of shares of the companies was done through the broker and the address of the broker was incidentally the address of the company. The profit earned by the assessee was shown as capital gains which was not accepted by the A.O. and the gains were treated as business profit of the assessee by treating the sales of the shares within the ambit of adventure in nature of trade. Thus, it can be seen that in the decision relied upon by the Id. DR, the dispute was whether the profit earned on sale of shares was capital gains or business profit." 4.16 The above case law of Hon'ble Bombay High Court has further been distinguished by Mumbai Bench of the Tribunal in the case of Geeta Khare in ITA No. 4267/Mum/2018 where the Hon'ble Tribunal has held as under: "7.8 It would be pertinent to address the case law relied upon by the ld DR before us o....
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.... different scrip but in the decisions they have held that the judgment of Hon'ble Delhi High Court in Udit Kalra was distinguishable as in that case the Hon'ble High Court has only dismissed the appeal as the Hon'ble High Court found that the issue involved was only a question of fact. In this respect, para 28 of the Tribunal order in the case of Karuna Garg is relevant which is reproduced below: "28. The DR heavily relied upon the judgment of Hon'ble High Court of Delhi in the case of Udit Kalra Vs. ITO in ITA No.220/2019. We have carefully perused the order of the Hon'ble High Court and on going through the said judgment we find that no question of law was formulated by the Hon'ble High Court of Delhi in the said case and there is only dismissal of appeal in limine as the Hon'ble High Court found that the issue involved is a question of fact." 7.3 Similarly in the case of Swati Luthra (supra), the Hon'ble Tribunal while dealing with the case law of Udit Kalra vide para 14 has held as under: "14. That the ld DR during the course of hearing placed heavy reliance on judgment of Hon'ble High Court of Delhi in the case of ....