TaxTMI 
TaxTMI 
2023 (5) TMI 634
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.....Y. 2012-13 bearing IT(SS)A No. 311/AHD/2019 and for AY 2015-16 bearing IT(SS) A No. 970/AHD/2019 wherein one additional issue of claim of exempted long term capital gain is also involved. Therefore, we proceed to decide the issue of protective assessment first by taking up the IT(SS)A No. 309/Ahd/2019 for A.Y. 2009-10 as lead case. However, the finding to be given therein will be applicable to all the captioned appeal. The grounds of appeal of the Revenue for the AY 2009-10 reads as under: "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs 5,74,50,000/- made in hands of assessee under section 68 of the IT Act on account of receipt of share capital and premium without appreciating the facts in the assessment order wherein the Assessing Officer had brought out the fact that the credits were from companies whose returns and balance sheet analysis show poor financials, and whose directors and operators/brokers had admitted under oath to the fact, that these were paper companies and had earned commission income for providing these accommodation entries to the concerned companies i.e. namely Globe Ecologistics ....
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..... The only effective issue raised by the Revenue is that that the learned CIT(A) erred in deleting the protective addition made under section 68 of the Act for Rs. 5,74,50,000/- on account of bogus share capital and premium credited in the companies controlled by the assessee and erred in deleting the addition commission expenses of Rs. 3,44,700/- on such bogus share capital and premium. 5. The facts in brief are that the assessee is an individual deriving income from all sources. The assessee is partner is several firms as well as key person/promotor/director of Globe group of companies. There was search proceeding under section 132 of the Act carried out at the premises of assessee dated 23rd January 2015. During curse of investigation and assessment it was found the 4 companies control or managed by the assessee as received huge sum in the form of share capital and premium during the financial year 2008-09 to 2014-15, which is detailed as under: F.Y. A.Y. Globe Ecologistic Pvt Ltd GTD Oilfield Services Pvt. Ltd. GTC Petrotech Pvt. Ltd. Winsto Corporation Pvt Ltd Total 2008-09 09-10 0 57450000 0 0 57450000 2009-10 2010-11 0 ....
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.... bogus share capital. Likewise, the commission expenses of Rs. 3,44,700/- being @ 0.6% of Rs. 5,74,50,000/- was calculated. Thus, the AO added the same to the total income of the assessee on a protective basis whereas substantive addition was made in the hands of beneficiary company M/s GTC Oilfield Services Pvt. Ltd. 12. On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO by observing as under: "3.6 During appeal proceedings in the case of GTC Oilfield Services Pvt. Ltd. for A.Y. 2009-10, the company submitted that Baghbaan Marketing Pvt. Ltd. from whom share capital and share premium was received, had made declaration under Income Declaration Scheme 2016 (IDS 2016) and had included amount of share capital and share premium in GTC Oilfield Services Pvt. Ltd. in its income declared under IDS, 2016. Copy of declaration filed by Baghbaan Marketing Pvt. ltd. under IDS, 2016 and copy of Form 4 issued by Pr. CIT(Central), Ahmedabad was filed. Considering facts of the case, submission by company and IDS-2016 by Baghbaan Marketing Pvt. Ltd., the addition of share capital and share premium and unexplained expenditure in case of GTC Oilfield Service....
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....ason stated therein. Now the question before us is whether the learned CIT(A) was correct in deleting the impugned protective addition or not. 16.1 The concept of protective assessment is not defined in the provisions of the Act. However, the same has been used by the revenue authority as a precautionary tool where there is some income accrued or arise, but the AO is not sure who is liable to pay tax on such income, the AO may proceed to assess such income on protective and substantive basis. The Hon'ble Supreme court in the case of Lalji Haridas vs. ITO reported in [1961] 43 ITR 387 has defined the concept of protective assessment as under: "In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B." 16.2 The objective of the protective assessment is that in case substantive assessment made in the hands of....
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....eld that the share capital and premium thereon credited in the books of private company managed/controlled/owned by the respondent assessee are not genuine and treated the same as unexplained credit under section 68 of the Act. At the outset we note that the provision of section 68 of the Act is a deeming provision wherein any sum credited in the books of the assessee can be treated deemed income of the concerned assessee if fails to explain the nature and source of such credit to the satisfaction of the AO. Thus, under the provision of section 68 of the Act, it is not the case that it has been established beyond that the certain income accrued or arisen in a particular assessment year but there is uncertainty regarding the person liable to tax. Indeed, the provision of section 68 of the Act triggered when any sum credited in the books of an assessee and that assessee fails explain the nature and source of such credit then same can be deemed to be the income of that assessee in whose books the sum was credited. Thus, to assess deemed income under section 68 of the Act, there is no ambiguity regarding who should be liable to pay tax. Therefore, in our considered opinion the concept ....
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....impugned company during the FY 2003 and 2006 from Standard Leasing & Finance Pvt. Ltd and Convenant Finvestment Pvt. Ltd @ Rs. 1 per share having a face value of Rs. 10 per and consideration was paid in cash. Thereafter, the shares got splitted into 10 shares having face value of Rs. 1 per share. The shares were dematerialized as on 27th January 2012 and subsequently sold the entire holding during 3rd to 17th February 2012 through BSE platform at the price ranging between 21.64 to 25.75. The AO held the transaction of purchase and sale of shares of impugned company as fictious for the following reason: (i) The share having face value of Rs. 10 and the last traded market value of Rs. 11.85 per share were surprisingly purchased by the assessee @ Rs.1 per share and consideration was paid in cash sources of which was not explained. There is no reason for not making the payment through the banking channel. (ii) The assessee was having demat account during the year 2003 and 2006 when shares were claimed to be purchased, still the shares were dematerialized on 9th January 2012 i.e. just before the sale of shares. (iii) As per the website of the impugned company ....
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.... issued in his name which was furnished during the assessment proceedings. The script of the impugned company got re-listed with new name and split into 10 shares for 1 share each, thereafter he made request to the company to issue new share certificate but the same were received to him only in January 2012. Therefore, the same was not dematerialized earlier. The shares were sold in a hurry due to the reason that price was regularly declining. 25. The allegation of the AO that the transaction of sale and purchases of impugned share is fictious, and it was arranged to evade tax is without any merit. Had the transaction been arranged, then he should have sold the impugned share at the time when the same was trading at a price more than Rs. 1000/- per share. On the contrary, shares were sold at the stock exchange through registered broker and proceeds were received after STT. Therefore, the action of the AO should be quashed which is based on mere surmise and presumption. 26. The assessee, besides the above, also contented on merit that the addition was made by the AO on account of technical ground. It was contended that the exempted long term capital gain was claimed in origina....
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....ire, the notice has been issued in the present case seeking to make the proposed addition of Rs 11,05,51,000/ on the basis of the material which was not found during the course of search, but on the basis of a statement of another person in the opinion of this court in a case like the present one, where an assessment has been framed earlier and no assessment or reassessment was pending on the date of initiation of search under section 132 or making of requisition under section 132A while computing the total income of the assessee under section 153A of the Act additions or disallowances can be made only on the basis of the incriminating material found during the search or requisition in the present case, it is an admitted position that no incriminating material was found during the course of search, however, it is on the basis of some material collected by the Assessing Officer much subsequent to the search, that the impugned additions came to be made. 19. On behalf of the appellant, it has been contended that if any incriminating material is found, notwithstanding that in relation to the year under consideration, no incriminating material is found, it would be permissible ....
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....y incriminating seized material. Therefore, after considering the position of law on the issue and respectfully following the decisions of the Hon'ble Courts and Tribunals, in my considered opinion, the action of the AO was not justified. Accordingly, addition made of long-term capital gain as fictitious gain without any incriminating material in assessment order u/s. 153A of the I. T. Act is deleted. These ground of appeals are allowed." On merit: "3.6 I have carefully gone through the facts mentioned in the assessment order and submission of the appellant on the issue of long term capital gain on sale of shares of KGN Industries Ltd. Considering above facts and appellate order of CIT(A)-11, Ahmedabad in the case of father of appellant Shri Ramswaroop S. Agarwal for AY 2012-12 in Appeal no. CIT(A0-11/C. C-1(4)/Ahd/387-A/2016-17 dated 21.02.2018, I am of considered view that the appellant has produced evidences and provided elaborate explanations on long-term capital gain as narrated in above paras. Therefore, the gain on sale of shares appears to be genuine and in the nature of long-term capital gain exempt u/s. 10(38), which cannot be denied on the basis of mere presu....
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....ce of any incriminating material/ documents whereas the assessment/ reassessment can be made with respect to abated assessment years. The word 'assess' in Section 153A/153C of the Act is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to the completed assessment proceedings. The Hon'ble Gujarat High Court in the case of Saumya Construction Pvt. Ltd. reported in 81 taxmann.com 292, has held that there cannot be any addition of regular items shown in the books of accounts until and unless there were certain materials of incriminating nature found during search. The word incriminating has not been defined under the Act, but it refers to that materials/ documents/ information which were collected during the search proceedings and not produced in the original assessment proceeding. Simultaneously, these documents had bearing on the total income of the assessee. Now coming to the case, we note that addition was made based statement of some unconnected person and action of the SEBI on the group concern of the company the shares of which has been sold by the assessee without referring to incriminating document found from th....
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.... Rs. 5,00,000/- only which has resulted Short Term Capital Gain of Rs. 1,90,55,453/-. However, the Assessing Officer was of the opinion that the impugned Short Term Capital Gain is representing the manipulated transaction and therefore the same is bogus. The view of the Assessing Officer was based on the following observation: "6. The reply of the assessee has been perused. But the same is not acceptable. Here is a scrip whose performance in the stock market does not justify the performance of the company. Since last many years, its revenue from operation is hardly existing. The EPS ranges from Rs. 0.03 to Rs. 0.07. Its book value as at March 2014, 2015 and 2016 is virtually NIL. The assessee has sold the shares purchased by him for Rs. 2.50 per share, for as high as Rs 104/share. All this in a short time of just over 12 months. It is also seen that the volumes traded were also scant. There is no doubt that the prices were rigged in connivance with brokers in order to get maximum benefit of exempt capital gain u/s. 10(38). In the past also, the assessee himself had claimed such fictitious long term capital gain on sale of shares of one M/s. KGN Industries ltd. In the said ....
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.... view that the impugned Short Term Capital Gain has arisen to the assessee by manipulating the transactions. As such, the impugned income represents the income from other sources. The Ld. DR vehemently supported the order of the Assessing Officer. 38. On the contrary, the Ld. AR before us filed two Paper Books running from Pages 1 to 12 and 1 to 69 of and contended that the shares were sold on the Stock Exchange after the payment of Securities Transaction Tax. Therefore, the same cannot be assumed as income from other sources. The Ld. A.R. before us vehemently supported the order of the Ld. CIT(A). 39. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee has shown short term capital gain on sale of shares of M/s Surabhi Chemicals & Investments Ltd. (for short SCIL) amounting to Rs. 1,90,55,453.00 which was treated as bogus and manipulated, leading to the addition by the AO as unexplained income. The view of the AO was based that the price of the share of M/s SCIL was increased manifolds in a short period of time which was not believed by the AO on the principles of preponderance of human proba....
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....enue to prove that the assessee was involved in the collusion with the entry operator/ stock brokers for such an arrangements. In simple words, there were not brought any evidence from independent enquiry to corroborate the allegation. In holding so we draw support and guidance from the judgment of Hon'ble Delhi High court in case of Pr. CIT vs. Smt. Krishna Devi reported in 126 taxmann.com 80 where it was held as under: 11. On a perusal of the record, it is easily discernible that in the instant case, the AO had proceeded predominantly on the basis of the analysis of the financials of M/s Gold Line International Finvest Limited. His conclusion and findings against the Respondent are chiefly on the strength of the astounding 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing a....