TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 431
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....e AO not supplying necessary material to the appellant on the basis of which impugned addition has been made and also not providing appellant with the opportunity to cross examine persons whose statements were recorded u/s 133A of the Act. 3. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 4. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld. AO in levying interest u/s.234A/B/C of the Act. 5. The learned CIT(A), has erred in law and on facts of the case in confirming action of the Ld.AO in initiating penalty u/s.271(1)(c) of the Act. The appellant craves, leaver to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 3. The only effective issue raised by the assess....
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....G and STCL etc. M/s Comfort Fincap Ltd is included in the list of 84 scripts identified by the DDIT-Kolkata. It was also found that the investigation wing of income tax Mumbai also carried survey proceeding at the premises of Comfort group wherein statement of Shri Anuj Aggarwal an entry operator and key person of "comfort group" (Comfort Fincap Ltd and Comfort Securities Ltd) was recorded. Shri Anuj Aggarwal exclusively admitted that he has provided accommodation entry through the script of M/s Comfort Fincap Ltd. 4.3 The AO on analysis of trade data from BSE also found that the counter party (exit provider) who purchased shares from the assessee were also managed by entry operator. In the proceedings under section 133A/132 of the Act carried by DDIT Kolkata, the director or key person of counter parties in their respective statement accepted to have been providing accommodation entries. For example, in the case of counter party namely M/s East India Securities Ltd (who purchased shares of M/s Comfort Fincap ltd from assessee for Rs. 59,35,051/-), the statement of key person namely Shri Arun Khemka, Balram Dalmia and Vivek Aggarwal were recorded and all of them categorically acce....
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....ities Ltd which in factually incorrect. The AO alleged that the impugned script was rigged up but nowhere pointed out who rigged up the price of script and further he has no knowledge of such activity of rigging up the price. It was further alleged that the trading of impugned scrip was suspended by the SEBI. However, the script is very much trading at the BSE currently i.e. as on 25-01-2018. 7.1 The assessee further submitted that the AO referred to the principle of test of preponderance of human probability and surrounding circumstantial evidence but the same cannot be applied in his case. In his case, the profit was earned on sale of shares which was based on documents therefore test of human probability cannot be applied in the present case. 8. However, the learned CIT(A) after considering the assessment order and submission of the assessee sustained the addition made by the AO by observing as under: The submissions of the appellant have been considered. However, there is no substance in the same. In fact many of the submissions are factually incorrect. The shares traded are Comfort Fincap while the appellant in parts of his submission mentions the scrip as 'Confidence ....
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....ppellant did not do so. Thus the appellant failed to discharge the onus cast on him to prove the presumption of AO wrong. Thus there is no substance in various contentions of the appellant. Further, there are several other peculiar aspects/facts in respect of transaction by the appellant of this scrip which cast a huge shadow of doubt over the genuineness of this transaction. Some of these facts/aspects are detailed below : (1) The appellant is a resident of Bhavnagar, Gujarat. From here the appellant invests in a Mumbai based company. In the normal course this would not raise any suspicion. But here it is a totally non-descript company with hardly any business activity and any significant performance. So it raises suspicion as to why would the appellant Invest a huge amount in such a company. (11) Further, as per statement of the appellant before the AO, he didn't know any of the directors of the company. Despite this the appellant applies for and gets 2,00,000 shares in preferential allotment. (ii) The timing of the transaction is perfect. The scrip is purchased on 15.03.2011, dematerialized on 31.0.2011 and sold between January, 14 and February, 2014, just outsid....
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.... if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz, the receipt of money, and if he falls to rebut, the said evidence being unrebuted, can be used against him by holding that it was a receipt of an income naturs, White considering the explanation of the assessed the department cannot, however, act unsasonably- Sreelatha Banerjee's case (supra) at p. 120. 12. The matter has to be considered in the light of human probabilities.... An Inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an Inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the app....
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....tingly, the same. The authorized signatory of both the companies was also the same person. The purchase of shares of both the companies was done by the assessee through Global Stock and Securities Ltd and the address of the said broker was incidentally the address of the two companies. Both the companies Intimated the assessee- on 07.04.2004 regarding the merger of the companies with another company, viz. Khoobsurat Limited, Kolkata and the assessee received the shares of the new company in the ratio of 1:4 of the number of shares of the previous two companies held by the assessee. The assessee sold 2200 shares at an exorbitant rate of Rs. 486.55 per share on 07.06.2005 and 800 shares on 20.06.2005 at the rate of Rs. 485.65. The shares were sold through another broker, viz. Ashish Stock Braking Private Limited. The proceeds from the aforesaid sale transaction were directly credited by the broker in the Savings Bank Account of the assessee in the Union Bank of India. The assessing officer did not accept the case of the assessee that she was entitled to exemption under Section 10(38) of the Income Tax Act. The assessing officer held that the aforesaid transactions of purchase of two ....
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.... clear finding of fact that the assessee had indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. While so observing, the authorities held that the assessee had not tendered cogent evidence to explain as to how the shares in an unknown company worth Rs. 5/- had Jumped to Rs. 485/- in no time. The Income Tax Appellate Tribunal held that the fantastic sale price was not at all possible as there was no economic or financial basis as to how a share worth Rs. 5/- of a little known company would jump from Rs.5/- to Rs. 485/-- The findings recorded by the authorities are pure findings of facts based on a proper appreciation of the material on record. While recording the said findings, the authorities have followed the tests laid down by the Hon'ble Supreme Court and this Court in several decisions. The findings do not give rise to any substantial question of law. The judgments reported Int (2012) 20 Taxman.com 529 (Bombay) (CIT Versus Jamnadevi Agrawal), (1957) 31 ITR 294 (Bombay) (Puranmal Radhakishan Versus CIT), (1970) 77 ITR 253 (5C) (Raja Bahadur Versus CIT) and (2015) 235 Taxman 1 (Bom) (CIT Versus Smt. Dette ....
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....oss-examination. Therefore, no adverse inference based on such materials can be drawn against the assessee. 10.3 The learned AR also submitted that the principles laid down by the Hon'ble Calcutta High Court in the case of PCIT Vs. Swati Bajaj reported in 446 ITR 56 were not applicable to the case in hand. To this effect, the learned AR has filed the written submission which is reproduced as under: The captioned appeal was heard on 22.12.2022 and Hon'ble the ITAT had asked us to place on record "statement of investments as at 31.03.2014". The said statement is annexed herewith and marked as Annexure "A". Hon'ble the ITAT further asked us to place on record a small note so as to demonstrate as to how decision of Hon'ble Calcutta High Court in the case of "PCIT vs. Swati Bajaj - (2022) 446 ITR 56 (Calcutta)" cited by the revenue. In this regard, assessee most respectfully submits as follows: Factors which weighed with Hon'ble the Calcutta High Court were report of Investigation Wing, huge fluctuations in the price of the underlying scrip, substantial gain earned by various persons pursuant to selling shares of the underlying scrip as well as the fact that cer....
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....d in the synopsis of arguments filed during the course of hearing. There is no evidence to prove that there is any live nexus between the "assessee" & "entry provider" or "company in question or its directors". Unless such nexus is established by the revenue, all the persons who dealt with the scrip in question cannot be painted with the same brush merely certain persons indulged into bogus transactions in the scrip in question and made bogus gains. There is nothing on record so as to even remotely demonstrate that assessee has "paid any cash" to the buyer, broker or any other entry provider for taking entry in form of LTCG. As regards some "general information with AO", it is submitted that such "general information" with AO w.r.t. accommodation entries in relation to the scrip in question can, at best, be the "starting point of investigation" so as to find out whether assessee has actually earned genuine LTCG or has availed accommodation entries. However, such "general information" (which, in this case, has also not been parted with the assessee) can never take place of "evidence" to hold that assessee has earned bogus LTCG. In view of the above, it is most respectful....
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.... was increased manifolds in a short period of time which was not believed by the authorities below on the principles of preponderance of human probabilities in the given facts and circumstances. The rise in the price of the scripts of a company, having no financial base/business activity/profitability certainly gives rise to doubt about such an increase in the price. However, in the given case, the impugned company was engaged in business activity, and it was regularly showing income from operation, and having registration with RBI as NBFC. Further in our considered view, the sharp rise in the price of script cannot be a sole criterion for reaching to the conclusion that the price was rigged up to generate the long-term capital gain which is exempted under section 10(38) of the Act. Such observation during the assessment proceedings provides a reason to investigate the matter in detail and the same cannot take the place of the evidence. But in the case in hand, there was no enquiry conducted either by the SEBI or the stock exchange with respect to rigging up of the share price of M/s Comfort Fincap Ltd. by the assessee or his broker. As such the assessee carried out the transaction....
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....incap Ltd. Similar, admission was also made by the other stockbroker during the search and survey proceeding conducted by the DDIT Kolkata in the matter of penny stock. However, their statements were not provided to the assessee for the rebuttal and cross examination. It was also not brought on record that any of the person whose statement was recorded has taken the name of the assessee or his broker. We also note that there was no allegation against the broker i.e. ICICI securities through whom the assessee sold the impugned scrip. What has been adopted by the AO for making the addition was the modus of operandi highlighted by the investigation wing of Kolkata. To our understanding, the mere modus of operandi cannot be the basis of making the addition or treating the capital gain as bogus until and unless it is supported by the material documents. On analyzing the facts of the present case, we note that the AO on one hand has alleged that the entire transaction was bogus but on the other hand the AO himself has allowed the cost of acquisition against the sale of shares, meaning thereby, the purchase of the shares has been admitted as genuine. The transactions of purchase and sales....
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....n the broker namely M/s Basant Periwal & Co. was found to be indulged in manipulation of the price of script of Ramkrishna Fincap Ltd. Thus, the case of the assessee was reopened and finally the exempted long- term capital claimed by the assessee was held as bogus by the AO and added to total income in accordance with provision of section 68 of the Act. In this backdrop the coordinate bench adjudicated the issue in the favor of the assessee by observing as under: "8. We have considered rival contentions and carefully gone through the orders of authorities below and found from the record that the AO has treated the share transaction as bogus on the plea that SEBI has initiated investigation in respect of Ramkrishna Fincap Pvt. Ltd. The AO further stated that investigation revealed that transaction through M/s Basant Periwal and Co. on the floor of stock exchange was more than 83%. We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT(A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not f....
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..... Purchase consideration of shares was paid through cheque. 2. Share was duly dematerialized in demat account. 3. Shares were sold through the stock exchange after the payment of STT. The transactions have been confirmed by brokers. 4. The payments are received through ECS through demat account. 5. Inflow of shares are reflected in demat account. Shares are transferred through demat account and buyer are not known to the assessee. 6. There is no evidence that the assessee has paid cash to the buyer or the broker or any other entry provider for booking LTCG and share were purchased by the determined buyer. 7. The assessee has no nexus or any relation with the company, its director or entry operator. 8. The assessee may have got only incidental benefit of price rise. 9. The opportunity of cross examination has not been extended to the assessee despite having the request from the assessee. 12.8 From the above, the conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong ....
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....shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. Justice cannot be delivered in a mechanical manner. In other words, what we see on the records available before us, sometimes we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished, and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good faith. Furthermore, the shares were held by the assessee for almost 3 years. As such the assessee purchased the impugned shares on 15th March 2011 and sold the same during the pe....
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....er. 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 on record. This finding is thus purely an assumption based on conjecture made by the AO. This flawed approach forms the reason for the learned ITAT to interfere with the findings of the lower tax authorities. The learned ITAT after considering the entire conspectus of case and the evidence brought on record, held that the Respondent had successfully discharged the initial onus cast upon it under the provisions of Section 68 of the Act. It is recorded that "There is no dispute that the shares of the two companies were purchased online, the payments have been made through banking channel, and the shares were dematerialized and the sales have been routed from de-mat account and the consideration has been received through banking channels." The above noted factors, including the deficient enquiry conducted by the AO and the....
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....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. Ld. 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, ld. A.R. also cited an order of Co-ordinate Bench in ITA No. 62/Ahd/2018 in the matter of Mohan Polyfab Pvt. Ltd. vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the ld. A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee. 12.14 At this juncture, we also feel pertinent to refer the order of coordinate bench of Indore Tribunal in case of Shivnarayan Sharma & Ors bearing ITA Nos. 889/....
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....rsons who accepted to have provided accommodation entries for the bogus LTCG, to the assessee. 18. We observe that all the above stated facts and the issue of genuineness of LTCG and failure of the Ld. A.O to provide opportunity to cross examination by the assessee with regard to the addition made u/s 68 of the Act for the sale consideration received from sale of equity shares of M/s SAL and addition for estimated brokerage expenses has been dealt by the Co-ordinate Bench of Mumbai Tribunal in the case of Dipesh Ramesh Vardhan V/s DCIT (supra) and the same is squarely applicable on the instant appeals. ******************* 23. We therefore in the light of above judgments which are squarely applicable in the issues raised in the instant appeals are of the considered view that the claim of Long Term Capital Gain made by the respective assessee(s) deserves to be allowed as they have entered into the transactions of purchase and sales duly supported by the documents which have not found to be incorrect. The conditions provided u/s 10(38) of the Act have been fulfilled by the assessee(s) namely Shivnarayan Sharma, Sapan Shaw, Prayank Jain, Govind Harinarayan Agrawal (HUF) and Ma....
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....chand Chellaram reported in 125 ITR 713 held that the income tax authorities before relying upon any material are required to provide such material to the assessee for rebuttable. The relevant observation of the Hon'ble Apex Court is extracted as under: It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 12.16 In the case on hand, the revenue authorities to hold the transaction carried out by the assessee as sham transaction referred and relied on material and statements of various broker or entry operator recorded or collected by the DDIT Kolkata and Mumbai. However, any material/ statement was neither provided to the assessee for his rebuttable nor any independent cogent material....