NATWAR LAL DAGA,MUMBAI vs. CIT (A)-52, MUMBAI

1. These appeals are cross appeals filed by assessee and revenue against different orders of the Learned Commissioner of Income Tax (Appeals) – 52, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 29.01.2021 for the A.Y. 2012-13, 2013-14, 2014-15 and 2015-16.

2. At the outset, we observe that assessee has raised additional grounds of appeal for the A.Y. 2013-14, 2014-15 and 2015-16. As the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds of assessee.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Search and seizure operations were also carried out by the Investigation Wing of the Income-tax Department, Mumbai on the assessee between 13.06.2014 to 15.06.2014. During search, three ledger accounts, main being R.K. Mall, found at the premises of Mr R.K.Kedia during the search proceedings carried out on him, have been used for the purpose of making additions in the hands of the assessee.

4. Mr R.K. Kedia stated the name of the assessee in his statement on oath dated 13.06.2014, identified the assessee with the three scrips namely Rander Corporation Ltd, Mishka Finance and Trading Ltd and Dhenu Buildcon Ltd, where the assessee has been associated for providing LTCG, etc.

ITA.No. 398/MUM/2021 (A.Y. 2014-15) – Assessee Appeal ITA.No. 573/MUM/2021 (A.Y. 2014-15) – Revenue Appeal

5. We shall take up the Assessment Year 2014-15 as the lead year considering the fact that Ld.CIT(A) has considered income-tax assessment year 2014-15 as the lead year for the reasons mentioned in Page No. | 3

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Para No. 1.1, Page No. 2 of appellate order. Let us deal with the issues ground wise of both cross appeals as under:

6. Assessee has raised following grounds in its appeal: - “1. The Ld. AO has made addition and Ld. CIT(A) has erred in confirming the part addition without discovering any undisclosed income or undisclosed assets during search.

2. The Ld. AO has erred and Ld. CIT(A) has erred in confirming the addition on estimation basis in search case.

3. The Ld. CIT(A) has erred in confirming the estimated addition to the tune of Rs.2,25,83,218/- on account of commission on Long Term Capital Gain.

7. Revenue has raised following grounds in its appeal: - “1. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting addition of aggregate amount of Rs 19,30,17,562 as commission income @1.15% instead of @4.75% of the turnover for providing Long Term Capital Gain entries as determined in the Assessment Order without any new factual finding to the contrary.

2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting to 4.75% instead of 6% on considering the long term capital gain by the appellant of Rs 92,40,565 as unexplained cash credit u/s 68 of the Income tax Act along with payment of commission on such bogus LTCG of Rs 5,54,434.

3. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs. 75,00,000 on account of alleged cash transactions undertaken by Page No. | 4

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga the appellant with Mr. Prop. Amarchandji, the addition of ₹.1,72,00,000 on account of alleged cash transactions with RKK and the addition of Rs. 30,00,000 in connection with the message sent by the appellant Mr. Krishan Kumar Khadaria by presuming these transactions to be part of total turnover of these scrips, already taxed, without any new factual finding to the contrary.

4. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A)'s order is inconsistent in the sense that a commission note of 1.15% has been adopted for ground nos 3,4 &5 while on commission rate of 4.75% has been adopted for ground nos 6&7, without any substantive factual finding to merit these modifications to the Assessment Order.

“1. The Ld. AO has made addition and Ld. CIT(A) has erred in confirming the part addition without discovering any undisclosed income or undisclosed assets during search.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga the assessment for the year under reference shall abate. Accordingly, this ground is dismissed as not pressed.

“2. The Ld. AO has erred and Ld. CIT(A) has erred in confirming the addition on estimation basis in search case. 3. The Ld. CIT(A) has erred in confirming the estimated addition to the tune of Rs.2,25,83,218/- on account of commission on Long Term Capital Gain.

12. On identical issue in Ground No. 1 and 4 of grounds of appeal of revenue appeal, Revenue has raised following grounds in its appeal: - “1. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting addition of aggregate amount of Rs 19,30,17,562 as commission income @1.15% instead of @4.75% of the turnover for providing Long Term Capital Gain entries as determined in the Assessment Order without any new factual finding to the contrary.

4. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A)'s order is inconsistent in the sense that a commission note of 1.15% has been adopted for ground nos 3,4&5 while on commission rate of 4.75% has been adopted for ground nos 6&7, without any substantive factual finding to merit these modifications to the Assessment Order.”

13. This ground is relating to estimation of commission income on providing of alleged accommodation entries. The Assessing Officer

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga observed that assessee is part of the Group actively involved in providing accommodation entries of long-term capital gains to various beneficiaries, and identified, on the basis of the statement on oath of Mr.R.K.Kedia, in which three scrips alleged to be controlled by the assessee, namely, Rander Corporation Ltd, Mishka Finance and Trading Ltd and DhenuBuildcon Ltd. The Assessing Officer thereafter, estimated the alleged commission income earned at the rate of 4.75 per cent and made an aggregate addition of ₹.11,02,33,171/-.

Addition made by Addition Sr the Assessing sustained by the Name of the scrip no Officer at the rate CIT(A) at the rate of 4.75 per cent of 1.15 per cent 1 Rander Corporation Ltd 9,19,82,656 2 Mishka Finance and 9,81,24,795 Trading Ltd

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Addition made by Addition Sr the Assessing sustained by the Name of the scrip no Officer at the rate CIT(A) at the rate of 4.75 per cent of 1.15 per cent 3 Dhenu Buildcon Ltd 29,10,111 Total 19,30,17,562 2,25,83,218

a. Ledger accounts run into 870 number of pages, having a total of 224 ledgers and 30 groups b. Ledger accounts have been maintained by Mr R.K. Kedia on tally software and transactions are recorded along with detailed narration and voucher number c. Ledger accounts cover the period 01.04.2008 to 31.03.2015 d. Transactions recorded under the head “Thakur” depict cash payments amongst various entry operators e. RTGS Transactions have been set off against cash/ Thakur transactions which indicate that accommodation entries are provided by Mr R.K.Kedia in collaboration with various entry operators in different parts of the country.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga f. The ledger accounts have been prepared with the intention to keep a record of how much money has been received/ paid to/ from various fellow entry operators based in different cities so as to determine the actual balance for the purpose of settling the accounts with different operators g. The transactions shown by way of bank/ RTGS are duly verified and the same matches with the transactions appearing in the bank accounts and the books of account of various concerns h. Mr R.K.Kedia in his statement on oath recorded during the course of search, has admitted and elaborated the aforesaid ledger accounts seized from his premises and true nature of transactions appearing therein. It has been categorically admitted by him and his employees involved in recording these transactions that these accounts reflect the true nature of accommodation entry racket run by him in collaboration with various entry operators based at different cities all over the country. i. It is pertinent to note that the aforesaid seized documents and the statement on oath of Mr R.K.Kedia have been independently corroborated with the evidence gathered from the analysis of various penny stock scrips. The financial statements of such scrips alongwith trade data on the bourses of the companies have been independently established that such scrips were being used solely for the purpose of generating illicit long-term capital gains in the hands of beneficiaries to help them build capital and evade tax. j. In view of the above, the various evidences gathered from multiple sources and corroborated by one another establish beyond doubt that Mr R.K.Kedia and other entry operators were involved in providing accommodation entries to various beneficiaries across the country. k. Mr R.K.Kedia while elaborating the modus operandi and the transactions recorded in the above ledger accounts has also identified the various individuals based at Mumbai, Kolkata and other cities who have carried out these transactions. These transactions are independently corroborated with the bank statements appearing in the statements/ books of Page No. | 9

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga account of such other individuals. Therefore, the involvement of such other individuals in the racket of providing accommodation is also established beyond doubt.

 Three ledger accounts found at the premises of Mr R.K.Kedia pertain to the assessee or his concerns  Failure of the assessee to avail the opportunity to cross examine Mr R.K.Kedia  The material found and seized from the back office of Mr R.K. Kedia contains ledgers of various beneficiaries who obtained bogus LTCG through Mr R.K. Kedia and the same is confirmed by Mr Manish Arora.  The action initiated by the Investigation Directorate resulted in unearthing of LTCG entry scam of very large magnitude  Some of the beneficiaries who reaped similar LTCG have admitted that they have obtained entry of bogus LTCG in the aforesaid scrips and admitted of having paid commission of 5-6% in cash.  During the course of search on the assessee, a number of incriminating documents were found and seized and statement of assessee was also recorded. The contents of the documents seized, statement on oath of the assessee and enquiries conducted strengthened that assessee is involved in business of providing accommodation entries  During many searches conducted by the Directorates of Income-tax (Inv), Delhi, Mumbai and Kolkata, it has been established that Mr Krishan Kumar Khadaria is an Page No. | 10

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga accommodation entry provider involved in providing different types of accommodation entries.  Reference of statement on oath of Mr Sanjay Dev and Mr Subrata Haldhar, persons using the terminal to trade in shares of listed companies. Further, Mr Sanjay Dev admitted that his company purchased shares of alleged companies to rig the prices of such companies and thereby enable the beneficiaries to sell shares at high rates and earn LTCG. Cash funds for this were supplied by such beneficiaries of LTCG. His statement is confirmed by Mr Subrata Haldhar.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Khadaria for the purpose of providing accommodation entries to beneficiaries.

(b) Mishka Finance and Trading Ltd

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga allottees and exit providers. Further, observed that entire modus operandi of allotting shares on preferential basis at a premium, announcing stock split, etc was a scheme devised to make ill-gotten gains. The modus operandi of pumping up the share price artificially and then dumping the price so that same cycle could be repeated, demonstrates the mala fide of the Mishka Group and the funds received as proceeds of preferential allotment were transferred to various entities and were not used for the purposes as envisaged in the special resolution. The exit providers, preferential allottees and promoter related entities used securities market system to artificially increase volume and price of the scrips for creating bogus non-taxable profits, the trade volume and price of scrip increased substantially only after Exit providers, preferential allottees and promoter related entities started trading in the scrip.

(c) Dhenu Buildcon

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Ltd : I know Mr Himmat singka, who is the director of this company. I arranged investors for preferential shares issued by this company in 2013. It is engaged in Real Estate. And that “Sir, I have received investment through Mr.Kedia in Dhanleela and Dhenu for my professional colleagues in their companies namely Dhanleela and Dhenu. And I am unable to give beneficiaries details because I don’t know about that type of deal. I have got simple investment in the preferential issue ”

22. Mr R. K. Kedia in his statement on oath at Question 11 stated “Dhanleela Investment & Trading Company and DhenuBildcon Infra Ltd are merely paper companies whose main business is to provide long term capital entries to various beneficiaries”

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

24. Assessing Officer observed that Mr R.K. Kedia admitted that Rander Corporation Ltd and DhenuBuildcon Infra Ltd is under the control and management of Krishan Kumar Khadaria and is in the same business of providing accommodation entries. Mr Manish Arora main employee of Mr.R.K.Kedia admitted that shares of the company were jacked up and Mr R.K. Kedia manages and arranges sale and purchase of shares in the scrips and the assessee has arranged investors for preferential issue on the instructions of Mr Krishan Kumar Khadaria.

25. The Investigation Wing detected that the abovementioned companies are not carrying out any actual work. It is found that there are no substantial business transactions in the said companies and trading in shares has been manipulated for providing profitable exit to various beneficiaries by availing them bogus LTCG.

26. During the course of search on Kedia group, Mr R.K. Kedia deposed on oath that he is a commission agent who arranges different types of accommodation entries.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

27. Subsequently, in appellate proceedings, Ld.CIT(A) observed as under:

9.1 On examination of the seized documents, it is noted that the contents of the ledger account mostly relate to the scrips attributed to the assessee by Mr R.K. Kedia that s, Rander Corporation Ltd, Mishka Finance and Trading Ltd and DhenuBuildcon Infra Ltd. 9.2 The SMS messages located on the mobile phone directly correlate with the ledger entries. There is direct linkage between ledger account and SMS messages found on the mobile of the assessee. It is clear that the ledger account relates to transactions undertaken with various scrips in which assessee has a role to play. 9.3 The clue provided by Mr R.K.Kedia that entries in “Thakur” account relate to cash and this is further, confirmed from linking the SMS messages with ledger account entries. There are sufficient cash entries in the ledger which are counter verified by some of the SMS found. 9.4 The Daga_advance account has only cash entries of Rs 40 lakh. Daga loan account has entries wherein funds have been received from Shefali Investment, a concern owned by the assessee and return of such funds. Merely because assessee has refused to answer any question related to ledger account does not mean the ledger account loses its sanctity as an important piece of evidence. 9.5 The ledger account although not representing the complete details of transactions in respect of various beneficiaries supposedly operated by the assessee, represents important evidence with respect to the nature of business activities of the assessee. The ledger has complete set of entries for AY 2014-15, while for other years, no such ledger is available. The claim of the assessee that the ledger accounts are unreliable evidence is not found acceptable and rejected. 9.6 The statement on oath of Mr R.K.Kedia is a corroborative statement which explains and supports the documents found

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga and seized from various places as well as peculiar fluctuation in price of scrips which have been manipulated.

“At the outset, we on behalf of our client, submit that all the factual allegation, contentions and averments made by the Assessing Officer and the CIT(A) in their respective orders are specifically denied in its entirety, as being erroneous and the same may be treated as denied in seritum. No part be deemed to have been admitted by our client on account of express non-traversal or non- denial thereof. With regard to action of the Assessing Officer and CIT(A) in treating the assessee as accommodation entry operator– The assessee contends that the action of the Assessing Officer and the CIT(A) in treating the assessee as an accommodation entry operators is incorrect and baseless for the following reasons - (a) On perusal of the Balance sheet of the assessee for the year ended 31st March, 2014 (pages 37 to 40 of the paper book), it can be observed that the Balance sheet of the assessee is not that of typical accommodation entry operators, inter alia depicting huge unsecured loans or creditors on the liability side and loans and advances, investments in shares and securities or debtors on the assets side. An analogy can be drawn from the observation made by the Assessing Officer regarding search action on Mr R. K. Kedia wherein 224 ledger accounts of 30 groups have been found; however, nothing of such large scale magnitude is found at the premises of the assessee. Thus, itself proves that assessee is not an accommodation entry operator. (b) The Investigation Wing during the course of search action has not found undisclosed cash or undisclosed investments, which would otherwise be found if the assessee was an accommodation entry operator as alleged by the Assessing Officer and the Ld.CIT(A). Re Thakur Account - The Assessing Officer has stated that “Transactions recorded under the head “Thakur” depict cash

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga payments amongst various entry operators” and “RTGS Transactions have been set off against cash/ Thakur transactions which indicate that accommodation entries is provided by Mr R.K. Kedia in collaboration with various entry operators in different parts of the country.” – this means that “Thakur” account is the account for cash entries. For example, if a cheque/ RTGS is given to a Beneficiary (say, B), then the balancing entry would be a debit to Thakur account, that is, B would give cash and hence, Thakur account would be debited. Thus, for every regular entry, the opposite and equivalent entry would be to the account of “Thakur” 10.1.1.1 With regard to the three ledger accounts attributed to the assessee by the Assessing Officer – (a) Ledger account with the name “Daga_Loan A/c” (pages 359 and 360 of the general paper book) – The assessee contends that the transactions in the ledger Daga_Loan A/C are in the books of Venkatesh Sales, a concern of Mr R.K. Kedia and are not related to the assessee, but pertain to the transactions with Shefali Investment Pvt Ltd, a group concern of the assessee, and the same is through banking channels. The assessee has furnished a ledger account from the books of account of Shefali Investment Pvt Ltd that contain the aforesaid entries in the books of Venkatesh Sales, to corroborate that all the transactions are accounted for and are through banking channels. It is crystal clear that the transactions in the said ledger account merely represent loan obtained by the said concern of Mr R.K.Kedia from Shefali Investment, which has been subsequently repaid. Thus, the aforesaid ledger account does not in any way contain any transaction of accommodation entry as is alleged by the Assessing Officer and the CIT(A). (b) Ledger account with the name “Daga_Advance A/c” (pages 361 of the paper book) – The aforesaid ledger account is for the period 01.08.2013 to 31.03.2015 showing an opening debit balance of Rs 40 lacs as on 01.08.2013 in the books of account of Venkatesh Sales which has been transferred by journal entries passed on 31.08.2013 and 30.09.2013. This account, it is submitted, does not pertain to the assessee, but is a dummy account created by Mr R.K.Kedia for a purpose, best known to him; only he could have thrown light on this account; however, no questions asked by the Investigation Officer or the Assessing

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Officer to Mr R.K. Kedia in respect of this ledger account. In any view of the matter, there are only journal entries in this account and hence, no cash involved. Thus, this account does not support the allegations of the Assessing Officer. Thus, the aforesaid ledger account does not contain any cash transaction as alleged by the CIT(A). (c) Ledger account with the name “R K Mall A/c” (page nos 362 to 414 of the general paper book) – (i) The aforesaid ledger is in the name of R K Mall and hence, is not of the assessee. This account is of an employee of the assessee. (ii) The assessee contends that in the aforesaid ledger account there is no mention of the name of the assessee; thus, the account being attributed to the assessee is the fragmentation of the mind of the Assessing Officer/ CIT(A). In the entry in this account, the name of the buyer/ seller is debited/ credited and in the narration the details of the entry is given that is, number of shares of a particular scrip purchased/ sold are given. Thus, the name of the buyer/ seller is given; it is incomprehensible that neither the Investigation Officer nor the Assessing Officer took any pains to inquire the nature of the trader and the facilitator of such trades from the buyer or the seller. This exercise would have cleared all doubts of the Assessing Officer (iii) Refer ledger account and entry dated 02.04.2013 giving the name of Naresh Garg – a. No inquiry made by the AO from Mr Naresh Garg re. the entry found in the ledger account of R.K. Mall. b. Similarly, there are other names in the ledger accounts namely Kamdhenu, NP, FBL_ESL, Chetan and so on. c. none of the entry pertains to the assessee. d. No inquiry made by the AO from these persons as well. The AO ought to have issued notice to these persons under section 133(6) or 131 of the Act to satisfy that ledger account of R.K. Mall is connected with/ linked to the Page No. | 19

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga assessee before making the impugned addition in the hands of the assessee. e. The AO has not linked any of the entries in the said ledger account with “Thakur account” – an important exercise, he ought to have carried out before making the impugned addition f. There are no SMS messages pertaining to impugned R.K. Mall ledger account even though the AO has mentioned six messages from the mobile of the assessee and none correlated to R.K. Mall ledger account. g. Before making addition, the AO ought to have connected/ linked this ledger account of R.K. Mall to the assessee or Mr R.K. Mall himself (employee of the assessee) h. There is no similar ledger account found at the premises of the assessee and therefore, the ledger account of R.K. Mall found at the premises of Mr R.K.Kedia does not pertain to the assessee and no addition is warranted on the basis of this ledger account. Therefore, the addition made only on the basis of this ledger account found at premises of Mr R.K.Kedia without being connected/ linked to the assessee, cannot be done so. (iv) Further, from the aforesaid ledger account it is not discernible as to how the assessee is engaged in providing accommodation entries since, if the assessee would be involved in such alleged dubious activity, incriminating documents would have been found by the Investigation Wing from the premises of the assessee, just as they have found in the case of Mr R K Kedia. (v) It is pertinent to note that the said ledger account has an opening balance of Rs 75,25,211 as on 01.04.2008 and that there are no transactions till 31.03.2013. Then, there are entries during the financial year 2013-14, and the account abruptly stops on 31.3.2014, that is the last entry is on 31.3.2014, though it is very pertinent to note that the ledger account period mentioned is from 1st April, 2008 to 31st March, 2015. Thus, because the account is till 31.3.2015, ideally there should have been entries after 31.3.2014, atleast till the date of search on 13.6.2014, as no one has stated that the business with/ by the assessee is carried on only till 31.3.2014. It is curious

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga then, Why there are no transactions after 31.03.2014 till the date of search that is, 13.06.2014. This only indicates that Mr R.K. Kedia was managing the accounts to suit his purpose. It seems the ledger account is created by Mr R.K.Kedia to hide the identity of the real person(s) and to suit his personal agenda best known to him; thus, for the assessee it is merely a dumb account (vi) It is imperative to mention that in the entire statement on oath of Mr R.K.Kedia (pages 124 to 136 of the general paper book), there is no question asked regarding the abovementioned ledger account. The Assessing Officer though has relied upon the said ledger account, however, has not bothered to confirm the same from Mr R.K. Kedia that aforesaid ledger account indeed belongs to or pertain to the assessee; instead, on presumptions, assumptions and surmises considered the same for alleging that the assessee is an accommodation entry provider. (vii) The Assessing Officer has not linked any transaction in this account with “Thakur account”; as the entire basis of the Assessing Officer is that “Thakur account” is the balancing account representing cash account, and hence, the Assessing Officer ought to have developed a connect between R.K. Mall account and Thakur account to suggest that R.K. Mall account is for providing accommodation entries. (viii) Thus, the Assessing Officer has not correlated any of the transaction in this account to the assessee (ix) Further, is it not strange that there are so many transactions in the account of R.K. Mall which runs from page nos 362 to 414 of the general paper book, but not even a single SMS found in the mobile of the assessee in respect of any transaction recorded in this account ?? The above only indicates that Mr R.K. Kedia has written this account to suit his purpose, and that the assessee is not involved (x) Refer Statement on oath of Mr R.K. Mall (employee of the assessee) – No query raised. this ledger account by the Investigating Officers either during the course of search or post search proceedings.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga (xi) No query raised re. this account in the statement on oath of the assessee by the Investigating Officers either during the course of search or post search proceedings.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga statement on oath of Mr R. K. Kedia cannot be relied upon and ought to be ignored.

1. Mr R. K. Kedia may have accepted of doing the business of alleged accommodation entry business in his statement on oath, however, cannot by any stretch of imagination mean that even assessee is engaged in such alleged business.

2. The assessee on becoming aware of the fact that Mr R.K. Kedia in his statement on oath recorded by the Investigating Officer has alleged that the assessee is engaged in providing accommodation entry, served a legal notice on him through his advocate, Mr Prasad Borkar to withdraw the allegations made by him and issue necessary clarification, failing which preemptory instructions are given to initiate appropriate civil and criminal proceedings – refer page nos 174 and 175 of the general paper book 2. Re. three scrips identified by Mr R.K.Kedia associated with the assessee 1. Re. Rander Corporation Ltd 1.1 In the statement on oath of Mr Amarchand Rander recorded during survey on 13.06.2014, (refer page nos 118 to 123 of the general paper book) there is no whisper of accommodation entry being provided by the assessee. Infact, it is clearly discernible from the statement that the Company received Rs 7 crores from preferential allotment which has been deployed in on-going projects and to clear the debts (refer Question nos 12 to 14). Thus, there is no accommodation entry being provided and hence, reliance placed by the Assessing Officer on the statement on oath of Mr Amarchand Rander is misplaced. 1.2 Further, the statement has been recorded under section 131 of the Act by an Officer during survey proceedings; the Officer does not have powers to record a statement on oath during survey proceedings and hence, the statement of Mr Rander cannot be relied upon. 1.3 In any view of the matter, Mr Amarchand Rander has retracted his statement on oath recorded on 13.06.2014 by filing a sworn affidavit under cover of letter dated 17.06.2014 (photo copy already filed). Thus, the AO cannot rely on the retracted statement of Mr Amarchand Rander notwithstanding, the fact that nothing is Page No. | 23

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga mentioned that reflects against the assessee for providing any accommodation entry 1.4 Further, in para no 8.15 of the assessment order, the Assessing Officer states that Rander Corporation Ltd is managed by Mr Krishan Kumar Khadaria. Thus, the assessee is erroneously stated to be involved in providing accommodation entries in the nature of LTCG, etc. 1.5 Also, refer page nos 345 to 348of the general paper book that gives the names of the promoters – Rander family. The name of the assessee is missing. 1.6 The CIT(A) avers that preferential investors are not regular market players or exposed to share market nitty gritties; again an averment without any basis, without giving any details of such preferential investors. These are only presumptions and bald statements, without knowing the facts and bringing them on record. Further, does he mean that only regular investors or experienced share market participants subscribe to preferential allotment of companies?? Others cannot??. It would not be out of place to mention that in India even today only a small proportion of citizens are engaged in share market activities and the Government itself is taking various steps to encourage general public to invest in the stock markets. 1.7 It is imperative to mention that inspite of the company Rander Corporation finding place in the Report of the Investigation Wing, Kolkata covering 84 scrips, and available on the web site of the Department, on the basis of which the SEBI did cover a few companies for investigation into the alleged wrong-doings of various persons in manipulation activity to get the benefit of LTCG, etc for the beneficiaries, the SEBI in its wisdom, did not cover the company Rander, thereby signifying no presence of wrongful activity in this particular scrip. 1.8 Please find enclosed a statement giving details extracted from the BSE. Few events have been enumerated from the period July 2011 to September 2013 which shows that Rander is actively engaged in the business carried on by the Company.The Company is ISO certified, has received import export license, has declared dividend, has set up Roller flour mill and so on, and all these during the years 2011 to 2013 being years which are in proximity to the year of appeal.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga laid down by Hon’ble Supreme Court in the case of Andaman Timbers, and hence, the said statements cannot be used against the assessee.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga R.K.Kedia was during the same time period. It is submitted that there has to be a direct and clinching evidence to prove that the assessee has indeed facilitated in alleged price rigging activities or accommodation entries. Courts have time and again held that suspicion howsoever strong, cannot take place of hard evidence and suspicion cannot be a basis of making additions.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga has no control and as such, impugned ledger accounts cannot be considered as valid piece of evidence.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga evidence found and seized from the premises of the assessee that bear any relation to the three ledger accounts found at the premises of Mr.R.K. Kedia. The Assessing Officer in framing the impugned assessment order has relied on the said ledger accounts seized at premises of Mr R.K.Kedia to implicate the assessee of being involved in providing accommodation entries.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Mr R.K.Kedia do not pertain to him. – refer para 15.2 of the assessment order

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga premises of Mr R. K. Kedia having any nexus with the assessee. The aforesaid seized document is found from the premises of Mr R.K. Kedia. It is submitted that the presumption of section 132(4A) and section 292CC is only vis-a-vis the person in whose possession or control the books of account, documents, etc are found, and not against any other person. For ready reference, the section 132(4A) is reproduced below –

“(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed— (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.”

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga hand, there is no seizure of books of account, but loose sheets, print-out from pen-drives, laptops, etc would qualify as “other documents”

(i) such books of account, other documents and cash belong to such person (ii) the contents of such books of account and other documents are true, vis-à-vis the persons in whose possession or control they are found

 Startex (India) (P.) Ltd vs DCIT – 84 ITD 320 (Mum)

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

“The presumption under section 132(4A) is in respect of the person in whose possession the books or documents are found. The use of the words ‘to such person’ in the said section means the person in whose possession the books of account or documents are found. Clause (ii) of section 132(4A) provides that the contents of such books of account or documents are true. This presumption can be applied only against the person in whose possession the books of account or the documents are found. Therefore, so far as the case of N.S. was concerned, the revenue authorities might presume that the books of account or documents found from his possession were correct. However, while utilising those documents in the case of any other person (i.e., the person other than N.S.), there could not be any presumption about the correctness of such books or documents. Therefore, the presumption under section 132(4A) is applicable only against the person in whose possession books of account or other documents are found and not against any other person. Moreover, the presumption under section 132(4A) is a rebuttable presumption and not a conclusive one. Certainly, the burden to rebut the presumption is upon the person against whom the presumption is applicable. The assessee, in its statement before the Assessing Officer, had denied having borrowed any money from ‘N.S.’ in cash.”  Sheth Akshay Pushpavadan vs DCIT – 130 TTJ 42 (Ahd) “The submission of the assessee had not been rebutted by the AO. It therefore, stands proved that there was no evidence on record that assessee paid any on money to any person including the seller. The presumption under s. 132(4A) would not apply in the case of the assessee therefore, it was necessary for the AO to have brought some reliable and cogent material and evidence on record to support his findings or to corroborate the statement of Arora Brothers. It may also be noted that Shri Ajay Arora in his statement later on retracted from his earlier statement as the same fact is mentioned by the AO in his assessment order dt. 28th Feb., 2008 (paper book 8-paper book 18) Therefore, no reliance could be placed on the statements of the Arora Brothers. Moreover, the AO has not mentioned

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga any fact in the assessment order if the statements of Arora Brothers were ever put to the assessee for the purposes of cross-examination on behalf of the assessee. It is settled law that unless the statement is tested under the cross- examination, the same cannot be read in evidence against the assessee. Since, in this case, AO did not allow any cross-examination to the statements of Arora Brothers on behalf of the assessee therefore, their statements cannot be read in evidence against the assessee. The AO tried to use the admission of Arora Brothers made in their statements under s. 132(4) in their cases against the assessee but he has failed to note that admission of others cannot be read in evidence against third party unless there is corroborative evidence on record. The maker of the admission can bind himself but how he can bind others from his statement without there being any corroborative evidence on record is not known in the law. As noted above, even Shri Ajay Arora in his statement, denied any on money paid by the assessee. No evidence was found in the case of the assessee that assessee has paid any on money before the date of the search or that the assessee was required to pay any on money after the date of the search. The AO merely considering the business relation between assessee and Arora Brothers presumed that since they have admitted payment of on money therefore, assessee might have also paid the on money. If Arora Brothers have not recorded any entry in their books of account as noted by the AO, how assessee could be blamed. The above conclusion of the AO is not supported by any material or evidence. The conclusion of the AO is purely based upon suspicion and surmises. It is settled law that suspicion howsoever strong may be could not take place of legal proof.”

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga said ledger account either during the search or post-search proceedings or by the Assessing Officer during the assessment proceedings – refer statement on oath of the assessee – page nos.23 to 29 of the general paper book and also of Mr R.K. Mall - page nos.124 to 136 of the general paper book.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

“In Mukundram (supra) after dealing with the word 'book' (to which we have earlier referred) the Court proceeded to consider what is meant by a 'book of account' under Section 34 and stated as under: "To account is to reckon, and I am unable to conceive any accounting which does not involve either addition or subtraction or both of these operations of arithmetic. A book which contains successive entries of items may be a good memorandum book; but until those entries are totalled or balanced, or both, as the case may be, there is no reckoning and no account. In the making of totals and striking of balances from time to time lies the chief safeguard under which books of account have been distinguished from other private records as capable of containing substantive evidence on which reliance may be placed." (emphasis supplied) We have no hesitation in adopting the reasoning adumbrated in the above observations. The underlined portion of the above passage supports the contention of Mr. Altaf Ahmed and rebuts that of mr.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Sibal that Mr 71/91 is only a memorandum for the entries made therein are totalled and balanced. We are, therefore, of the opinion that MR71/91 is a 'book of account' as it records monetary transactions duly reckoned.

In response Mr. Sibal submitted that the evidence that has been collected during investigation only shows that the entries were made by J. K. Jain and that the Jain brothers had put certain signatures against some of those entries it there is o evidence whatsoever to prove that movies were actually paid by the Jains and received by the payees as shown in the entries, without proof of which no case, even prima facie, could be said to have ben made out against any of therm. According to Mr. Sibal and Mr. Jethmalani, learned Counsel for Shri Advani by more proof of a document the truth of the contents thereof is to proved and independent evidence for that purpose is required. In absence of any such evidence, they contended, no liability can be foisted under Section 34. The rationale behind admissibility of parties' books of account as evidence is that the regularity of habit, the difficulty of falsification and the fair certainty of ultimate detection give them in a sufficient degree a probability of trustworthiness (wigmore on evidence $ 1546). Since, however, an element of self interest and partisanship of the entrant to make a person - behind whose back and without whose knowledge the entry is made - liable cannot be ruled out the additional safeguard of insistence upon other independent evidence to fasten him with such liability, aha been provided for in Section 34 by incorporating the words such statements shall not alone be sufficient to charge any person with liability. The probative value of the liability created by an entry in books of account came up for consideration in Chandradhar vs. Gauhati Bank [1967 (1) S. C. R. 898]. That case arose out of a suit filed by Gauhati Bank against Chandradhar (the assessee therein ) for recovery of a loan of Rs. 40,000/- . IN defence he contended, inter alia, that no loan was taken. To substantiate their claim the Bank

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga solely relied upon certified copy of the accounts maintained by them under Section 4 of the Bankers' Book Evidence Act, 1891 and contended that certified copies became prima facie evidence of the existence of the original entries in the accounts and were admissible to prove the payment of loan given. The suit was decreed by the trial Court and the appeal preferred against it was dismissed by the High Court. In setting aside the decree this Court observed that in the face of the positive case made out by Chandradhar that he did not ever borrow any sum from the Bank, the Bank had to prove that fact of such payment and could not rely on mere entries in the books of account even if they were regularily kept in the corse of business in view of the clear language of Section 34 of the Act. This Court further observed that where the entries were not admitted it was the duty of the Bank, if it relied on such entries to charge any person with liability, to produce evidence in support of the entries to show that the money was advanced as indicated therein and thereafter the entries would be of use as corroborative evidence. .. .. In defence he contended, inter alia, that no loan was taken. To substantiate their claim the Bank solely relied upon certified copy of the accounts maintained by them under Section 4 of the Bankers' Book Evidence Act, 1891 and contended that certified copies became prima facie evidence of the existence of the original entries in the accounts and were admissible to prove the payment of loan given. The suit was decreed by the trial Court and the appeal preferred against it was dismissed by the High Court. In setting aside the decree this Court observed that in the face of the positive case made out by Chandradhar that he did not ever borrow any sum from the Bank, the Bank had to prove that fact of such payment and could not rely on mere entries in the books of account even if they were regularily kept in the corse of business in view of the clear language of Section 34 of the Act. This Court further observed that where the entries were not admitted it was the duty of the Bank, if it relied on such entries to charge any person with liability, to produce evidence in support of the entries to show that the money was advanced as indicated therein and thereafter the entries would be of use as corroborative evidence.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

The same question came up for consideration before different High Court on a number of occasions but to eschew prolixity we would confine our attention to some of the judgements on which Mr. Sibal relied. In Yesuvadiyan Vs. Subba Naicker [A. I. R. 1919 Madras 132] one of the learned judges constituting the Bench had this to say: “S.34, Evidence Act, lays down that the entries in books of account, regularly kept in the course of business are relevant, but such a statement will not alone e be sufficient to charge any person with liability. That merely means that the plaintiff cannot obtain a decree by merely proving the existence of certain entries in his books of account even though those books are shown to be kept in the regular course of business. he will have to show further by some independent evidence that the entires represent real and honest transactions and that the moneys were paid in accordance with those entries. The legislature however does not require any particular form or kind of evidence in addition to entries in books of account, and I take it that any relevant fact s which can be treated as evidence within the meaning of the Evidence Act would be sufficient corroboration of the evidence furnished by entries in books of account if true." While concurring with the above observations the other learned Judge stated as under: " If no other evidence besides the accounts were given, however strongly those accounts may be supported by the probabilities, and however strong may be the evidence as to the honesty of those who kept them, such consideration could not alone with reference to s.34, Evidence Act, be the basis of a decree." (emphasis supplied) In Beni v. Bisan Dayal [ A. I. R 1925 Nagpur 445] it was observed that entries in book s of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be Page No. | 40

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga given to the party who relies upon such entries to support his claim against another. In Hira Lal v. Ram Rakha [A. I. R. 1953 Pepsu 113] the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been prove, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business re relevant whenever they refer to a matter in which the court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that the were in accordance with facts. The evidentiary value of entries relevant under Section 34 was also considered in Hiralal MahabirPershad (supra ) I.D. Dua, ]. (as he then was ) speaking for the Court observed that such entries though relevant were only corroborative evidence and it is to be shown further by some independent evidence that the entries represent honest and real transactions and that monies were paid in accordance with those entries. A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers' correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the for witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents. So far as Shri Advani is concerned Section Page No. | 41

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him.”

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga i. Common Cause vs UOI – 394 ITR 220 (SC) ii. Sunil Kumar Sharma vs DCIT – 448 ITR 485 (Kar) iii. ACIT vs Katrina Rosemary Turcotte – 190 TTJ 681 (Mum T) iv. ACIT vs Kishore Lal Balwant Rai – 17 SOT 380 (Chandigarh T) – the Tribunal has held that addition cannot be sustained as statement of ‘third party’ was not supported by independent and corroborative evidence.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga assessee to appear before DCIT, Central Circle – 3, Room No 355, ARA Centre, E-2, Ground Floor, Jhandewalan extension, New Delhi at 11:00 AM to cross-examine Mr R. K. Kedia without appreciating the fact that Mr R.K. Kedia is the witness of the Department as the Assessing Officer is relying upon his statement on oath and hence, ought to have given cross examination at Mumbai. The aforesaid contention has been taken before the Assessing Officer [refer letter dated 19.12.2016 of the assessee at page nos283 to 309 of the paper book], however, the Assessing Officer has conveniently ignored the same. The Ld. AR of the assessee thus, contends that proper opportunity to cross-examine Mr.R.K. Kedia is not given and as such, observation of the Assessing Officer that there has been failure on the part of the assessee to cross- examine Mr R. K. Kedia is erroneous and factually incorrect. In view of the above, the impugned addition ought not to have been made and hence, deserves to be deleted.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga commission income on the alleged accommodation entry at the rate of 4.75 percent on the entire value of quantity traded that is, entire turnover of the scrips (Rander Corporation Ltd, Mishka Finance and Trading Ltd and DhenuBuildocn Infra Ltd) on the Bombay stock exchange Some of the beneficiaries who reaped similar LTCG have admitted that had obtained entry of bogus LTCG in the aforesaid scrips and admitted of having paid commission of 5-6% in cash.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga shareholding position, year-wise determined the turnover and commission income as under –

Turnover Commission Sr no Assessment year (in Rs) (in Rs) 1 2013-14 97,01,67,640 1,11,56,928 2 2014-15 1,96,37,58,017 2,25,83,218 3 2015-16 33,08,60,739 38,04,900

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Mr. RKK. There is no evidence found directly linking the assessee in the transactions entered by RKK, except for the ledger account in the name of employee, Mr R K Mall and the statement given by RKK. In the statement Mr. RKK stated the name of the assessee relating to the three scrips namely Rander Corporation (Rander), Mishka Finance and Trading Ltd (Mishka) and Dhenu Buildcon Ltd (Dhenu).

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga controlling interest in the above company. Therefore, it is not appropriate to bring the whole transactions transacted through the stock exchange in the hands of the assessee.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga cannot be considered as the whole transactions facilitated solely by the assessee. The scrips transacted through the stock exchange are the total transaction made by the respective companies. What is relevant is the transactions carried or facilitated through RK Mall (employee of the assessee). Only aspect which links the assessee in the above transactions are statement recorded under oath from RKK and ledger account found in the books of RKK entered in the name of the employee of the assessee. Other than that there is absolutely nothing on record to show that the assessee has any direct involvement in any of the suspected transactions.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga transactions are at 5 to 6%. In our view there is no basis to impinge assessee directly carrying out the entry business in such scrips for providing LTCG in such scrips, albeit assessee can be reckoned as a facilitator who alone cannot earn such commission. In this regard, the Ld. AR brought to our notice that in the similar transactions, the ITAT has confirmed the rate of 0.40% in the case of Brij Bhushan Singal (ITA No 1412 to 1414/Del/2018).

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga contained in the ledger found in the books of the RKK, which relates to certain transactions carried through the employee Mr. RK Mall, in which various transactions are carried in scrips like Randel, Mishka, Dhenu and others have been mentioned. We have perused the ledger copies found from the possession of RKK that he has charged and paid certain percentage of commission, which is not uniform. This itself shows that the apportionment made by the Ld CIT (A) on equal basis is not justified. As discussed above, the commission is already mentioned in the ledger found in the case of RKK, which is already available on the actual basis. Here it is case under section 153A where scope of addition has to be seen qua the documents found. Thus, the commission which relates to the suspected scrips alone can be treated as an income of the assessee.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Randel, in which they mentioned the name of the assessee that they deal with him. However, we already mentioned that the statements recorded by Mr. RKK are not reliable and further the statement recorded by Mr. Randel also cannot be considered for the reason that he also retracted the statement subsequently. What is the linking point in the whole issue is the employee of the assessee, who has had dealing with Mr. RKK. Since the assessee has already gave a statement that he owns up the transaction entered by Mr. RK Mall, therefore, to this extent the commission mentioned in the said ledger account can alone be adversely viewed.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Brokerage Others (Not Page no. Date Rander Mishka Dhenu considered by Assessing Officer) 1 5/4/2013 0.0 0.0 0.0 33369.1 1 8/4/2013 0.0 0.0 0.0 51666.6 1 9/4/2013 0.0 0.0 0.0 49908.6 1 10/4/2013 0.0 0.0 0.0 52544.7 2 11/4/2013 0.0 0.0 0.0 32646.6 2 12/4/2013 0.0 0.0 0.0 30967.0 2 15/04/2013 0.0 0.0 0.0 69931.4 2 16/04/2013 0.0 0.0 0.0 41049.6 2 17/04/2013 0.0 0.0 0.0 17747.0 2 25/04/2013 0.0 0.0 0.0 18045.5 3 26/04/2013 0.0 0.0 0.0 32354.6 3 29/04/2013 0.0 0.0 0.0 50997.9 3 30/04/2013 0.0 0.0 0.0 55628.4 4 2/5/2013 0.0 0.0 0.0 44854.9 4 6/5/2013 0.0 0.0 0.0 29951.9 4 7/5/2013 0.0 0.0 0.0 32352.5 4 8/5/2013 0.0 0.0 0.0 36521.7 4 9/5/2013 0.0 0.0 0.0 27914.3 4 10/5/2013 0.0 0.0 0.0 90960.5 4 11/5/2013 0.0 0.0 0.0 9270.9 5 15/05/2013 0.0 0.0 0.0 77531.2 5 16/05/2013 85598.6 0.0 0.0 58265.0 6 17/05/2013 27745.7 0.0 0.0 30445.7 6 20/05/2013 0.0 0.0 0.0 19304.6 6 21/05/2013 0.0 0.0 0.0 20230.0 6 22/05/2013 0.0 0.0 0.0 20284.5 6 23/05/2013 0.0 0.0 0.0 20256.2 7 24/05/2013 0.0 0.0 0.0 20256.2 7 27/05/2013 0.0 0.0 0.0 40545.4 7 28/05/2013 60340.3 0.0 0.0 0.0 7 29/05/2013 9777.6 0.0 0.0 0.0 7 31/05/2013 527.3 0.0 0.0 37133.8 8 3/6/2013 0.0 0.0 0.0 70324.0 8 5/6/2013 0.0 0.0 0.0 27761 .4 8 6/6/2013 3475.0 0.0 0.0 54913.2

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Brokerage Others (Not Page no. Date Rander Mishka Dhenu considered by Assessing Officer) 9 7/6/2013 10949.0 0.0 0.0 26287.8 9 10/6/2013 0.0 0.0 0.0 101971.5 10 11/6/2013 3998.9 0.0 0.0 61042.9 11 12/6/2013 0.0 0.0 0.0 52047.5 11 20-06-2013 0.0 0.0 0.0 20589.0 11 25/06/2013 0.0 0.0 0.0 59785.6 11 26/06/2013 0.0 0.0 0.0 24299.9 12 28/06/2013 0.0 0.0 0.0 38329.5 12 1/7/2013 0.0 0.0 0.0 41460.8 12 2/7/2013 0.0 0.0 0.0 26554.0 12 4/7/2013 0.0 0.0 0.0 29606.7 12 5/7/2013 0.0 0.0 0.0 81258.5 12 8/7/2013 3604.0 0.0 0.0 0.0 15 28/10/2013 11071.6 0.0 0.0 0.0 15 12/11/2013 6569.6 0.0 0.0 0.0 15 13/11/2013 5219.1 0.0 0.0 0.0 15 14/11/2013 10672.2 0.0 0.0 0.0 19 18/11/2013 22354.3 0.0 0.0 0.0 19 19/11/2013 16685.8 0.0 0.0 0.0 20 22/11/2013 3257.9 0.0 0.0 0.0 20 23/11/2013 8663.0 0.0 0.0 0.0 20 26/11/2013 32052.0 0.0 0.0 0.0 20 27/11/2013 22873.0 0.0 0.0 0.0 20 28/11/2013 16068.0 0.0 0.0 0.0 21 29/11/2013 17295.1 0.0 0.0 0.0 21 2/12/2013 22906.6 0.0 0.0 0.0 21 5/12/2013 26473.0 0.0 0.0 0.0 21 6/12/2013 16946.0 0.0 0.0 0.0 21 9/12/2013 6671.0 0.0 0.0 0.0 22 10/12/2013 23877.9 0.0 0.0 0.0 22 12/12/2013 20703.0 0.0 0.0 0.0 22 13-12-2013 27630.0 0.0 0.0 0.0 22 16/12/2013 9319.2 0.0 0.0 0.0

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Brokerage Others (Not Page no. Date Rander Mishka Dhenu considered by Assessing Officer) 23 20/12/2013 16783.8 0.0 0.0 0.0 24 24/12/2013 12943.0 0.0 0.0 0.0 24 26/12/2013 21884.1 0.0 0.0 0.0 25 27/12/2013 6380.4 0.0 0.0 0.0 25 31/12/2013 6496.0 0.0 0.0 0.0 26 1/1/2014 6624.0 0.0 0.0 0.0 26 6/1/2014 10348.1 0.0 0.0 0.0 27 7/1/2014 13077.6 0.0 0.0 0.0 28 13/01/2014 19219.8 0.0 0.0 0.0 28 14/01/2014 12288.9 0.0 0.0 0.0 28 15/01/2014 32720.0 0.0 0.0 0.0 29 16/01/2014 10245.4 0.0 0.0 0.0 29 20/01/2014 27308.6 0.0 0.0 0.0 30 21/01/2014 6677.5 0.0 0.0 0.0 31 22/01/2014 28851.0 0.0 0.0 0.0 31 23/01/2014 14855.7 0.0 0.0 0.0 31 24/01/2014 14013.9 0.0 0.0 0.0 32 27/01/2014 14634.3 0.0 0.0 0.0 32 28/01/2014 20822.6 0.0 0.0 0.0 33 29/01/2014 23546.0 0.0 0.0 0.0 33 30/01/2014 42126.6 0.0 0.0 0.0 33 31/01/2014 19649.9 0.0 0.0 0.0 34 3/2/2014 15625.8 0.0 0.0 0.0 35 4/2/2014 55039.4 0.0 0.0 0.0 35 5/2/2014 20979.1 0.0 0.0 0.0 35 6/2/2014 19404.0 0.0 0.0 0.0 36 7/2/2014 18752.4 0.0 0.0 0.0 36 10/2/2014 6438.5 0.0 0.0 0.0 37 11/2/2014 13381.1 0.0 0.0 0.0 37 12/2/2014 16059.9 0.0 0.0 0.0 38 13/02/2013 21530.6 0.0 0.0 0.0 38 14/02/2013 30874.0 0.0 0.0 0.0

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Brokerage Others (Not Page no. Date Rander Mishka Dhenu considered by Assessing Officer) 39 17/02/2014 12963.5 0.0 0.0 0.0 40 18/02/2014 16017.0 0.0 0.0 0.0 41 19/02/2014 1933.3 0.0 0.0 0.0 41 25/02/2014 0.0 8706.3 0.0 0.0 42 28/02/2014 22744.5 0.0 0.0 0.0 43 3/3/2014 54622.9 8817.8 0.0 0.0 43 4/3/2014 19600.2 0.0 0.0 0.0 43 5/3/2014 69473.2 8563.8 0.0 0.0 44 6/3/2014 22131.6 8563.7 0.0 0.0 45 7/3/2014 7856.0 8580.7 0.0 0.0 45 10/3/2014 68965.1 8755.8 0.0 0.0 46 11/3/2014 9548.1 8259.1 0.0 0.0 46 12/3/2014 23741.5 5297.4 0.0 0.0 47 13-03-2014 26553.8 1790.3 0.0 0.0 47 14/03/2014 49698.9 0.0 0.0 0.0 48 18/03/2014 72050.3 0.0 0.0 0.0 49 19/03/2014 1025.4 0.0 0.0 0.0 49 20/03/2014 41963.8 0.0 0.0 0.0 49 21/03/2014 43033.9 0.0 0.0 0.0 50 24/03/2014 31910.1 0.0 0.0 0.0 51 25/03/2014 7088.4 0.0 0.0 0.0 51 26/03/2014 19315.3 0.0 0.0 0.0 52 28/03/2014 10139.0 0.0 0.0 0.0 53 29/03/2014 4120.0 0.0 0.0 0.0 1769402.4 67334.8 0.0 1869168.3 Note: “Others column”: These are not considered therefore this claim has to be eliminated.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga grounds raised by the assessee is partly allowed and ground raised by the revenue is dismissed.

“Assessee’s additional grounds “The Commissioner of Income-tax (Appeals) - 52 (hereinafter referred to as the CIT(A)) has deleted the addition made by the Deputy Commissioner of Income-tax, Central Circle 4(3), Central Range 4, Mumbai (hereinafter referred to as the Assessing Officer) of Rs 92,40,565/- being the long-term capital gains earned on sale of shares of Rander Corporation Ltd and LIC Housing Finance Ltd on protective basis that the alleged commission income earned by the appellant in relation to providing accommodation entries is partly sustained by the CIT(A) which is more than the aforesaid long-term capital gains. The appellant contends that on the facts and in circumstances of the case and in law, the CIT(A) has not appreciated the facts of the case in its entirety and hence, the said observation/ action of the CIT(A) is bad in law.

2. The CIT(A) erred in deleting the addition made by the Assessing Officer of Rs 5,54,434 being the commission @ 6% for obtaining the alleged accommodation entries for capital gains Rs 92,40,565 on sale of long-term capital asset, being shares of Rander Corporation Ltd and LIC Housing Finance Ltd.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

The appellant contends that on the facts and in circumstances of the case and in law the CIT(A) has not appreciated the facts of the case in its entirety and hence, the said action of the CIT(A) is bad in law.”

2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting to 4.75% instead of 6% on considering the long term capital gain by the appellant of Rs 92,40,565 as unexplained cash credit u/s 68 of the Income tax Act along with payment of commission on such bogus LTCG of Rs 5,54,434.

66. Relevant facts of the above grounds are, in respect of long-term capital gains on sale of shares of Rander Corporation Ltd alleging the same to be non-genuine, the Ld.CIT(A) has sustained the addition of ₹.92,40,565/- made by the Assessing Officer. With regard to commission paid for obtaining the alleged accommodation entry of long-term capital gain, the Ld.CIT(A) has sustained the addition of alleged commission paid at the rate of 4.75% that is, ₹.4,38,923 as against commission estimated at ₹.5,54,434/- by the Assessing Officer at the rate of 6%.

67. The assessee is in appeal against the order of the Ld.CIT(A) upholding the long-term capital gains as non-genuine and also for Page No. | 58

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga addition u/s. 69C; whereas the Department is in appeal against the relief given by the Ld.CIT(A) in reducing the payment of commission from 6% to 4.75%

i. The Investigation Wing of the Income-tax Department identified the scrip Rander Corporation Ltd (hereinafter referred to as Rander) as penny stock that has been utilised for harvesting alleged bogus long-term capital gains. ii. The action initiated by the Investigation Directorate on various entry operators, share brokers and so on resulted in unearthing of LTCG entry scam of very large magnitude involving a syndicate of operators acting in tandem to manipulate the market price of shares of certain companies in an organised manner. iii. The Investigation Wing, Kolkata Directorate searched/ surveyed some 32 share broking entities and more than 20 entry operators of which the Investigation Wing, identified 84 companies listed on the Bombay Stock Exchangewhich were being used for providing accommodation entry of Long-term capital gains/ short- term capital loss iv. Some of the beneficiaries who reaped similar LTCG in the said scrip have admitted that such LTCG is bogus, through prearranged transactions and have paid equal amount of cash.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

Further, they have also admitted of paying commission of 5 to 6 per cent in cash. v. Findings of the Dy. Director of Income-tax (Inv), Unit 3(3), New Delhi on search and seizure action on Mr Raj Kumar Kedia Group –

(a) R. K.Kedia group and associated persons are not only involved in evading income-tax themselves but also helping other persons in evasion of income-tax

(b) R. K. Kedia group is engaged in providing accommodation entry of bogus long-term capital gains, introduction of bogus share capital and share premium, bogus short-term capital loss, bogus loans/ advances, ICDs etc to various beneficiaries against receipt of unaccounted cash from them, for a commission.

(c) Mr Manish Arora is the main employee of Mr R.K.Kedia who keeps records of unaccounted transactions

(d) Pre-search verifications and information and data available in public domain and material recovered during search action revealed that MrR.K.Kedia operates through a close network of associates who help him in running the racket for providing accommodation entries.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga i. The aforesaid scrip appears in the list of scrips flagged by the Investigation unit of Kolkata where penny stocks have been rigged to generate bogus tax exempt LTCG. ii. Assessee is considered as one of the entry providers who is part of the group engaged in manipulating the share price of the scrip for enabling beneficiaries obtain tax free capital gains. It has been proved beyond doubt that Rander does not have significant business activity. iii. The ledger account of the assessee seized from the premises of Mr R.K.Kedia reveals that dividend declared by Rander is managed by entry operators. The various declarations over Bombay Stock Exchange are found to have been made merely with a view to rig the share prices of Rander. The said ledger account contains details of various stock brokers and other persons engaged in share manipulation of the scrip. iv. The preferential investors are not regular market players or exposed to share market nitty gritties. v. The documents filed by the assessee do not in any way elaborate on the reason for sudden unnatural rise in the price and explanation to disprove the fact that the shares of the scrip have been artificially managed to allow participants to avail of unnatural LTCG. vi. Merely because sale was done on the Exchange would not mean that the transaction was above board and unquestionable. vii. The CIT(A) though sustained the impugned addition made by the Assessing Officer, has given the benefit of telescoping the same with the earning of commission income estimated at the rate of 1.15% per ground of appeal nos 2 and 3 of the assessee mentioned above.

Before us, Ld. AR of the assessee contended as under: - 70. i. At the outset, the assessee contends that during the year under reference, the assessee earned long-term capital gains on the sale of following shares and claimed exemption in respect thereof under section 10(38) of the Act – ii. Rander Corporation Ltd Rs 91,81,486 iii. LIC Housing Finance Ltd Rs 59,079 i. Re. LIC Housing Finance Ltd – Rs 59,079 – The CIT(A) grossly erred in sustaining the addition made by the Assessing Officer of Rs 59,079,being long- term capital gains on sale of shares of LIC Housing Finance Ltd and the alleged

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga commission expense incurred, estimated at the rate of 4.75% of the long-term capital gains Rs 59,079, even though neither the Investigation Wing nor MrR.K.Kedia have alleged that the aforesaid scrip is a penny stock; and there is no whisper by the Assessing Officer in respect of this scrip in the entire assessment order. Thus, the exemption under section 10(38) ought to be allowed on the LTCG earned on the said scrip. ii. Re Rander Corporation Ltd – Rs 91,81,486- The assessee has filed with the Assessing Officer and the CIT(A) documentary evidences in support of the claim of exemption under section 10(38) of the Act on sale of aforesaid shares – refer paper book page nos1 to 33. The CIT(A) has not disproved, discredited or criticized the said documentary evidences filed with them. iii. The assessee contends that the CIT(A) merely relied on the report of the investigation wing that the said scrip is utilised for obtaining the alleged bogus long-term capital gains without bringing any concrete evidence on record to support such an allegation. iv. It may be the case of the Investigation Wing that some unscrupulous persons might be engaged in providing such alleged accommodation entry and have received commission in cash based on the documents found/ seized; however, such general findings of the Investigation Wing, at best, could be a starting point for the Assessing Officer to conduct independent further, inquires. The averments in the report cannot be relied upon to make the addition when the Assessing Officer has not brought any evidence on record, except for heavily relying on the reports of the Investigation Wing. v. The Assessing Officer states that “some of the beneficiaries, who reaped similar LTCG in the aforesaid scrip have admitted that they have obtained entry of bogus LTCG through prearranged purchase & sale transactions”. The Assessing Officer has made this statement, and such other statements in the order; however, has neither given the details of such beneficiaries nor any document to support this vital averment; the assessee submits that, for the sake of arguments, even if the averment of the Assessing Officer is considered to be correct, the circumstances under which such beneficiaries have admitted of the alleged wrong doings are not known. The Assessing Officer ought to have supported the admission of various beneficiaries by providing some concrete documents instead of merely making such bald statements. vi. The assessee contends that there was a search and seizure action at various premises of the assessee which lasted for three days (13.06.2014 to 15.06.2014), however, the search party could not find a single piece of evidence that could reflect assessee’s involvement in any of the alleged unscrupulous activities including, any document relating to obtaining alleged bogus long-term capital gains and alleged payment of commission thereon in cash, as alleged by the Assessing Officer/ CIT(A).

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga vii. The allegation that the assessee is part of the group engaged in manipulating the share price of the scrip has not been corroborated with any documentary evidence and as such, the long-term capital gains earned on sale of shares cannot be considered as undisclosed income of the assessee. Further, the CIT(A) has not even bothered to explain or support his stand that the scrip Rander is not doing any business activity. The CIT(A) has not made any independent inquiry and hence, the assessee is not aware as to how he has come to such a conclusion that the said company is not doing any business activity. Please find enclosed a statement giving details extracted from the BSE. The Company is ISO certified, has received import export license, has declared dividend, has set up Roller flour mill and so on, and all these during the years 2011 to 2013 being years which are in proximity to the year of appeal. viii. It is farfetched for the Assessing Officer to expect as to how the assessee can throw light, or elaborate, on the reasons for sudden rise in price of the scrip; how can the assessee disprove that shares have been artificially managed to suit the purpose of those involved. The assessee has purchased and sold the shares on the stock exchange and paid the Securities Transaction Tax and other applicable charges, the shares have been credited in the demat account and the purchase price is paid to the broker through banking channels and on sale, the shares have been given and consideration is received from the broker. The CIT(A) requires the assessee to prove the sudden rise in the price, or the price rise is not artificially managed, when the fact is that the price on the stock exchange fluctuates for various reasons, being micro and macro factors and market forces. Further, it is for the Department to prove that the assessee is involved in, or is in connivance with those artificially managing the price so as to obtain long-term capital gains in a pre- arranged manner. The Assessing Officer has miserably failed in proving this. It is trite law that the person who alleges has to prove the allegation and here,in the case on hand, the Assessing Officer has not been able to support his allegations on the basis of tangible material. ix. It is pertinent to note that heavy reliance is placed by the Assessing Officer and the CIT(A) on the ledger account of the assessee found at the premises of Mr R.K.Kedia and the additions have been made by the Assessing Officer and sustained by the CIT(A) relying only on this ledger account “RK Mall”. iv. The assessee submits that the CIT(A) has failed to relate any transaction mentioned in the said ledger account with that of the assessee, or explain how the assessee is involved in price manipulation of the scrip. The ledger account contains various entries of various persons, however, the name of the assessee is not mentioned in any of the entries against any transaction,recorded in the ledger. i. The CIT(A) further alleges that declarations made on the Bombay Stock Exchange are made to rig the share price of the scrip. How baseless is this allegation. It is statutorily provided inter alia that all price sensitive information is to be notified to the stock exchange on which the scrip is listed.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga v. The SEBI/ stock exchange have not frowned upon at giving any kind of information which is meant to rig prices, and as such, the allegation by the CIT(A) is baseless, and only on the basis of surmises and conjectures. i. It is imperative to mention that inspite of the company Rander finding place in the Report of the Investigation Wing, Kolkata covering 84 scrips, and available on the web site of the Department, on the basis of which the SEBI did cover a few companies for investigation into the alleged wrong-doings of various persons in manipulation activity to get the benefit of LTCG, etc for the beneficiaries, the SEBI in its wisdom, did not cover the company Rander, thereby signifying no presence of wrongful activity in this particular scrip. ii. Further, as mentioned above, the SEBI did cover quite a few companies for investigation, but the assessee submits that no order is passed against him for any wrong-doing in any scrip. The CIT(A) ought to have appreciated this fact. iii. The SEBI is regulatory authority created by statute for investor protection and to look into the activities of market functionaries in the share market and as such, action or inaction by such an authority ought to have been given due credibility and cannot be disregarded in limine, as done by the CIT(A). iv. The assessee contends that the documentary evidences filed before the Assessing Officer and the CIT(A) support the claim of the assessee that the long- term capital gains earned on sale of shares of the scrip are genuine and the CIT(A) ought to have allowed the exemption claimed in respect thereof under section 10(38) of the Act. v. Reliance is placed on the following decisions – i. Ziauddin A Siddique of 2017 (Bom) ii. Shyam R Pawar 54 Taxmann.com 108 (Bom) iii. Jamnadevi Agarwal 328 ITR 656 (Bom) iv. Renu Agarwal ITA No 44 of 2022 (Kanpur) v. In view of the above, the impugned disallowance of exemption under section 10(38) of Rs 92,40,565 in respect of the sale consideration of shares giving rise to long-term capital gains cannot be made. Similarly, addition on account of incurring expense of Rs 4,38,927/- as commission paid in cash for obtaining alleged bogus long-term capital gains ought to be deleted.”

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga buying or selling of scrips. At the most, we can consider the involvement only to the extent of facilitator of the transactions but cannot link the assessee directly that he was an entry provider in these scrips.

Page No. | 66

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga “21. A perusal of the assessment order clearly shows that the Assessing Officer was carried away by the report of the Investigation Wing Kolkata. It can be seen that the entire assessment has been framed by the Assessing Officer without conducting any enquiry from the relevant parties or independent source or evidence but has merely relied upon the statements recorded by the Investigation Wing as well as information received from the Investigation Wing. It is apparent from the Assessment Order that the Assessing Officer has not conducted any independent and separate enquiry in the case of the assessee. Even, the statement recorded by the Investigation Wing has not been got confirmed or corroborated by the person during the assessment proceedings.

23. It is provided u/s. 142 (2) of the Act that for the purpose of obtaining full information in respect of income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. In our considered view the Assessing Officer ought to have conducted a separate and independent enquiry and any information received from the Investigation Wing is required to be corroborated and reaffirm during the assessment by the Assessing Officer by examining the concerned persons who can affirm the statements already recorded by any other authority of the department. Facts narrated above clearly show that the Assessing Officer has not made any enquiry and the entire assessment order and the order of the first Appellate Authority are devoid of any such enquiry.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Assessing Officer conducted any enquiry nor has brought any clinching evidences to disprove the evidences produced by the assessee. The report of Investigation Wing is much later than the dates of purchase / sale of shares and the order of the SEBI is also much later than the date of transactions transacted and nowhere SEBI has declared the transaction transacted at earlier dates as void.

“5.14. We find that the ld. DR had relied on the decision of Hon’ble Calcutta High Court in the case of PCIT vs Swati Bajaj reported in 139 taxmann.com 352 which is an elaborate decision rendered after considering various decisions of various High Courts on the subject. In the said decision, it was held that assessee had to establish the genuineness of rise of price of shares within a short period of time that too when general market trend was recessive. But we find that when there are several decisions of Hon’ble Jurisdictional High Court as stated supra are already in favour of the assessee, the same would prevail over this tribunal and this tribunal need not take cognizance of the Hon’ble Non-Jurisdictional High Court. The law is very well settled by the Hon’ble Supreme Court in the case of Union of India vs Kamalakshi Finance Corporation Ltd reported in 55 ELT 43 (1991) that the decision of Hon’ble Jurisdictional High Court would have higher precedence value than the decision of Hon’ble Non-Jurisdictional High Court on the Tribunal. The Hon’ble Supreme Court emphasised therein that the orders of the Tribunal should be followed by the authorities falling within its jurisdiction so that judicial

Page No. | 68

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga discipline would be maintained in order to give effect to orders of the higher appellate authorities. The Hon’ble Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. Hence we deem it fit and appropriate to follow the decisions of Hon’ble Jurisdictional High Court referred supra wherein the impugned issue is decided in favour of the assessee. Moreover, when there are two conflicting decisions of various High Courts, the Hon’ble Supreme Court in the case of Vegetable Products reported in 88 ITR 192 (SC) had held that Construction that is favourable to the assessee should be adopted. Hence by following this principle, the decision of Hon’ble Calcutta High Court and other decisions that are rendered against the assessee, need not be followed by this Court in the peculiar facts and circumstances of the instant case. 5.15. In any case, we find that the assessee had duly proved the nature and source of credit representing sale proceeds of shares of Radford Global Ltd and Blazon Marbles Ltd within the meaning of section 68 of the Act. The sale proceeds have been received by the assessee from the stock exchange through the SEBI registered share broker by account payee cheques through regular banking channels. Hence the three ingredients of section 68 of the Act are duly fulfilled by the assessee in he instant case. Hence there is no question of making any addition as unexplained cash credit u/s 68 of the Act in the instant case.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga independent investor, similar to the shares purchased by the other regular investors to whom assessee was merely facilitating the transactions and referring the cases to the other investors. There is nothing on record to show that assessee involved anywhere in the rigging prices or anywhere found in the dubious transactions involving penny stock transactions except as a facilitator that to it we have inferred because of one of the employees of the assessee was involved with the RKK group. Accordingly, the ground raised by the assessee is allowed and the ground raised by the revenue is dismissed.

“3. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of Rs.75,00,000 on account of alleged cash transactions undertaken by the appellant with Mr. Prop. Amarchandji, the addition of ₹.1,72,00,000 on account of alleged cash transactions with RKK and the addition of Rs. 30,00,000 in connection with the message sent by the appellant Mr. Krishan Kumar Khadaria by presuming these transactions to be part of total turnover of these scrips, already taxed, without any new factual finding to the contrary.”

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga some messages found in the mobile of the assessee, which have been reproduced by him in the assessment order. For the sake of brevity, the chats considered by the Assessing Officer for making the impugned addition are given below, though the addition is deleted by the Ld.CIT(A) for the reason that –

Sr Messages no Reproduced from assessment order on page nos 29 and 30 SMS received by the assessee from MrParopAmarchandji 1 On 25.03.2014 you have sent SMS to ParopAmarchandji. The text of the message is reproduced as under :- “Allah 1408420990 rs 35lac ALLAH 14082421006C RS 40 LAC from pine to rander” Ans – Sir, I think this is UTR number Allahabad Bank but what type of transactions, why this amount has gone to (sic-from) pine to rander and why this sms came to my mobiell I am really sorry at this moment unable to answer but with due respect I will submit the data as early as possible. Thanks 2 On Saturday 22.03.2014 you had given Vijaya Bank Egmore Branch, Chennai account number of Radha Saomi Resources Pvt Ltd to ParopAmarchandji by SMS. On the same day ParopAmarchandji confirmed the transfer of Rs 35,00,000 by RTGS in the same account of Radha Saomi Resources Pvt Ltd by SMS. Please go through these two message and explain the transactions and your role in it. Ans – Sir, I don’t remember Reproduced from assessment order on page no 32 3 SMS received by assessee from Mr R.K.Kedia per statement on oath of assessee dated 13.06.2014 (a) Date & time – 13.02.2014 20:07 Thursday Received from – JpKediaji Text – Today also 27 L token changed…bombay staff now saying not to handle ur cash dealing. Pls tell how to do???? (b) Date & time – 19.07.201316:53Friday Received from – JpKediaji Manish Text – 9500000.00 on 19-07-2013 15:54:25 thru RTGS UTR number PUNBH13200032609, Fav Pine Animation (c) Date & time – 05.06.2013 11:53 Received from – JpKediaji Manish Text – Amt of INR 5,000,000.00 debited A/c XXXX0036 towards RTGS DR-

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga Sr Messages no HDFCH13156093720-PINE ANMATION Value 05 June 2013 Ans – Sir, I am not able to recollect the same. I have to check and revert. Kindly give time to submit the data Reproduced from assessment order on page no 34 SMS sent by the assessee to Mr Krishan Kumar Khadria per statement on oath of the assessee dated 13.06.2014 4 On 08.02.2014 you have sent an SMS to KKK M. the text of the message is reproduced as under : “1. Req fund 30 early mng. Monday in axis bank. Cash ready. 2 dhenubanpose still not clear.

3. Dhenu account 4. Mishka com. Sheet with party name. 5 running account not confirm by your end. Pls call wn free” You are requested to explain the above SMS. You are also clarify who is Mr KKK M and what are your dealing with him. Ans – Sir, KKK M means Krishna Kumar Khadaria mobile who is a Chartered Accountantabd about other contents in the sms I really not remember what it means. I have to recollect and furnish information as soon as possible. Kindly give us time to submit the same. Regarding relationship I have business relation with him and he is also my company’s auditor viz. DagaInforcom Pvt Ltd

i. Plethora of documents are found and seized which clearly indicate that the assessee has worked in close coordination with all the entry operators for reaping bogus LTCG. ii. Some of the messages found from the mobile of the assesse even mention cash transactions while many other messages mention selling/ buying of fixed number of shares at a fixed price in the scrips which have been admitted and proved to be used for providing bogus LTCG to various beneficiaries. iii. The assessee failed to give any valid explanation and has also not denied that the SMS has not been received by him or wrongly received. It is also not the case of the assessee that the mobile does not pertain to him or the same was not seized from his residence. iv. Therefore, it is evident that the amount involved in the said messages is nothing but money belonging to the assessee which is never accounted for or offered to tax.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga v. Assessee is the exclusive owner of the mobile handset and the messages therein, it is the assessee who has to explain the same to the satisfaction of the Assessing Officer, in order to discharge the onus cast upon the assessee.

i. The messages relate to the unaccounted business activity of providing accommodation entries for generating artificial LTCG for various clients. ii. There is no evidence whatsoever that the assessee is engaged in other transactions independent of the alleged activity of providing accommodation entries, and that the amounts mentioned in these messages have gone into the turnover of the share trading on which commission income has been upheld. iii. The CIT(A) therefore, for the reason that he has sustained the addition on account of commission earned, has deleted the impugned addition.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga i. The CIT(A) has not telescoped the impugned addition against the commission income sustained, however, has independently deleted the impugned addition. ii. The assessee would like to deal with each message independently – iii. Message at Sr no 1 above – please refer the answer – The assessee states that this is UTR no of Allahabad Bank, means thereby this is an RTGS transfer through banking channel. Then he says that the amount is transferred from pine to rander, meaning from Pine Animation to Rander Corporation. The assessee submits that this SMS is not responded to by him to the sender of the message. There are so many messages that come to his mobile which are forwards, spam, meaningless, and hence, he would not respond to such messages, also which are not meant for him. Similarly, the assessee has not responded to this message, as for him, it was wrongly sent to him and hence, for him meaningless. iv. Further, the assessee contends that the Assessing Officer being vested with the powers to issue notice under section 133(6) or summons under section 131, ought to have issued such notice/ summons to enquire from Pine or from Rander, the nature of the transaction and how the same has been accounted for in their respective books of account; this would have clarified the position; instead of taking the investigation/ enquiry to its logical extent, the Assessing Officer took the simpler route and made the impugned addition. v. Above all, there is no mention of “cash” in the entire SMS, though the Assessing Officer mentions so. vi. Message at Sr. no 2 above – this is an RTGS transaction for Rs 35 lacs sent by Amarchandji to Radha Soami Resources Pvt Ltd, again transaction through banking channels, two parties involved, message not responded by the assessee;the arguments of the assessee are the same as given (a) above vii. Further, there is no mention of “cash” in the entire SMS, though the Assessing Officer mentions so viii. Further, the Assessing Officer has not linked the said transaction with “Thakur A/c” [for cash transfer] ix. Message at Sr. no 3(a) above- message not responded to by the assessee, according to the assessee the message not meant for him, and hence, not responded. x. The assessee contends that out of the six messages reproduced above, that form the basis for making the impugned addition by the Assessing Officer, five of the said messages that is, messages at serial nos 1, 2, 3(a) to 3(c) of table in para 5.2., give details of some RTGS transactions or transactions through banking channels between two persons, not related to the business of the assessee, and as such, cannot be presumed that such transactions are in cash or there is underlying cash involved in the transactions. There is no mention of any cash in the aforesaid chats.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga xi. The assessee submits that no incriminating document is found at the premises of the assessee during the course of search action and that the assessee has furnished explanation in respect of all the documents seized during the course of search action – refer letter dated 03.02.2015 filed with the Assistant Director of Income Tax (Investigation), Unit – III(3), New Delhi at page nos 179 to 245 of the general paper book. The explanation of seized documents is also filed with the Assessing Officer – refer letter dated 09.11.2016 at page nos 146 to 167 of the general paper book. It is imperative to mention that in the entire assessment order, the Assessing Officer has not referred to any document seized at the premises of the assessee and merely relied on the document seized at the premises of the Mr R.K.Kedia and the investigation report. This itself proves that the entire assessment is framed with a pre- determined mindset keeping in view the Investigation report and not on the basis of the documentary available on record. xii. It is imperative to mention that the said messages are not confronted by the Investigation Wing to Mr R.K.Kedia in his statement on oath recorded on 13.06.2014 or during post search proceedings. The Assessing Officer ought to have obtained an explanation from Mr R.K.Kedia or Mr Parop Amarchandji or any other person in respect of the messages found, in the event that the assessee does not remember the context of the said message, and has categorically denied of the involvement of cash. xiii. The Assessing Officer in the facts and circumstances of case, being a quasi- judicial authority ought to have required the other persons to submit their explanation and take the same to logical end before making addition in the hands of the assessee on presumption, surmises and conjectures. xiv. The Assessing Officer has not brought anything on record which suggest that cash has been transferred from the coffers of the assessee and/ or cash has been received. As regards the message at serial no 4, being message sent to Mr Krishan Khadaria that 30 lacs fund is required, the assessee submits that there is no such transaction of Rs 30 lacs in Axis bank – refer bank book of Axis Bank account in the books of account of the assessee for the period 1st February, 2014 to 28th February, 2014 at page nos 415 to 419 of the general paper book. This itself proves that only a request was made by the assessee which was never acted upon by the counter party. Further, “cash ready” in the message means if cash is available in his bank, that is if cash is available in the bank account of Mr Krishan Khadaria. xv. Further, the Assessing Officer has clearly mentioned only the chat that suits his purpose for making the addition, however, has not mentioned the reply, if any, given by the assessee in response to the said messages received in the mobile of the assessee.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga making a presumption that amount in the said messages are in substance cash transactions. It is common knowledge and habit that an individual would tend to ignore irrelevant messages that are received on his mobile owing to various reasons like advertising messages, SPAM messages, etc. It is imperative to mention that the Assessing Officer in the assessment order states that there are other messages in which cash transactions is mentioned, however, has not brought to notice any of such messages. This itself proves that the Assessing Officer has made only bald statements to make such baseless addition of unaccounted income. The assessee contends that the Ld.CIT(A) has deleted the impugned addition in totality on the reasoning that the impugned message relate to the alleged business of the assessee of providing accommodation entries. In view of the above, the action of the Ld.CIT(A) in deleting the aggregate addition made by the Assessing Officer of ₹.2,77,00,000 ought to be upheld.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga investigating team has stumbled upon certain messages, which they could found any connection, these are SMS alert of banking transactions. These is nothing on record to link the above transactions with the assessee and the way the questions are framed shows that it is only rowing enquiry. From the answers, at the most, he can be considered as an facilitator of arranging investors to buy or sell the scrips. The issue of funds transfers are directly handled by the RKK Group. When we consider the assesse as an facilitator, the above transactions are part of the arranging investments for the investors. Furthermore, the search /investigation made in the case of the assessee has not unearthed any material to support the views of the department except presumptions. These can be linked to the investment activities and hence, this mere message cannot be the source for making any addition unless there is corroborative evidence linking the actual activities carried by the assessee. We observe that Ld CIT(A) has already gave his finding that the above transactions are linked to the commission income and accordingly, he deleted the same. Therefore, we do not see any reason to sustain the additions.

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ASSESSMENT YEAR: 2012-13 ITA.NO. 396/MUM/2021 (A.Y. 2012-13) – ASSESSEE APPEAL

2. The Ld. CIT(A) has erred in confirming additions of Rs.10,59,066/- as unaccounted cash.

3. The Ld. CIT(A) has erred in confirming the addition of Rs.4,45,433/- on penny stock.”

88. With regard to Ground Nos. 1 & 2 of grounds of appeal raised by the assessee, Ld. AR of the assessee submitted that these grounds are not pressed, accordingly the same are dismissed as not pressed.

89. Ground No. 3 is relating to Non-genuine long-term capital gains of ₹.4,20,220/- and addition under section 69C of Rs 19,960/-.

90. With regard to long-term capital gains on sale of shares of Unisys Software Holding Industries Ltd alleging the same to be non-genuine, Ld. CIT(A) has sustained the addition of ₹.4,20,220/- made by the Assessing Officer.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga documentary evidences filed with him. Ld. AR of the assessee relied on the submissions before us for the A.Y. 2014-15.

ITA.NO. 572/MUM/2021 (A.Y. 2012-13) – DEPARTMENT APPEAL

1. Whether, on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of aggregate amount of Rs 6,06,32,291 as commission income @4.75% of the turnover for providing Long Term Capital Gains entries".

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga ASSESSMENT YEAR: 2013-14 ITA.No. 397/MUM/2021 (A.Y. 2013-14) – Assessee Appeal ITA.No. 570/MUM/2021 (A.Y. 2013-14) – Department Appeal

2. The Ld. AO has made addition and Ld. CIT(A) has erred in confirming the part addition without discovering any undisclosed income or undisclosed assets during search.

3. The Ld. AO has erred and Ld. CIT(A) has erred in confirming the addition on estimation basis in search case.

4. The Ld. CIT(A) has erred in confirming the estimated addition to the tune of Rs.1,11,56,928/- on account of commission on alleged bogus Long Term Capital Gain.”

1. "Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting addition of aggregate amount of Rs 15,40,70,907 as commission income @1.15 instead of @4.75% of the turnover for providing Long Term Capital Gain entries as determined in the Assessment Order without any new factual finding to the contrary.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga 13.06.2014 and hence, per second proviso to section 153A, the assessment for the year under reference shall abate.

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110. Further, assessee has raised additional grounds which are reproduced below: -

“1. The Commissioner of Income-tax (Appeals) - 52 (hereinafter referred to as the CIT(A)) has deleted aggregate addition made by the Deputy Commissioner of Income-tax, Central Circle - 4(3), Central Range -4, Mumbai (hereinafter referred to as the Assessing Officer) of Rs 18,17,650, being the long-term capital gains earned on sale of shares of Rander Corporation Ltd and Pine Animation Ltd but on protective basis that the alleged commission income earned by the appellant in relation to providing accommodation entries is partly sustained by the CIT(A) which is more than the aforesaid long-term capital gains. The appellant contends that on the facts and in circumstances of the case and in law, the CIT(A) has not appreciated the facts of the case in its entirety and hence, the said observation/ action of the CIT(A) is bad in law.

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2. The CIT(A) has deleted the addition made by the Assessing Officer of Rs 1,09,059, being the commission @ 6% for obtaining the alleged accommodation entries for capital gains aggregating ₹.18,17,650 on sale of long-term capital asset, being shares of Rander Corporation Ltd and Pine Animation Ltd. The appellant contends that on the facts and in circumstances of the case and in law, the CIT(A) has not appreciated the facts of the case in its entirety and hence, the said action of the CIT(A) is bad in law.”

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga

ASSESSMENT YEAR 2015-16 ITA.No. 571/MUM/2021 (A.Y. 2015-16) – Assessee appeal ITA.No. 399/MUM/2021 (A.Y. 2015-16) – Revenue appeal

“1. The Ld. AO has made addition and Ld. CIT(A) has erred in confirming the part addition without discovering any undisclosed income or undisclosed assets during search. 2. The Ld. AO has erred and Ld. CIT(A) has erred in confirming the addition on estimation basis in search case. 3. The Ld. CIT(A) has erred in confirming the estimated addition to the tune of Rs.38,04,900/-on account of commission on Long Term Capital Gain

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4. The Ld. CIT(A) has erred in confirm the addition of Rs.8,37,000/- against gold Jewellery.

117. Revenue has raised following grounds in its appeal: -

1. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in restricting the addition of aggregate amount of Rs 2,77,92,481 as commission income @1.15% instead of @4.75% of the turnover for providing Long Term Capital Gain entries as determined in the Assessment Order without any new factual finding to the contrary.

2. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of unaccounted cash involved in mobile SMS sent to Mr. Manish Arora by presuming these transactions to be part of total turnover of these scrips, already taxed, without any new factual finding to the contrary. 3. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has erred in allowing the addition (Rs.1,61,400) on account of unexplained investment in Jewellery on account of CBDT's circular related only to the seizure of gold jewellery during Search & Survey operations which does not rule out the onus of the assessee to explain its source subsequently.

118. With regard to Ground No. 1 raised by the assessee, Ld. AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga respect of Estimation of commission income on providing of alleged accommodation entries.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga acquired and Letter dated 17.03.2015 is not available on the assessment records and is not brought on record.

i. The Boards instructions are applicable with respect to jewellery and not gold bars. ii. The purchase bills were not located or produced by the assessee during the course of search proceedings or post search proceedings. iii. The source of funds for such purchases has not been explained by the assessee. iv. The purchase bills are clearly managed by the assessee subsequent to the search action and cannot be accepted as valid piece of evidence. v. There is no debit in the bank account of any of the family members prior to the date of search in respect of such purchases.

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ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga gold bars, have been purchased by the family members in cash and as such, there is no payment through bank. In any case, if the Ld.CIT(A) harbored any doubts, he could have himself verified the fact of purchase of gold bars by the family members of the assessee by issuing a notice under section 133(6) or 131 of the Act, however, have not done so and preferred the easy route of sustaining the addition. In view of the above, the addition made by the Assessing Officer and sustained by the Ld.CIT(A) of ₹. 8,67,000 ought to be deleted.

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga equal to investment in gold/jewellery, therefore, the AO has to give allowance of gold that can be held by the individuals in their individual capacity. Since, the issue involved is with relation to family investments, we direct AO to make the verification in terms of investment sources of the family members and legal allowance for each member of the family to hold certain jewellery after giving opportunity of being heard to the assessee and decide the issue as per law. Accordingly, the ground raised by the assessee and revenue are allowed for statistical purpose.

2. The CIT(A) has deleted the addition made by the Assessing Officer of Rs 1,09,059, being the commission @ 6% for obtaining the alleged accommodation entries for capital gains aggregating Rs 18,17,650 on Page No. | 94

ITA NOs. 396, 397, 398 & 399/MUM/2021 571, 572 & 573/MUM/2021 M/s. Natwarlal Daga sale of long-term capital asset, being shares of Rander Corporation Ltd and Pine Animation Ltd. The appellant contends that on the facts and in circumstances of the case and in law, the CIT(A) has not appreciated the facts of the case in its entirety and hence, the said action of the CIT(A) is bad in law.

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(a) Rander Corporation Ltd Rs 7,73,250 (b) Pine Animation Ltd Rs 10,44,400

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Order pronounced in the open court on 31st July, 2023