DY CIT CC 4(3), MUMBAI vs. SHRI. RAJESH OMPRAKASH AGRAWAL, THANE

A search under section 132 of the act was carried out in the case of Mr Rajkumar Kedia group on 13/6/2014 by The Deputy Director Of Income Tax (investigation) unit 3 (3), Delhi. The allegation against the group was that it is engaged in providing various types of accommodation entries to large number of beneficiaries all over the country. Mr RK Kedia group is also involved in issuing bogus long- term capital gain.

During post search proceedings, AO alleged that seized material contains certain incriminating transactions and other information pertained to the assessee. The residential premises of the assessee at Dombivali West, Thane was also covered under section 133A of the act simultaneously on 13/6/2014.

On perusal of a statement of long-term capital gain, it was observed that assessee has shown long-term capital gain of ₹ 2,395,024/– as long-term capital gain earned on sale of equity shares of Luminaire technologies Ltd. This was claimed as exempt income under section 10 (38) of the act.

Learned AO found that the above company was a penny stock company, which was utilized for giving accommodation entries of bogus long-term capital gains. It was found that some of the beneficiaries who obtained long-term capital gain accommodation entries have admitted so that long-term capital gain has been obtained by them by giving a commission of 5 – 6% of the entry amount in cash. Therefore, the assessee was asked to show why the entire

Assessee submitted he has applied for the shares of Paridhi properties Ltd on 30/3/2011 issuing a cheque from his axis bank account on 30/3/2011 of ₹ 75,000/-. The source of the above sum is the transfer of short-term deposit of ₹ 45,000 and ₹ 30,000 withdrawn. As per order of the honourable High Court dated 27 July 2012, the above company was amalgamated with luminaire technologies Ltd. Therefore, assessee received 75,000 equity shares of this company in physical form. The same are sent for dematerialization on 24/1/2014 with progressive share brokers private limited. Assessee also submitted his Demat holding to show that he is holding 18 other companies share. The above shares were sold in three trenches on 12/2/2014 (25,000), 13/2/2014 (12,380) and on 14/2/2014 (37,620) shares at Bombay stock exchange Ltd through his broker. He also submitted that time and date stamp contract notes. The share broker through the payout of stock exchange made on 14/2/2014 and 18/2/2014 that is credited in his bank account with axis bank Ltd. It was therefore stated that assessee has not engaged himself into any nongenuine trading activities of these shares. He further referred to the price movement of above share at Bombay stock exchange from 4 April 2011 to 31st of March 2014. He submitted that this company is regularly traded

The learned assessing officer held that assessee has failed to prove the genuineness of the capital gain and the submission is not tenable in the backdrop of the prearranged trading in shares of various non- descriptive listed companies established as penny stock by the investigation wing. The learned AO also held that RK Kedia group has been involved in evading income tax itself but also helping other persons in revision of income tax on a very large- scale by providing bogus long-term capital gain and various other kinds of accommodation entries. Shri Manish Aurora keeps the record of unaccounted transaction. Sri Rajkumar Kedia operates from and through a close network of associates in Delhi Mumbai and Calcutta. The entire entry providing operation comprises of various level. Accordingly, relying on the report of investigation wing where the modus operandi of accommodation entry of long- term capital gain is explained and ultimately he held that the scheme is a pure tax avoidance scheme without any commercial justification further the transactions are self concealing and are designed only with a view to earn exempt capital gain under section 10 (38) of the act. Therefore based on the investigation conducted by the investigation wing the learned assessing officer has treated the above long- term capital gain as non genuine amounting to ₹

The learned assessing officer also found that there are certain materials seized at from the residential premises of the assessee in the form of messages in mobile phone. According to that the addition of ₹ 128 lakhs was made to the total income of the assessee. The main reason is that some of the messages mention cash transaction while many other messages mention selling/buying of fixed number of shares at a fixed price in the scripts, which have already been admitted and proved to be used for providing bogus long-term capital gain to various beneficiaries. The contents of the messages and statement of Mr Rajesh Agrawal (assessee) in this regard clearly proved that the manipulative trading in shares of certain listed scrip is being done by the assessee on the instruction of Mr Kishen khaderia. During the course of post search enquiries on 6/8/2014, the statement of Mr Kishen Khaderia was recorded who denied to have given any instructions for such transaction. Assessee could not show any valid explanation. As the mobile pertained to the assessee, he miserably failed to discharge any onus.

Consequently assessment order under section 143 (3) read with section 153A of the act was passed on

The assessee preferred an appeal before the learned CIT – A. Before the learned CIT – A, the assessee challenged that AO should not have issued any notice under section 153A of the act as search warrant dated 13/6/2014 was not in the name of the assessee but was in the name of his employer Mr Kishen Khaderia . Though assessee admitted that subsequent search warrant dated 6/8/2014 was in the name of the assessee but it was only for the purpose of searching the content of the bank locker which stood in the name of the Father of the assessee. As such there is no seizure from that bank locker. Therefore the same could not have been used for issuing notice under section 153A of the act. The learned CIT (A) rejected this contention holding that that warrant of authorization was issued in the name of the assessee regardless of the fact that it was further locker and not for any premises. Once there is a warrant of authorization in the name of person the search related assessment have necessarily be undertaken as per the provisions of section 153A of the act. It is immaterial as to whether anything was seized from the premises or not. Accordingly the preliminary objection of assessee was dismissed. With respect to the addition of long-term capital gain of ₹ 2,395,024/– CIT (A) relied upon the information contained in the investigation Wing report and

The learned authorized representative vehemently submitted that that assessment proceeding under section 153A of the act is bad in law. He submitted that the search pursuant to the search warrant issued in the name of his employer as per

The learned authorized representative further challenged that the long-term capital gain has been earned by the assessee for which the assessee has proved the genuineness of the transaction. He submitted that he is not at all connected with RK Kedia group as far as the transaction of long-term capital gain earned by the assessee is concerned. He submitted that assessee has earned meager long- term capital gain of only ₹ 24 lakhs. He specifically

The learned departmental representative vehemently supported the order of the learned CIT – A on the issue of validity of the issue of notice under section 153A of the act. She further relied upon the decision of the learned CIT – A on the issue of long-term capital gain held to be bogus. She extensively referred to the order of the learned CIT – A. She further referred to the decision of honourable Supreme Court in case of Suman poddar versus ITO 112 taxmann.com 330.

We have carefully considered the rival contention and perused the orders of the lower authorities. With respect to the first ground of appeal challenging that the issue of notice under section 153A of the income tax act by the learned assessing officer to the assessee is invalid, we found that panchnama dated 13/6/2014 issued in the name of Mr Kishen Rugnath Prasad Khadaria at the residential premises of the assessee at 16, Sai Satyam, Kopar Road Dombivile (w) . Thane. During the course of search at the

Accordingly ITA number 1198/M/2020 filed by the assessee for assessment year 2014 – 15 is partly allowed.

Assessee has filed his return of income on 20/8/2016 declaring a total income of ₹ 825,050/–. The return of income was picked up for scrutiny. The return contained income from salary as well as interest income under the head income from other sources.

The learned assessing officer based on the mobile phone of the assessee found that unaccounted cash involved in those short messages is to the tune of ₹ 1071 Lacs. The AO was of the view that assessee was actively involved in handling and routing cash transaction. The assessee was asked to show cause

Assessee approached the learned CIT – A challenging the above addition. The learned CIT – A held that for assessment year 2014 – 15 he has held that above addition is required to be made in the hands of Mr. Kishan Khaderia and not the assessee.

Learned AO aggrieved with that order, preferred appeal before us. The learned CIT DR supported the order of the learned AO and submitted that the said addition should have been made in the hands of the assessee as the mobile phone of the assessee is the source of information of such transaction which were not explained by the assessee. Therefore the finding of the learned CIT – A to tax the above sum in the hands of employer of the assessee is erroneous.

Learned authorized representative submitted that the above income is not required to be added in the hands of the assessee as the learned CIT has merely reiterated his finding for assessment year 2014 – 15 wherein he has deleted the addition of ₹ 128 lakhs holding that the above income is required to be taxed in the hands of the employer of the assessee.

We have carefully considered the rival contention and perused the orders of the lower authorities. In fact the addition has been made based on the short messages found from the mobile phone of the assessee. As the assessee is an employee of Mr Kishan Khaderia, the learned CIT – A has held that above addition is required to be made in the hands of employer of the assessee and not the assessee. This finding of the learned CIT – A is based on his findings for assessment year 2014 – 15. For this year also he has reiterated the above finding and allowed the appeal of the assessee. The categorical finding of the learned CIT – A is that the addition under section 68 as well as under section 69C of the act is required to be taxed in the hands of Mr Kishen Khadaria . We find that the learned assessing officer has not challenged the addition deleted in the hands of the assessee for assessment year 2014 – 15 holding that same should be taxed in the hands of the employer of the assessee. This position in case of assessee is accepted by the revenue for assessment year 2014 – 15. Therefore we do not find any reason for learned

Accordingly, appeal of the learned AO for assessment year 2015 – 16 is dismissed.