JT. CIT (OSD) CENTRAL CIRCLE 5(1), MUMBAI vs. M/S ASPEN INTERNATIONAL PVT LTD, MUMBAI

2. "Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs. 75,167/-, being unaccounted commission paid for arranging 3 and other appeals M/s. Aspen International Pvt. Ltd. accommodation entry which is in the nature of bogus long term capital gains in patent violation of the infringement of the provisions of the Act?" 3. "Whether on the facts and in the circumstances of the case and in law, the Id. CIT (A), without prejudice to the above had erred in not rectifying the mistake of restricting the addition in the case of the assessee only to the extent of 5% of alleged accommodation entries undertaken by the assessee group as profit earned on unaccounted sales. The Id. CIT (A) also erred in not appreciating the fact that the huge amount of accommodation entry undertaken by the assessee group itself reflected the profit earned through unaccounted sales undertaken by the assessee in the course of deleting the additions?" 4. "Whether on the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax (Appeals) erred in deleting the addition made in the assessment order, by merely relying on the submissions of the assessee that the funds generated through accommodation entry were directly/indirectly routed to the assessee company-without providing any opportunity of being heard or for verifying the submissions made by the assessee in the course of appellate proceedings, which is arbitrary and against the interests of the principles of natural justice?" 5. "Whether on the facts and in the circumstances of the case and in law, the Id. Commissioner of Income Tax (Appeals) erred in sustaining the protective addition of only 5% of GP margin on alleged unaccounted sales in the case of the assessee company -"Hazel Mercantile Ltd" while on the other hand according relief of entire addition of Rs. 15,03,340/- which is arbitrary and against the interests of the principles of natural justice.?"

On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim for exempt Long Term Capital Gains made by the Appellant in the return of income amounting to Rs. 15,03,340/- without appreciating the facts and circumstances of the case and position of law.

On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in treating the exempt LTCG as allegedly non genuine and adding the same u/s.68 of the Act without appreciating the facts and circumstances of the case and position of law.

At the outset, both the parties agreed that this issue now stands covered by the decision of this Tribunal in the group case of Nitin Kumar Dindayal Didwania and M/s. Hazel Mercantile

The brief facts are that a search u/s.132 and survey was conducted on Veritas group wherein certain emphatic evidences were found that Shri Nitin Kumar Dindayal Didwania and his family including Veritas Ltd and other group companies including the assessee company, M/s. Aspen International Pvt. Ltd. have entered into share transactions in the following scrips; (i) Nouveau Multimedia Ltd., (ii) JMD Telefilms Industries Ltd. (iii) D.B. International Stock Brokers Ltd. (iv) Rander Corporation Ltd. (v) Blue Circle Services Ltd.; (vi) Dhanleela Investments Company Ltd.; (vii) Effingo Textiles & Trading Ltd (viii) CCL International Ltd.; (ix) Mapro Industries Ltd.; and (x) Mishka Finance & Trading Ltd and claimed capital gain exempt income u/s 10(38) of the Act.

In the course of search on Shri Nitin Kumar Dindayal Didwania, a statement was recorded on 10/09/2015 and 13/09/2015 u/s.132(4), wherein he explained whole modus operandi of obtaining bogus long term capital gain on account of manipulated and fraudulent transactions. However, later on statement was retracted. Thereafter, the ld. AO after detailed discussion held that assessee who has also shown long term capital gain on sale of these shares which was claimed exempt u/s.10(38) as bogus and non-genuine which has been added u/s.68. Accordingly, the entire long term capital gain of Rs.15,03,340/- has been added. However, the ld CIT(A) though has held that all the long term capital gains shown by Nitin Kumar Dindayal Didwania and his group concerns have taken bogus long term capital gain and which has been tabulated in the following manner:-

The assessee company had also shown capital gains which have claimed as exempt in various orders are as under:- Particular AY AY AY AY AY AY AY 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Returned 99,36,466 418,46,760 177,73,110 203,07,075 17,80,490 - - Income LTCG 15,03,340 99,24,436 29,09,153 85,05,399 198,10,394 - - Claimed as Exempt Capital Gain 15,03,340 99,24,436 29,49,332 85,05,399 198,10,349 - - on Alleged Penny Stock Captial Gain -40,179 - - - - on other Stock

The details of capital gain in the case of the assessee in the various groups were as under:-

The ld. CIT (A) held that, in his order in the case of M/s. Hazel Mercantile Ltd and Shri Nitin Kumar Dindayal Didwania for A.Y.2010-11 to 2015-16, an addition on account of non-genuine LTCG and commission for obtaining the LTCG has been upheld. However, he held that source of cash for obtaining this accommodation entry was on account of out of books sales of stock in cash in the case of M/s. Hazel Mercantile Ltd. which has been accepted by him and therefore, he held that same is taxable in the hands of M/s. Hazel Mercantile Ltd. However, in that case, the ld. CIT(A) has telescoped the entire addition of long term capital gain in all the cases for an addition of Rs.6,04,66,969/- made on account of gross profit on account of sales made protective by the ld. AO in that case which he held to be substantive. His relevant observations and findings are as under:- “5.6. The facts and submissions are identical and have been dealt with at length in my appellate orders of even date for M/s Hazel Mercantile Ltd. and Nitinkumar Deendayal Didwania for AY 2010-11 to AY 2015-16. The additions made in respect of non-genuine LTCG and commission for obtaining the LTCG has 8 and other appeals M/s. Aspen International Pvt. Ltd. been upheld. The retraction has been disregarded. It has been held that the statement of admission and explanation of source of the cash for obtaining non-genuine LTCG in all the group concerns/entities has to be considered together. The explanation that the source was out of out of books sale of stocks in cash and expense incurred as commission for obtaining the LTCG in all the in the case of M/s Hazel Mercantile Ltd. has been accepted and the LTCG individual and entities of VERITAS/DIDWANIA group has been considered as taxable in the hands of M/s Hazel Mercantile Ltd.. The protective addition made in that case of M/s Hazel Mercantile Ltd. has been upheld as substantial.

In light of the facts of this case as well as the facts in the case of other group entities on this issue, the reasons elaborated in my appellate orders in the case of M/s Hazel Mercantile Ltd. and Nitinkumar Deendayal Didwania for AY 2010-11 to AY 2015-16 above, grounds of appeal no 2, 3, 4, 5 and contention regarding retraction in ground 6 are dismissed. However, the addition made by disallowing the claim of exemption for long term capital gains of Rs.15,03,340/- and further addition of Rs.75,167/- at the rate of 5% of the exempt long term capital gains earned during the year as unaccounted commission expenses incurred for earning the said exempt income is deleted in view of the decision in the case of M/s Hazel Mercantile Limited in whose hands the addition is upheld on substantial basis and ground of appeal no 6 regarding the AO not considering the explanation regarding source of cash. Hence these grounds are treated as partly allowed as above. The appellant and the other relevant entities in the VERITAS group will pass correctional accounting entries in all the concerned entities to reflect this position.”

There is no working mentioned by the learned CIT (A) in his order that how he is telescoping the addition of Long Term Capital Gain earned by these entities with the gross profit addition made in the hands of M/s Hazel Mercantile Ltd.

There is no justification/ reasoning of the time of long-term capital gain earned in respective years and amount of gross profit addition in case of company. There is year wise gross mismatch between AY of earning of capital gain and profit taxed in the hands of Hazel mercantile Limited. 29. There is no evidence found during the course of search , which even remotely suggests that income is earned by company, and it came in to hands of this assessee for conversion of that unaccounted income as LTCG in their hands. No evidence mentioned by the LD CIT (A) for allowing the telescoping. 30. In case of Hazel Mercantile Limited Bogus LTCG is Rs 16.04 Cr, whereas addition because of GP is merely Rs. 6.02 Cr, which is not even enough to cover Bogus LTCG in the same company, how the other entities unaccounted income is subsumed in that is not made clear by the LD CIT (A). 31. Therefore, all the grounds of appeal

In view of this, we do not find any merit in the cross objections of the assessee, hence it is dismissed.

In view of this, the appeal filed by the learned assessing officer is allowed for statistical purposes setting aside back to the file of the learned CIT – A to give clear-cut finding as to how merely an addition of ₹ 6 crores is enough where as bogus long-term capital gain earned is more than ₹ 120 crores. The learned CIT – A is also directed to give a specific finding year wise, amount twice, assessee wise with reasons that how telescoping of the long-term capital gain earned by individuals and companies can be subsumed in a meager addition of ₹ 6 crores in the hands of Hazel Mercantile Ltd. Needless to say, the assessee is directed 15 and other appeals M/s. Aspen International Pvt. Ltd. to submit, if desired, all his submissions within 90 days of this order, thereafter, the learned CIT – A may decide the issue in accordance with the law.

Accordingly, appeals of the learned AO are allowed for statistical purposes and the cross objections of the assessee are dismissed.

Identical facts exists for assessment year 2011 – 12, 2012 – 13, 2014 – 15, 2015 – 16 and 2016 – 17. Therefore, similar directions are also given for all these years allowing the appeal of the learned assessing officer for statistical purposes and dismissing cross objections of the assessee.

Accordingly, in case of Mr. Nitinkumar Deendayal Didwania, all the appeals filed by the learned assessing officer are allowed for statistical purposes and cross objections filed by the assessee are dismissed for all these years.

Coming to the appeal is filed by the learned assessing officer in case of Mrs. Nitti Nitinkumar Didwania for assessment year 2010 – 11, 2011 – 12, 2012 – 13, 2014 – 15 and 2015 – 16 as well as cross objections filed by the assessee for all these assessment years are having similar facts except the change of amounts of long-term capital gain. Therefore, for the reasons given by us while disposing of the appeal of the learned AO and cross objections of Mr. Nitinkumar Didwania, we also allow the appeals of the learned assessing officer in case of Mrs. Nitti Nitinkumar Didwania for statistical purposes with similar direction and dismiss the cross objections of the assessee for all these years.

Now we come to the appeal of learned assessing officer in Hazel Mercantile Ltd for respective assessment years and cross objections or appeal of the assessee.

For assessment year 2010 – 11, the assessee has filed its original return under section 139 (1) on 22/01/2011 declaring a total income of ₹ 21,798,074. This return was revised at the same income on 22/2/2014. The assessment was completed under section 143 (3) of the act on 26/11/2012 assessing the total income of the assessee at ₹ 26,636,430. The assessment 16 and other appeals M/s. Aspen International Pvt. Ltd. was reopened under section 148 of the act which was also resulted into an assessment passed under section 143 (3) read with section 147 of the income tax act at ₹31,574,830. Subsequently, re-assessment order was challenged before the CIT – A wherein as per order dated 14/7 /2016 the additions were deleted.

Subsequently on account of search on 10/9/2015, respective is under section 153C was issued on 29/12/2017 wherein the income of the assessee was assessed at ₹55,644,450/–. The assessee company was found to have earned bogus long-term capital gain of ₹20,205,648/– for the impugned assessment year. Similarly, for other assessment years starting from assessment year 2011 – 12 – 2015 – 16 also assessee was found to have earned non-genuine long-term capital gain. The total long-term capital gain allegedly as bogus unaccounted income was to the tune of ₹16.04 crores. Based on the statement of the managing director/main officer of the assessee company this long-term capital gain was added to the total income of the assessee under section 68 of the income tax act. Further commission thereon for earning such bogus long-term capital gain at the rate of 5% that too based on the statement of Mr. Nitinkumar Didwania was made in the hands of the assessee for all those years. Accordingly, commission at the rate of 5% for assessment year 2010 – 11 to 2015 – 16 was determined at ₹57,514,654. It was added as unexplained expenditure under section 69C. The learned assessing officer for the impugned assessment year made an addition of ₹20,205,648 on account of bogus long-term capital gain and commission expenditure of ₹ 1,010,282.

The learned assessing officer also found that assessee has unrecorded sales of ₹ 155,841,837 for assessment year 2010 – 11, ₹135,216,734 for assessment year 2011 – 12, ₹ 284,034,824 for assessment year 2012 – 13, ₹ 576 Lacs for assessment year 2013 – 14, ₹ 335,280,986 for assessment year 14 – 15 and ₹ 243,389,364/– for assessment year 2015 – 16 amounting to ₹ 1,207,870,747 for all these years taken together. The learned assessing officer also added to the income of the assessee 5% gross profit out of these unaccounted sales. Therefore, on account of unaccounted sales of ₹ 120 crores 17 and other appeals M/s. Aspen International Pvt. Ltd. taken together for all these years 5% of gross profit works out to ₹ 6 crores. Thus, corresponding addition was made for all these years.

On appeal before the learned CIT – A, the addition of long-term capital gain and commission expenditure was confirmed on the merits where the learned CIT – A has categorically held that about long-term capital gain shown by the assessee is bogus and correctly taxed under section 68 of the act. Similar findings were with respect to the expenditure.

However, the learned CIT – A held that the addition in the Hands of the assessee on account of gross profit on account of unaccounted sales subsumes the addition on account of nongenuine long-term capital gain. He held that when the unaccounted income on account of gross profit earned on unaccounted sales is added in hands of the assessee, there is no requirement of further making an addition of unaccounted long-term capital gain.

Accordingly, in a nutshell, he held that though the long-term capital gain earned by the assessee is nongenuine and correctly taxable in the hands of the assessee but however for the reasons that gross profit on unaccounted sale is already taxed at the rate of 5% in the hands of the assessee, no separate addition with respect to the bogus long-term capital gain is required. Thus, he confirmed addition to the extent of ₹ 6 crores for all these assessment years but held that bogus long-term capital gain earned of ₹ 16.04 crores in the Hands of the assessee subsumes in the above addition of ₹ 6 crores.

Therefore, the assessees as well as the learned assessing officer both are aggrieved by the order of the learned CIT – A. Assessee is aggrieved by the confirmation of the addition of bogus long-term capital gain and commission expenses earned thereon as well as 5% gross profit confirmed on unaccounted sales. The learned assessing officer is aggrieved with giving telescoping of the addition of ₹ 6 crores for covering bogus long- term capital gain of ₹ 16.04 crores.

We have carefully considered the contentions of the learned CIT DR and perused the orders of lower authorities. As we have 18 and other appeals M/s. Aspen International Pvt. Ltd. confirmed the long-term capital gain chargeability in the hands of Mr. Nitinkumar Didwania as well as payment of 5% of the commission for earning such long-term capital gain, the facts and circumstances are exactly similar except the change of the amount. Therefore, we do not have any hesitation in dismissing ground number 1 – 4 of the appeal of the assessee for all these assessment years.

For the reasons given by us while allowing the appeal of the learned assessing officer in case of Mr. Nitinkumar Didwania challenging the action of the learned CIT – A in not making a separate addition for long-term capital gain but holding that capital gain addition is subsumed in the addition of 5% on account of unaccounted sales of Hazel Mercantile Ltd, we set aside the whole appeal of the learned assessing officer for all these years back to the file of the learned CIT – A to decide a fresh and give a detailed finding as to how the telescoping of the gross profit addition in the hands of this assessee company amounting to ₹ 6 crores subsumes all the additions of penny stock in the hands of Mr. Nitin Didwania as well as his family members and companies of Rs 120 crores can be telescoped. Accordingly the appeal of the learned assessing officer for all these assessment years are allowed for statistical purposes with above directions.

Thus, this Tribunal after detailed reasoning had set aside this issue to the file of the ld. CIT(A) to give a finding as to how the addition of Rs.6 Crores is enough to cover bogus capital gain for more than Rs.120 Crores. Accordingly, following similar line of direction in these appeals, the entire issue is set aside and remanded back to the file of ld. CIT (A) to be decided in accordance with same line of direction.

Consequently, the Revenue’s appeal is allowed for statistical purposes.

In so far as cross objections are concerned, the same have also been dealt in detail by the Tribunal in para 33. Accordingly, on the same ground, the cross objections filed by the assessee are dismissed.

In the result, appeals of the Revenue are allowed for statistical purposes and Cross Objections of the assessee are dismissed. Order pronounced on 27th April 2023 Sd/- Sd/- (PADMAVATHY S) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 27/04/2023 KARUNA, sr.ps Copy of the Order forwarded to :