A.C.I.T., CIRCLE-2, GWALIOR vs. M/S RAKESH SHIVHARE & NISHA MITTAL, MORENA

In the Income-Tax Appellate Tribunal, Agra Bench, Agra

Before : Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member

PAN/TAN Appellant Respondent S.N ITA Nos. o. 1-4 124 to 127 ACIT, Circle-2, M/s Shyam Sunder & Manish AABAS8326F /Agr/2014 Aayakar Bhawan, City Taori C/o Shyam Sunder A.Y.2005-06 Center, Gwalior- Bhattad, A.B. Road, to 2008-09 474011 Morena (M.P.) 5-8 170/Agr/2014, ACIT, Circle-2, Sakshi Taori and AABAS8325G 83 to 85 Aayakar Bhawan, City ChhayaBhattad, T.R. Puram, /Agr/2014 Center, Gwalior- A.B. Road, Morena. A.Y.2005-06 474011 to 2008-09 9- 156 to 158/ ACIT, Circle-2, Smt. Manoj Kumar Saxena & AAAAM5816B 13 Agr/2014 Aayakar Bhawan, City Sharmila Agarwal, CO 12/Agr/14 Center, Gwalior- E.W.S. 44-45, Indrapuram, Agra 160/Agr/2014 474011 A.Y.2005-06 to 2009-10 14- 169/Agr/2014 ACIT, Circle-2, M/s Vandana Jain & Rama AAAAV2973J 17 114 to 116 Aayakar Bhawan, City Bansal 170, Jiwaji Ganj, Morena /Agr/ 2014 Center, Gwalior- (M.P.) A.Y.2005-06 474011 to 2009-10 18- 128 to 130 / ACIT, Circle-2, M/s Sunil Kumar Mittal &Mamta AABAS8327E 20 Agr/ 2014 Aayakar Bhawan, City Mittal, C/o Sunil Kumar Mittal, AY 2005-06, Center, Gwalior- Kadam Singh Kansana Marg, 2008-09 & 474011 Duttapura, Morena 2009-10 21- 117 to 120 / ACIT, Circle-2, M/s Rakesh Shivhare& Nisha AAAAR3588D 24 Agr/ 2014 Aayakar Bhawan, City Mittal, C/o Rakesh Shivhare, 2005-06 to Center, Gwalior- Ganga Bishan ka Bada, 2009-10 474011 Duttapura, Morena

Appellant by Shri Sunil Bajpai, CIT DR Respondent by Shri Sanjay Kumar, CA

Date of Hearing 06.08.2019 Date of Pronouncement 19.08.2019

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ORDER PER BENCH:

These appeals are filed by the assessee for Assessment Years 2005-06 to 2009-10, involving common issues. As such, they are being disposed of by this composite order. Details, for convenience, are being taken from ITA Nos.124 to 127/Lkw/2014 in the case of ACIT vs. Shyam Sunder Bhattad& Manish Taori.

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“1. Whether on the facts and circumstances of the case, the ld. CIT(A) has erred in deleting the additions on account of the investment in shares of K.S. Oils Ltd. Ltd. on protective basis. 2. On facts and circumstances of the case, the ld. CIT(A) has erred in deleting the addition on account of disallowance of exemption u/s 10(38) of the Act on protective basis. 3. On facts and circumstances of the case, the ld. CIT(A) has erred in deletion of amount on account of dividend income on protective basis.” 4. The above grounds are common in all the appeals, however, the deletion made by the ld. CIT(A) is different in all the appeals and therefore, we have framed the general ground which will be disposed of in this order.

4.1 Ground No.1 Paragraph 1 to 8 as per paper book reads as under: “All the aforesaid appeals are directed against the orders passed by CIT(A), Gwalior, wherein additions made by the ACIT, Circle-2, Gwalior in the assessment orders passed under section 153A/143(3) in the cases of aforesaid respondents six Association of persons (AOPs) on protective basis though the same were to be considered in the assessment of Shri Ramesh Chand Garg on substantive basis, were deleted. BACKGROUND 2. In the year 2005 in order to strength his hold on K.5. Oils Ltd., Shri RameshChand Garg through his chosen few had set up as many as eight Association ofPersons (AOPs) with the sole objective of making investment in the shares of K.S. Oils Ltd., relevant particulars of such AOPs are as under: SI. No. PAN Name of the Members constituting Address the AOP "Association of Persons" (AOP) (i) AABAS8326F Shyam Sunder 1. Shyam Sunder T.R. Puram, A.B. & Manish Taori Bhattad Road, Morena 2. Manish Taori

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AABAS8325G (ii) Sakshi 1. Sakshi Taori T.R. Puram, A.B. 2. ChhayaBhattad Road, Morena &ChhayaBhatta d AAAAM5816B (iii) Manoj Kumar 1. Manoj Kumar EWS 44-45, Indra Saxena & Saxena Puram, Samshabad Sharmila 2. Sharmila Road, Agra Agrawal Agrawal AAAAV2973J (iv) Vandana Jain 1. Vandana Jain 170 Jiwaji Ganj, & Rama Bansal 2. Rama Bansal Morena

(v) AABAS8327E Sunil Kumar 1. Sunil Kumar Mittal Kadam Singh, &Mamta Mittal 2. Mamta Mittal Kansana Marg, Duttapura, Morena AAAAR3588D (vi) Rakesh 1. Ramesh Shivhare Dutt Pura, Morena Shivhare& 2. Nisha Mittal Nisha Mittal AAAAL1381L (vii) Lata Agarwal 1. Lata Agrawal Ganga Bishan Ka &Uma Shivhare 2. Uma Shivhare Bada, Duttapura, Morena

(viii) AAAAJ2878C Jitendera 1. Jitendra Agrawal 144, Shahzadi 2. Anita Saxena Mandi, Agra Kumar & Anita Saxena

AIVPB1234E (iii) Sunshine Finance Co. Duttapura, Morena

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which were the main "source of funding" to the aforesaid eight AOPs. So much so that the contributions in the name of members of AOPs, were also provided by Shri Ramesh Chand Garg. 4. Out of the funds arranged by Shri Ramesh Chand Garg, respective AOPs made investment in the preferential allotment in February'05 (with a lock-in-period of one year) of shares of K.S. Oils Ltd. Such shares were allotted @ 25 per share in Feb'05 however, only 25% payment was made prior to allotment and 75% payment was made in Oct'05, as per particulars given hereunder: SI. Name of AOP No. of Payment made No. Equity Share In A.Y. In A.Y. Total allotted 2005-06 2006-07 4,00,000 25,00,000 75,00,000 1,00,00,000 (i) Shyam Sunder & Manish Taori 4,00,000 25,00,000 75,00,000 1,00,00,000 (ii) Sakshi &ChhayaBhattad 4,00,000 25,00,000 75,00,000 1,00,00,000 (iii) Manoj Kumar Saxena &Sharmila Agrawal 4,00,000 25,00,000 75,00,000 1,00,00,000 (iv) Vandana Jain & Rama Bansal 4,00,000 25,00,000 75,00,000 1,00,00,000 (v) Sunil Kumar &Mamta Mittal 4,00,000 25,00,000 75,00,000 1,00,00,000 (vi) Rakesh Shivhare& Nisha Mittal 4,00,000 25,00,000 75,00,000 1,00,00,000 (vii) Lata Agarwal & Uma Shivhare

Jitendera Kumar & 3,00,000 18,75,000 56,25,000 75,00,000 (viii) Anita Saxena 31,00,000 1,93,75,000 5,81,25,000 7,75,00,000 Total

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(c) The members of AOPs are not aware of such transaction and they are of no means. SS&MT Para 6 Page AOPs members in their statements have (iii) 6 ST&CB Para 6 Page admitted that they have signed some papers on 6 MK&SA Para 6 instruction of their relative/friend who happened Page 6 VJ&RB Para 6 to be employees / closed relative of K.S. Oil Page 6 SK&MM Para group. 6 Page 6 RSaNM Para 6 Page 6 SS&MT Para 7 Page Shri R.C. Garg Chairman & promoters of the (iv) 8-9 ST&CB Para 7 K.S. Oils Group has been confronted of the Page 7 MK&SA Para statement of such persons during the course of 7 Page 8 VJ&RB Para assessment proceedings. He, then, filed affidavit 7 Page 8 SK&MM vide letter dated 05.09.2011 by owning of such Para 7 Page 10 transaction carried out in their name. Similar RS&NM Para 7 Page affidavits have also been filed by the AOPs vide 10 letter dated 05.09.2011 stating that certain transactions made in their name are pertaining to K.S. Oils group / Ramesh Chand Garg and its associated companies / persons. Such affidavit also confirmes the modus operand! adopted by this group for generation / channelization of unaccounted income. SS&MT Para 10 Page (a) On going through the reply of the assessee, (v) 11 ST&CB Para 10 it reveals that the AOPs have been formed by Shri Page 10 MK&SA Para Ramesh Chand Garg, Chairman of the K.S. Oils 10 Page 11 VJ&RB Ltd. Group, Morena to make investment in the Para 10 Page 11 shares of K.S. Oils Ltd.; SK&MM Para 10 (b) Shri Ramesh Chand Garg is also Page 13 RS&NM Para instrumental in arranging the fund for the AOP and 10 Page 13 also responsible for all the transactions made by the AOPs; (c) On perusal of details filed by the assessee showing fund/cash flow statement for purchase of K.S. Oils Ltd. shares, it is amply clear that the funds has been arranged from the sister concerns of K.S. Oils Ltd. Group. This fact is also established from the affidavit dated 05.09.2011 filed by Shri Ramesh Chand Garg and received in this office on 09.09.2011. (vi) SS&MT Para 11 Page A fresh affidavit has also been filed on 30.11.2011 13 ST&CB Para 11 by Shri R.C. Grag by owning up all the Page 12 MK&SA Para transactions made in the name of assessee AOPs 11 Page 13 VJ&RB and the resultant tax liabilities, if any arise. Para 11 Page 13 RS&NM Para 11 Page 15

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SS & MT Para 12 Page (a) It is quiet clear from the Statement of AOPs (vii) 14 and the affidavit filed by Shri Ramesh Chand Garg ST & CB Para 12 Page that the AOPs has no means of its own and 12 investment made in share has been brought in by MK&SA Para 12 Page Shri Ramesh Chand Garg through his 13 dummy/benami entities; SK&MM Para 11 Page (b) hence share investment is considered to be 16-17 the unexplained investment of Shri Ramesh Chand Garg who is also the ultimate beneficiary of RS&NM Para 12 this share transaction; and Page 15-16 (c) in the interest of revenue unexplained and illegal investment in shares is added in the hand of the AOPs on protective basis and the substantive addition will be made in the hand of Ramesh Chand Garg for A.Y. 2005-06.

Similar, finding appears in the assessment orders of other years of all the respondent AOPs. 10. Further, in subsequent assessment years i.e. A.Y.s 2006-07 and onwards, when investment made in shares of K.S. Oils Limited was sold resulting into substantial long term capital gain on their sale, the claim for exemption U/s 10(38) of the Act has been denied solely on the ground that resultant gain is due to insider trading and benefit of law is available to persons who abide by the law and act as per law and without disputing the fact that (i) gain arising is long term capital gain; and (ii) shares have been sold through recognized Stock Exchange after paying "STT" on their sale or bringing on record any material to support the suspicion. 11. In addition to above, in subsequent assessment years i.e. A.Y.s 2006-07 and onwards, even exemption allowable U/s 10(34) of the Act for any income by way of dividend from a domestic company received has been denied. While denying the said exemption it has been held that (i) As the source of the investment made in shares of M/s K.S. Oils Ltd. is undisclosed income of Shri Ramesh Chand Garg and who is the ultimate beneficiary; (ii) Dividend received is exempted in the hand of the assessee but the ultimate beneficiary of the transaction is Shri Ramesh Chand Garg; and (iv) Benefits of the law is applicable for them who abide by the law, not for them who avoid the law for personal benefit. Hence dividend received is to be added in the hand of Shri Ramesh Chand Garg on substantive basis but to protect the interest of the revenue the same is added in the hand of the respondent AOPs 12. Other, issues involving specific respondent AOPs shall be pointed out at the time of hearing with the permission of Hon'ble Bench. 13. In view of evidence gathered as a result of search U/s 132 as well as during assessment proceedings coupled with the aforesaid categorical finding of the Assessing Officer that respondent AOPs - are dummy entity of Shri Ramesh Chand Garg; - members of AOPs are not aware of such transactions and had no means of there own; and

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- on being confronted Shri Ramesh Chand Garg has owned the transactions of respondent AOPs by making repeated statement on oath by filing affidavit; - Shri Ramesh Chand Garg is also instrumental in arranging the funds for the AOPs and also responsible for all the transactions made by AOPs; - Funds have been arranged from the sister concerns of K.S. Oils Group; - Ramesh Chand Garg is the ultimate beneficiary;

On a bare perusal of tenor of the assessment orders and aforesaid finding, it is evident that while framing assessment of respondent AOPs, Assessing Officer carried no doubt in his mind that additions made are liable to be considered in the hand of Shri R.C. Garg and Shri R.C. Garg only. 14. It is a well settled that when there is a doubt as to which person amongst two is liable to be assessed, parallel proceedings may be taken against both. However, in the present case when Assessing Officer was not in doubt as to in whose hands income was liable to be assessed, therefore, under such circumstances framing of impugned assessments on the respondent AOPs is wholly unjustified and against the very sprit of law laid down in relation to framing of protective assessment. 15. In any case, factual position is that in pursuance of affidavit filed by Shri Ramesh Chand Garg owning all the transactions as were made in the name of appellant AOP, he had already paid the tax due thereon after considering the monetary effect of all the transactions (i.e. deposits, withdrawal, investment and income etc.) made in the name of appellant AOP. Thereafter, for the expeditious disposal and final determination of his tax liabilities, he filed an application for settlement of his case before the Hon'ble Income Tax Settlement Commission (in short TTSC) for the assessment years 2004-05 to 2011-12 under section 245C(1) of the Act on 15.12.2012. 16. The application so filed was admitted by the Hon'ble Settlement Commission under section 245D(1) vide order dated 20.12.2011 and the same was found to be valid under section 245D(2C) vide order dated 7.2.2012 and finally after considering the submission made by him and the Id. CIT, Gwalior and detailed deliberation thereon the case of Shri Ramesh Chand Garg has finally been settled by the Hon'ble Settlement Commission under section 245D(4) vide consolidated order dated 24.6.2013 in the case of M/s K.S. Oils Ltd. and Shri Ramesh Chand Garg.” ITA No.124,125,126 & 127/Agra/2014 for AY 2005-06, 2006-07, 2007-08 and 2008-09

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 124/Ag/14 125/Ag/14 126/Ag/14 127/Ag/14 1. Benami investment (in 10000000 shares of K.S. Oils Ltd.) [GOA No.1] of Shri Ramesh Chand Garg [On protective basis 2. Disallowance of 8208630 49959467 254006587

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exemption U/s 10(38) [GOA No.1] [On protective basis) 3. Dividend income U/s 10(34) [On protective basis Total Rs. 10000000 8208630 5,0259467 254486587 ITA No.170, 83, 84, & 85/Agra/2014 AY 2005-06, 2006-07, 2007-08 and 2008-09

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 170/Ag/14 83/Ag/14 84/Ag/14 85/Ag/14 1. Benami investment (in 10000000 shares of K.S. Oils Ltd.) [GOA No.1] of Shri Ramesh Chand Garg [On protective basis 2. Disallowance of 8208288 52405379 251045290 exemption U/s 10(38) [GOA No.1&2] GOA No.2&3 [GOA No.2&3] [On protective basis) 3. Dividend income U/s 300000 427500 10(34) [On protective basis Total Rs. 10000000 8208288 52705379 251472790 ITA No.156,157,158 & 160/Agra/2014 AY 2005-06, 2006-07, 2007-08 and 2009-10

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 156/Ag/14 157/Ag/14 158/Ag/14 160/Ag/14 1. Benami investment (in 10000000 shares of K.S. Oils Ltd.) [GOA No.1] of Shri Ramesh Chand Garg [On protective basis 2. Disallowance of 30225883 35562865 40199725 exemption U/s 10(38) [GOA No.1] [GOA No.1] [On protective basis) 3. Dividend income U/s 600000 10(34) [On protective basis Total Rs. 10000000 30225883 35622865 40199725 4. Disallowances of 166361 expenses [On

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protective basis] sustained by CIT(A) ITA No.169, 114, 115 & 116/Agra/2014 AY 2005-06, 2007-08, 2008-09 and 2009-10

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 169/Ag/14 114/Ag/14 115/Ag/14 116/Ag/14 1. Benami investment (in 11372500 shares of K.S. Oils Ltd.) [GOA No.1] of Shri Ramesh Chand Garg [On protective basis 2. Disallowance of 40544561 57219232 97319134 exemption U/s 10(38) GOA No.2 GOA No.2 [GOA No.2 [On protective basis) &3 &3 & 3] 3. Dividend income U/s 480000 682500 540000 10(34) [On protective basis Total Rs. 11372500 41024651 5,7901732 97859134 ITA No. 128, 129 & 130/Agra/2014 AY 2005-06, 2008-09 and 2009-10

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 128/Ag/14 129/Ag/14 130/Ag/14 1. Benami investment (in 10000000 shares of K.S. Oils Ltd.) [GOA No.1] of Shri Ramesh Chand Garg [On protective basis 2. 482667317 96717568 Disallowance of exemption U/s 10(38) GOA No. 2 & 3 GOA 1 & 2 [On protective basis) 3. Dividend income U/s 10,50,000 10(34) [On protective basis Total Rs. 10000000 483717317 96717568 ITA No. 117, 118, 119 & 120/Agra/2014 AY 2005-06, 2007-08, 2008-09 and 2009-10

Sl Issue AY 2005-06 AY 2006-07 AY 2007-08 AY 2008-09 117/Ag/14 118/Ag/14 119/Ag/14 120/Ag/14 1. 10000000 Benami investment (in shares of K.S. Oils Ltd.)

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of Shri Ramesh Chand [GOA No.1] Garg [On protective basis 2. Disallowance of 40468036 58318453 251282607 exemption U/s 10(38) GOA No.2 GOA No.2 [GOA No.2 [On protective basis) &3 &3 & 3] 3. Dividend income U/s 480000 682500 10(34) [On protective basis 4. Unsecured loans [On 5000000 protective basis] Total Rs. 10000000 40948036 5,9000953 256282607

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the open market to attract investors including foreign investors. It was also noted by AO that the members of the AOP were not aware of such transaction.

5.1 In paragraph 5, the AO noticed that Shri R.C. Garg owned up fund in the AOP and also in the transaction made were also by him. In paragraph 5 and 6 it was mentioned as under : “5. The fund brought in the AOP and also transactions made are owned up by Shri R.C. Garg. In view of the discussion made in this case regarding unexplained fund and illegal transaction in share, funds invested in real estate has also remained unexplained and accordingly addition has been made in the case of real estate companies as the source of investment in those companies has not been substantiated with evidences. “6. Such observation is based on finding during the course of search proceedings. When statements of some persons (members of AOP) were recorded u/s 132(4) of the IT. Act in which they have stated that they are not aware of any transactions made in their name. This AOP is also one of them in which huge investment has been made of its undisclosed income through benami entities in the form of share capital, unsecured loan and sundry creditors. Shyam Sunder Bhattad and Manish Taori is members of this AOP. In their statement they have admitted that they have signed some papers on instruction of their relative/friend who happened to be employees/ closed relative of this group.”

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On going through the reply of the assessee,it reveals that the assesses AOP has been formed Shri Ramesh Chand Group. Chairman of the K.S Oils Ltd.. Group. Morena to make investment in the shares of K.S. Oils Ltd. Shri Ramesh Chand Garg is also instrumental in arranging the fund for the AOP and also responsible for all the transactions made by the assessee AOP. On perusal of Anncxure "A" filed by the assessee showing fund Cash flow statement for purchase of K.S Oils kid. Shares, it is amply clear that the funds has been arranged from the sister concerns of K.S Oils Pvt. Ltd. Group. This fact is also established from the affidavit dated 05.09.2011 filed by Shri Ramesh Chand Garg and received in this Office on 09.09.201, which is reproduced as under :

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Affidavit of Ramesh Chandra Garg aged about 55 Years son of Shri Tola Ram Garg resident of Jiwaji Ganj, Morena in relation to the assessment proceedings initiated under section 153A in the cases of (i) Sunil Kumar &Mamta Mittal. Morena (2) Rakesh Shivhare& Nisha Mittal, Morena (3) Shyam Sunder & Manish Jaori, morena (4) Sakshi &ChhayaBhattad, Morena (5) Vandana Jain & Rama Bansal, Morena (6) Manoi Kumar & Sharmila Agarwal, Morena For me Assessment Year 2004-05 to 2010-11. I, Ramesh Chandra Garg, the above named deponent solemnly affirm and state on oath asfollows: 2 That the deponent has been instrumental in the formation of various Association of persons, hereinafter referred to as AOPs for the sake of brevity, as per particulars of each one of them given heroin below:- S.No. AOP Address Member 1 Sunil Kumar&Mamta Morena 1. Sunil Kumar Mittal 2. Mamta Kumar 2 Rakesh Morena 1. Rakesh Shivhari&NishaMittal srivastava 2. Nisha Mittal 3. Shyam Sunder & Morena 1.Shyam Sunder Manish Taori, 2. Manish Taori, 4. Sakshi &ChhayaBhattad Morena 1. Sakshi 2.Chhaya Bhattad 5. Vandana Jain & Rama Morena 1. Vandana Jain Bansal 2. Rama Bansal 6. Manoj Kumar & Sharmila Morena 1. Manoj Kumar Agarwal 2 Sharmila Agarwal

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(i) Prakash Narain vs. CIT reported in (1982) 134 ITR page 364 (Alld.) (ii) CIT vs. Shiv Prakash Agarwal reported in (2008) 306 UR 324 (Delhi) And in umpteen number of judicial pronouncements, the monetary effect of the transaction appearing in the names of AOPs as aforesaid is liable to be taken into consideration in the assessment o! the deponent himself who has already been served with notices under section 1534 without in any manner affecting the above mentioned AOPs.”

On the sale of share in the hand of Shri Ramesh Chand Garg as all the shares were sold through recognized stock exchange paying STT and all the shares were held for a period of more than one year.

The AO has mentioned in paragraph 12 at page 10 of the AO’s order wherein the AO has relied that AOP was created by Shri Ramesh Chand Grag by funding/providing funds for purchases of shares of K.S. Oils Ltd. a public Ltd. company listed in stock exchange. The value of the shares wereshoot up by adopting illegal trading in illegal manner. Therefore, the AO

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hasdenieddeduction claimed u/s 10(38) of the Act in the hand of the AOP or in the hand of Shri R.C. Garg or in other hand as benefit of the law is only available to a person who abide by the law and act as per law. Therefore, the AO has denied the benefit of Section 10(38) of the Act to the assessee.

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Commission (in short ITSC), remand report of the Assessing Officer and submission of the appellant thereon. The addition of Rs.1,00,00,000 on account of investment made in shares of K.S. Oils Limited in the name of appellant has been made on protective basis by stating that substantive addition shall be made in the hand of Ramesh Chand Garg. It is seen from the details furnished by the by the appellant vide reply dated 17.10.2011 during the course of assessment proceedings that during the previous year relevant to assessment year 2005-06. investment of only Rs.25 Lac was made by appellant. The balance investment of Rs.75 Lac was made in the previous year relevant to assessment year 2006-07. In the para 7, 9, 10, II and 12 of assessment order AO has discussed the issue as under: "7. Shri R.C. Garg chairman & promoters of the K.S. Oils Group has been confronted of the statement of such persons during the course of assessment proceedings. He, then, filed affidavit vide letter dated 05.04.2011 by owing of such transaction carried out in their name. Similar affidavits have also been filed by the AOPs vide letter dated 05.09.2011 stating that certain transactions made in their name are pertaining to K.S. Oils Group/Ramesh Chand Garg and its associated companies/persons. Such affidavit also confirmes the modus operandi adopted by this group for generation/channelization of unaccounted income. 9. The assessee vide notice u/s 142(1) dated 03/10/2011 & 10.10.2011 has been asked to file certain details by 18/10/2011. In response to the notice the assessee company furnished reply on 17/10/2011. Brief reply of the assessee company along with annexure is reproduced as under:- 1. As regards the source of Investment in shares of K S Oils Ltd. and other group companies and other entities is concerned, we have brought to your kind notice earlier that Mr. Ramesh Chand Garg, Chairman of the K S Oils Ltd. had already been given an affidavit for owing all the transactions made by the AOP in this respect. The said affidavit was duly submitted before your goodself on dated 06.09.2011 in addition to affidavit given by member of AOP on its behalf. 2. The AOP has initially invested in equity Shares of K.S. Oils Ltd. and had got 400000 Nos. equity shares @ Rs.25 Each share investment of Rs. 1,00,00,000/- (One crore) was done as under:-

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Date & Mode of No. of Particulars Amount shares Payment 400000 08.02.2005 by Ch. 25 Lacs (as AOP had taken loan from part payment) No.23 101 from Central golden Investment & Finance company (detailed Bank of India, chart of fund flow is attached Jayendraganj, Gwalior as Annexure "A"). Bank CD Account No. Statements copies attached 105169 as Annexure "C". AOP had taken loan from 07.10.2005 by Ch. 75 Lacs (as part payment) No.23!02 from Central golden Investment & Bank of India, Finance company (detailed flow chart of. fund flow is Jayendraganj, Gwalior attached as Annexure "A"). CD Account No. 105170 Bank Statements copies attached as Annexure "C". Total 100 lacs Invested in K S Oils equity 400000 shares shares.

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that the appellant had filed affidavit dated 26.08.2011 and vide para 10 has submitted that: "That the investment made in acquisition of shares etc.. as also all the gains/losses arising/accruing there from are liable to be considered in the hands of the above named Shri Ramesh Chand Garg and be alone is accountable and liable for-making payment of all taxes in relation to the same". 9. Further, on perusal of case records, it is noticed that even Ramesh Chand Garg has owned the transaction carried out in the name of various AOPs (including appellant) and undertaken to pay and discharge all the tax liabilities, if any, arising on the transactions entered into by the said AOPs. Further, he has stated on oath in the affidavit tiled on 9.9.2011 in para 15 and 16 as under: 15. That in consequence of the deponent owning the transactions entered into with the names of the above mentioned AOPs the out flow of the funds is also Attributable to the deponent and liable to the considered in his hands by way of explanation for the investment made/expenditure incurred by him either in his own name by himself and/or any other "person" or "persons" authorized by him to do so.” 16. That keeping in view the principle laid down in the following case laws:

(i) Prakash Narain vs. CIT reported in (1982) 134 11'R page 364 (Alld.) (ii) CJT vs. Shiv Prakash Aggarwal reported in (2008) 306 1TR 324 (Delhi) And in umpteen numbers of judicial pronouncements, the monetary effect of the transaction appearing in the names of the AOPs as aforesaid, is liable to be taken into consideration in the assessment of the deponent himself who has already been served with the notices under section 153A without in any manner affecting the above the above mentioned AOPs," 10. The said statement was reiterated by Shri Ratffesh Chant! Garg in his another affidavit (filed on 30.1J^.20JJ) also. The issue of investment made in the name of 8 AQPs (including the appellant before me) has been dealt in the order of ITSC, the related observation/finding as contained in various paras are reproduced hereunder:

ITA 124 /Agr/2014 & Ors 26

"14.1 We have carefully considered the above submissions and have gone through the details furnished before us. It may be mentioned that the Department has not specifically pointed out any discrepancy in the above explanation/submission filed by applicant. In the absence of the same we are not in a position to appreciate the Department standpoint in this regard. As a matter of fact, Shri R.C.G. has already owned up the 8 AOPs formed by him as well as the investment made by them. Accordingly, there is no case for any addition in this regard and the issue gets settled.'' (page 103 of ITSC order) "15.1 ............ Having regard to the details and information furnished by the AR, we are of considered opinion that the Department has failed to establish any unexplained investment in shares by R.C.G.. his family members and other connected persons. Accordingly, there is no case for any addition in this regard and the issue gets settled.'" (Page 108 of ITSC order) "17.1 We have taken due note of the applicant's submission in the above matter. It is an admitted fact that R.C.G. has owned up the 8 AOPs and 7 individuals, as belonging to him in his individual capacity, lie has according!} prepared a consolidated balance sheet, incorporating therein the statement of affairs of these 8 AOPs and 7 individuals also in his hands. It is also an admitted fact that these AOPs and Individuals have earned substantial income iVom the sale of shares of K.S. Oils Ltd. in different assessment years which has now been claimed as belonging to R.C.G.. Further, the source of investment by all these 8 AOPs and 7 Individuals in the associated companies of the group has directly conic from ihc income earned by these 8 AOPs and 7 Individuals from the sale of shares of K.S. Oils Ltd. These facts are duly verifiable from the details furnished by the appellant. The department has not brought any specific discrepancy in this regard, calling for our attention. Accordingly, there is no case for making any addition in the above matter and the issue gets settled." 11. The AO has given the finding that investment in shares of K.S.JJite Limited has made by Shri Ramesh Chand Garg and accordingly it also belongs to Shri

ITA 124 /Agr/2014 & Ors 27

Ramesh Chand Garg. This finding is further supported by affidavit filed by appellant in assessment proceeding and Shri Ramesh Chand Garg has also accepted and affirmed the said finding by filing affidavits, therefore, there remains no justification to continue or sustain the protective addition in the case of appellant. Though the investment of Rs.25 lacs was made by the appellant during the previous year relevant io A.Y. 2005-06 yet the addition of Rs. 1 crore has been made by AO while completing the assessment. Therefore, taking into account all the facts of the case addition made on account of Benami investment of Ramesh Chand Garg (investment made in shares of K.S. Oils Ltd. of Rs. 1,00,00,000 is hereby deleted and these grounds of appeal are allowed.” 11. The ld. CIT(A) vide order dated 10.02.2014 in Para 11 have dealt with issued long term capital gain in the following manner : “11. The issue of long term capita] gain on received on sale of shares of K.S. Oils Limited and allowability of exemption u/s 10(38) thereon in the name of appellant has been dealt in para 19(6) at page 114to 145 of ITSC order and finally in para 18.2 at page 145 to 147 of ITSC order, which is reproduced as under:

"18.2 "We have carefully considered the submissions made by the rival parties and have also taken due note of various judicial pronouncements relied upon by both the parties. In the first place, it may be mentioned that 8 AOPs and 7 is have earned substantial income from the sale of shares of K S Oils ., which were allotted to them by the above company on a preferential basis after due observation, approval and compliance with other rules and regulations. In this regard, it is worthwhile to mention that 8 AOPs and 7 Individuals are not found to be engaged in regular share market activities. We are given to understand that they have earned income from the sale of shares of K S Oils Ltd. only, which were not purchased by them from the share market as these were ail original investments made by them,

ITA 124 /Agr/2014 & Ors 28

acquired by of preferential allotment, which also contained specific lock in period. It is an admitted fact that these 8 AOPs and 7 Individuals are nothing but dummies of Shri R.C.G., who is not only the main promoter of K.S. Oils Ltd., but also its Chairman cum Managing Director. It is also evident from the various clauses of the investment agreements entered in to with these 8 AOPs that strengthen the sole purpose thereof was to strengthen the hands of RCG and to enable him to exercise better control over K.S.Oils Ltd. As mentioned above, K.S. Oils Ltd., has declared dividends in various years and hence it cannot be said that the investment in shares of K.S. Oils Ltd did not yield any income by way of dividends. The issue of earning of income by circumventing morality, ethics, law and social responsibility is not relevant from the point of view of taxation, Further, there is no bar in deriving income through 'benamis' and 'dummies', if a person owns up the same and pays due taxes thereon. The regularity, continuity and frequency of share transactions is also not a predominant facts in this case, to decide the nature of transactions and income there from. The most crucial aspect of this is that these involve sale / disposal of shares, allotted on preferential basis, after the expiry of the prescribed lock in period. Hence these are not in the nature of usual and normal share transaction entered into by a trader on a regular basis in the normal course of the business. Such preferential shares cannot be treated as forming part of stock-in-trade, as they were not freely transferable during the lock in period. It is also evident from the crucial analysis of the various case laws relied upon by both the parties on the above issue that the shares transactions entered into by RCG, through these 8 AOPs and 7 Individuals do not squarely fall in the category of 'trading of shares' and hence, we are

ITA 124 /Agr/2014 & Ors 29

of the considered opinion that the surplus arising from the sale of shares of K.S. Oils Ltd, by RCG through the above modes of operand! would qualify for exemption u/s 10(38) of the Act, being in the nature of Long Term Capital Gain, arising from the investment in shares. The applicant has worked out such Long Term Capital Gain, exempt from tax at Rs.251,59,36,420/- as mentioned above. We hold the same as exempt u/s 10(38) the Act. Accordingly, the issue gets settled."

ITA 124 /Agr/2014 & Ors 30

that the Revenue had filed the writ petition against the order passed by the Income Tax Settlement Commission before the Hon’ble Madhya Pradesh High

Court vide writ petition No. 9026/2013. At that stage, the Tribunal has asked the

ld. AR about the status of the writ petition, it was informed by the ld. AR that the

said writ petition was dismissed the High Court on account of non appearance of

the counsel for the Revenue vide order dated 08.1.2019. However, the Tribunal

has asked the AR for assessee to file an affidavit for in respect of the present

status of the writ petition. Pursuant to the direction issued by the Tribunal, the ld.

AR had filed the affidavit of Shri Vineet Garg son of Shri Govind Prasad Garg

resident of Kothi No.3, K.S. Complex, Behind Mela Ground, BTI Road, Morena, M.P.

to the following effect:

“BEFORE THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA

Affidavit of Shri Vineet Garg aged about 41 years son of Shri Govind Prasad Garg resident of Kothi No. 3, K.S. Complex, Behind Mela Ground, BTI Road, Morena, M.P.

I, Vineet Garg, the above named deponent do hereby solemnly declare and affirm as under:-

ITA 124 /Agr/2014 & Ors 31

kindly be heard.

15.1 In our view, there is no embargo or stay granted by the Hon’ble High Court in

deciding these appeals, nor there is any order operating the stay of Settlement

commission, therefore, we are hearing the matter and deciding the appeal.

ITA 124 /Agr/2014 & Ors 32

Submission by the Revenue

that the order passed by the AO was correct and therefore, the deletion made by the

ld. CIT(A) was incorrect, whereby he had relied upon the order passed by settlement

commission.

assessment order has recorded statement given by the assessee u/s 132(4) of the

Act and thereafter had also considered affidavit of assessee stating therein that

money invested by in the shares were arranged by Shri R.C. Garg. Further Shri R.C.

Garg also filed an affidavit owning the investment made in the AOPs and had

submitted that the investment made cannot by the AOP cannot assessed in the

hands of AOP. He had also taken before us to the various paragraphs of the Income

Tax Settlement commission more particularly Paragraph 13.1, 14.1, 17, 17.1.

commission had accepted the affidavit filed by Shri R.C. Garg owning the transaction

of investment in the shares then it is beyond the pale of doubt that the same can be

assessed in the hands of assessee before us.

ITA 124 /Agr/2014 & Ors 33

Findings

on record.

mentioned the statement of the assessee in para 6& 7 of the order that Shri R.C. Garg

owned such transaction being carried out in the name of AOPs. Further the

statement of Shri R.C. Garg was recorded in the course of search proceeding wherein

he again mentioned that the investment made in the assessee 8 AOPs were arranged

by him . In response to the notice u/s 142(1), the assessee had also submitted that

source of investment in share of K.S. Oils Ltd. The ld CIT (A) reproduces same in his

order to the following effect:

Date & Mode of Amount No. of Particulars Payment shares 400000 08.02.2005 by Ch. 25 Lacs (as AOP had taken loan from part payment) golden Investment & No.23 101 from Central Finance company (detailed Bank of India, chart of fund flow is attached Jayendraganj, Gwalior as Annexure "A"). Bank CD Account No. Statements copies attached 105169 as Annexure "C".

AOP had taken loan from 07.10.2005 by Ch. 75 Lacs (as part payment) No.23!02 from Central golden Investment & Finance company (detailed Bank of India, flow chart of. fund flow is Jayendraganj, Gwalior attached as Annexure "A"). CD Account No. Bank Statements copies 105170 attached as Annexure "C". Total 100 lacs Invested in K S Oils equity 400000 shares shares.

ITA 124 /Agr/2014 & Ors 34

The above said fact of investment in shares is further strengthen by the consolidated

statement given before Settlement commission by RCG , which was mentioned by

the commission at page 98 in para 8 to the following effect:

ITA 124 /Agr/2014 & Ors 35

ITA 124 /Agr/2014 & Ors 36

ITA 124 /Agr/2014 & Ors 37

However, in the report dated 19.2.2013 of the CIT ( page 111 of settlement commission order ) it was mentioned by CIT that “ in this context, it is submitted

that during the course of assessment proceedings, a declaration has been filed

by Mr R.C. Garg. To own up the transaction/business of 8 AOPs and 7

individuals but while filing the petition before the bench the same has not been

disclosed stating that only fund has been arranged for these AOPs and

individuals. Therefore the profit earned by these AOPs and individuals are to be

taxed in the hand of Shri R.C. Garg/ K.S.oil Ltd. Further the assessment of real

estate companies and AOPs and individuals has already been completed by the

Department, appeal proceedings are pending in these cases. Therefore there is

no relevance of verification at this junction because the matter of those entities is not pending before the honorable settlement commission”

commission, Settlement commission had granted relief to Shri R.C. Garg as

mentioned in Para 14.1 of the order reproduced elsewhere .

ITA 124 /Agr/2014 & Ors 38

21.1. In our view, the order of the settlement commission is not binding on this

tribunal as well as the AO in the present cases. The settlement commission has

neither examined the explanation given by the assessee disclosing details of source

of investment nor had examined the source of investment given by RCG. Even

otherwise the source of investment mentioned hereinabove in the order of

Settlement commission, did not conclude that investment were made by the RCG .

The above said verification of source of funds investing in the shares of various

companies by the assessee have not been done by the CIT in the settlement

commission as the matter was pending sub judice before the appellate authority nor

it was done by CIT(A) .We may record that the order of the settlement commission

was passed in SA.no.MP/ GWC/36/2011 – 12/IT andSA.no.MP/ GWC/36/2011 –

12/IT respectively in the name of K. S. Oils Ltd and Ramesh Chand Garg only. In

those proceedings neither the assessee before us nor the Assessing Officer of the

present proceedings were parties, hence the order passed by the settlement

commission is not binding on either on the Assessee or to the Assessing Officer or

CIT(A).Hence, the CIT(A) is directed to decide the ground afresh without being

influenced by the order passed by the settlement commission in the matter of K.S.

Oil Ltd. and Ramesh Chand Garg.

ITA 124 /Agr/2014 & Ors 39

parties before the settlement commission and Shri R.C. Garg had taken

contradictory stand in the assessment proceeding as well as the settlement

proceeding. As a matter of fact in the assessment proceedings, Shri R.C.Garg has

alleged to own the transaction (though the same is contrary to the statement

recorded u/s 132 at the time of search reproduced by the AO in Para 6 of this order

wherein he had mentioned that Shri Manish Towri is managing the affairs of the

AOPs and Smt. Shyam Sunder had signed the cheques for purchase of shares.

Further, in reply to question 33 it was answered that Manish Towri can reply to

purchase sale of shares and also the document recovered during the course of

search), on the contrary, in the settlement proceeding before the settlement

commission Shri R.C. Garg has submitted that he has arranged funds from the

various companies and in affidavit it was submitted that the funds were arranged by

him only .

commission nor it was examined by the CIT(A) in the appellate proceeding, hence it

cannot be presumed that the investment in the shares were owned by Shri R.C. Garg.

From the perusal of the table for investment it is clear that Shri R.C. Garg had only

provided a paltry investment of Rs.71,000/- in the AY 2005-06 and Rs.40,000/- in

the AY 2008-09 and Rs.41,000/- in the A.Y 2009-10. Hence, we deem it appropriate

ITA 124 /Agr/2014 & Ors 40

to remand the matter to file of the CIT(A) with a direction to examine the source of

investment made in the assessee and decide the case on merit a fresh. Hence, we

allow the Ground No.1 of Revenue appeals for statistical purposes.

to the order of the AO reproduced hereinabove and it was a contention of the ld. DR

that the order of the ld. CIT(A) deleting the addition in the hands of the assessee on

account of the reasoning reproduced hereinabove. In paragraphs 12 and 13, after

relying the order of settlement commission was incorrect and is not binding in the

present proceeding viz-a-viz before the Tribunal.

24.1 It was submitted by DR that long term capital gain under Section 10(38) is

available to the assessee who fulfill the condition mentioned under the said section.

Further, it was submitted that in the present case, the assessee were convenience

and conclusion with Shri Ramesh Chand Garg had floated various AOP to enable

Shri Ramesh Chand Garg to do inside trading of the share of company , which is

illegal and not permissible in law and further such illegal activities has resulted into

steep hike in price of the share of M/s K.S. Oil.

24.2 It was submitted that long term capital gain cannot be transferred to such

third person , without transfer of shares prior to LTCG or to the assessee , as gain

ITA 124 /Agr/2014 & Ors 41

arose admittedly in contravention of lawand therefore, the action on the part of the

ld. CIT(A) was incorrect.

24.3 In respect of the dividend, it was submitted that even assuming that the

initially investment in the shares of K.S. Oils Ltd. was provided by Shri Ramesh

Chand Garg and others, but as per the provisions of the companies Act as well as the

definition of the dividend under the Income Tax Act the dividend is payable to a

person who was the registered owner of the share on the effective date in Share

Register of the company and there is no concept of beneficial ownership in Income

Tax Act.

24.4 Admittedly, in the present case, the assessee were registered owner of the

shares of K.S. Oils Ltd at the relevant date and therefore, dividend if any, would be

credited / taxed in the hands of the assessee only. However, it was submitted that

deletion of theoriginal investment, being owned by RC garg would not be inhibition

in taxing it in the hands of Assessee.

submission filed on these issues and further submitted that once the order of the

settlement commission as attain finality, then the same is binding in view of the

provisions of Section 245(1) r.w.s. 245-I of the Act. The ld. AR submitted synopsis at

Para 23 to 25 which read as under:

ITA 124 /Agr/2014 & Ors 42

“23. At the first appeal stage detailed submissions were made by the respondent AOPs, remand report and even case called for from the Assessing Officer. Thereafter, protective addition made on account of investment made was deleted. For the sake of present submission, related finding given in the CIT(A)'s order in the case of Shyam Sunder & Manish Taori for A.Y. 2005-06 are referred. In the said order related finding appears in para 7-11 at page 19-23 of the order, for the sake of brevity only conclusion part as contained in para 11 at page 22-23 are reproduced hereunder: "11. The AO has given the finding that investment in shares of K.S. Oils Limited has been made by Shri Ramesh Chand Garg and accordingly it also belongs to Shri Ramesh Chand Garg. This finding is further supported by affidavit filed by the appellant in assessment proceeding and Shri Ramesh Chand Garg has also accepted and affirmed the said finding by filing affidavits, therefore, there remains no justification to continue or sustain the protective addition in the case of appellant. Though the investment of Rs. 25 lacs was made by the appellant during the previous year relevant to A.Y. 2005-06 yet the addition of Rs. 1 crore has been made by AO while completing the assessment. Therefore, taking into account all the facts of the case addition made on account of Benami investment of Ramesh Chand Garg investment made in shares of K..S. Oil Ltd. of Rs. 1,00.00,000 is hereby deleted and these grounds of appeal are allowed." 24. Similarly, protective addition made on account of exemption U/s 10(38) was deleted. For the sake of present submission, related finding given in the CIT(A)'s order in the case of Shyam Sunder & Manish Taori for A.Y. 2006-07 are referred. In the said order related finding appears in para 7-12 at page 16-19 of the order, for the sake of brevity only conclusion part as contained in para 12 at page 19 is reproduced hereunder: "12. In view of specific finding of the AO that investment in shares of K.S. Oils Limited has been made by Shri Ramesh Chand Garg as the assessee AOP has no means of its own and investment made in share has been brought in by Shri Ramesh Chand Garg and accordingly income arising there from also belongs to Shri Ramesh Chand Garg and this finding is further supported by affidavit filed by the appellant in assessment proceeding and Shri Ramesh Chand Garg has also accepted and affirmed the said finding by filing affidavits, therefore, there remains no justification to continue or sustain the protective addition in the case of appellant and addition made on account of

ITA 124 /Agr/2014 & Ors 43

Disallowance of exemption u/s 10(38) of the IT Act claimed for Long Term Capital Gain of Rs. 82,08,630 on sale of shares is hereby deleted and these grounds of appeal are allowed." 25. Similarly/ protective addition made on account of exemption U/s 10(34) and 10(38) was deleted. For the sake of present submission, related finding given in the CIT(A)'s order in the case of Shyam Sunder & Manish Taori for A.Y. 2007-08 are referred. In the said order related finding appears in para 7-13 at page 17- 21 of the order, for the sake of brevity only conclusion part as contained in para 13 at page 21 is reproduced hereunder: "13, In view of specific finding of the AO that investment in shares of K.S. Oils Limited has been made by Shri Ramesh Chand Garg as the assessee AOP has no means of its own and investment made in share has been brought in by Shri Ramesh Chand Garg and accordingly income arising there from also belongs to Shri Ramesh - Chand Garg and this finding is further supported by affidavit filed by the appellant in assessment proceeding and Shri Ramesh Chand Garg has also accepted and affirmed the said finding by filing affidavits, therefore, there remains no justification to continue or sustain the protective addition in the case of appellant and addition made on account of Dividend income of Rs, 3,00,000 and Disallowance of exemption u/s 10(38) of the IT Act claimed for Long Term Capital Gain of Rs. 4,99,59,467 on sale of shares are hereby deleted and these grounds of appeal are allowed."

been accepted by the Settlement Commission then the Revenue/ appellant is bound

to give effect to the settlement commission and order of settlement commission

cannot be challenged before the Tribunal in these proceeding. No other arguments

/ submissions were addressed by the Ld AR for the assessee, despite pointed

questions asked by the Bench as to the effect of Benami Property Act 1988 and

ITA 124 /Agr/2014 & Ors 44

Section 10(38) and on the issue of entitlement of dividend in the name of registered shareholders .

Findings

material available on record. 28. In the present case, the assessee submitted that income arising from transfer

of long term capital assets (shares) of K.S. Oil is not required to be taken into account of the assessee while computing the total income of the assessee as Mr.

Ramesh Chand Garg is benami owner of the shares which fact was accepted by the settlement commission in the application filed by Shri Ramesh Chandra Garg.

account of long-term capital gain or Shri Ramesh Chandra Garg was entitled to the long-term capital gain.It is essential for us to examine the position in law. We may

refer the proviso of some of the or provision of Income Tax Act 1961 which are relevant for the issue under consideration.

“2(14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include— (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member

ITA 124 /Agr/2014 & Ors 45

of his family dependent on him, but excludes— (a) jewellery; (b) archaeological collections; (c) drawings;……………. (iii) ………………

[(22B)] “fair market value”, in relation to a capital asset, means— (i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date ; and (ii) where the price referred to in sub-clause (i) is not ascertainable, such price as may be determined in accordance with the rules made under this Act ;] 2[(29A) “long-term capital asset” means a capital asset which is not a shortterm capital asset ; 2(29B) “long-term capital gain” means capital gain arising from the transfer of a long-term capital asset ;] 2(42A) [“short-term capital asset” means a capital asset held by an assessee for not more than [thirty-six] months immediately preceding the date of its transfer :] 6[Provided that in the case of a share held in a company 7[or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or a unit of a Mutual Fund specified under clause (23D) of section 10] 8[or a zero coupon bond], the provisions of this clause shall have effect as if for the words “thirty-six months”, the words “twelve months” had been substituted.] 9[Explanation 1].—(i) In determining the period for which any capital asset is held by the assessee— (a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ;

(b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in 10[sub-section (1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section ;

ITA 124 /Agr/2014 & Ors 46

11[(c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee ;] 12[(d) in the case of a capital asset, being a share or any other security (hereafter in this clause referred to as the financial asset) subscribed to by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset, the period shall be reckoned from the date of allotment of such financial asset ; (e) in the case of a capital asset, being the right to subscribe to any financial asset, which is renounced in favour of any other person, the period shall be reckoned from the date of the offer of such right by the company or institution, as the case may be, making such offer ;] 13[(f) in the case of a capital asset, being a financial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset ;] 14[(g) in the case of a capital asset, being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee ;] 15[(h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation; (ha) in the case of a capital asset, being equity share or shares in a company allotted pursuant to demutualisation or corporatisation of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognized stock exchange in India immediately prior to such demutualization or corporatization;]

ITA 124 /Agr/2014 & Ors 47

16[(hb) in the case of a capital asset, being any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), the period shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares;] (ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf.] 17[Explanation 2.—For the purposes of this clause, the expression “security”18 shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).] “specified security” and “sweat equity shares” shall have the meanings respectively assigned to them in the Explanation to clause (d) of subsection (1) of section 115WB;] 20[(42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset ;]

Section 10(38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund where— (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force89a; and (b) such transaction is chargeable to securities transaction tax under that Chapter : 90[Provided that the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.] Explanation.—For the purposes of this clause, “equity oriented fund” means a fund— (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 91[sixty-five] per cent of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D) : Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures;]

Capital gains.

ITA 124 /Agr/2014 & Ors 48

Section 45. [(1)] Any profits or gains arising from the transfer91 of a capital asset91 effected91 in the previous year shall, save as otherwise provided in sections92[***] 93[54, 54B, 94[***] 95[96[54D, 97[54E, 98[54EA, 54EB,] 54F 99[, 54G and 54H]]]]], be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.”

transferred by assessee within a period of one year as mentioned in Section 2(42A)

then the assessee will be entitled to short term capital gain and similarly if a

capital assets is transferred for a period more than one year as mentioned in Section

2(42A) then the assessee will be entitled to long term capital gain.

30.1 But for the purposes of getting the benefit of short-term capital gain or long

term capital gain under section 10(38) the following conditions are required to

be fulfilled by the assessee:

the assessee having purchased by the assesseewith the consideration received

from Shri Ramesh Chandra Garg. Further it is undisputed that at the time of

ITA 124 /Agr/2014 & Ors 49

purchase of share, the assessee have filed applications for allotment of shares and

thereafter the shareswere allotted to the assessee which were duly mentioned in the

share register of the company (K.S. Oil). After purchasing the shares, the assessee

and others have transfered the shares on payment of security transfer taxes to a

third party for a valuable inflated consideration. On account of such sale of shares by

the assessee, short term gains or long term gains arose to the assessee depending

upon the period of holding by the assessee.

31.1 In view thereof , the shares were neither held by Mr Ramesh Chand Garg

before transfer nor said Mr Garg had transferred the shares after making the

payment of STT to the 3rd party, therefore there was no occasion for application of

of section 10 (38) of the income tax Act in favor of Mr Ramesh Chand Garg . In our

view the assessee who were holding the shares and thereafter transferred the

shares , hence ordinarily Assessee only would be entitle to the benefit of with the

provisions of section 10(38) of the income tax Act and no other person much less

MrRamesh Chand Garg was entitled to the benefit of long-term capital gain/short

term capital gain/exempt dividend income.However for the reasons mentioned

herein below in the subsequent paragraphs even the assessee were also not entitled

to the benefit of section 10(38) of the Act.

31.2 In our considered opinion, further there is a prohibition under the Companies

Act as well as under SEBI rules for purchasing and trading inthe shares of the

ITA 124 /Agr/2014 & Ors 50

company ( K S Oil ) by the Directors/ Managing Director or any person having

substantial in the affairs of the company either directly or through agent relative,

AOP etc.

allotment by the company from the money allegedly arranged by Ramesh Chandra

Garg and others( affidavit of R C Garg and Assessee) . The shares were transferred

by the assessee to a third party. The security transaction Tax’swere paid by the

assessee and the profit short term capital gain or long-term capital gain would

ordinarily arose to the assessee and thereafter were credited to the account of the

assessee. Once the long term capital gain and short term capital gain arose to the

assessee on account of shareholding than it is difficult to comprehend and

understandable as to how it can be considered as exempt income of Shri Ramesh

Chandra Garg and how it could be credited to the account of Shri Ramesh Chandra

Garg , without transfer of shares prior to accrual of LTCG or STCG or dividend

income without being the registered owner of shares merely on account of order

passed by the settlement commission .

32.1 In our considered opinion the order of the settlement commission is

onlybinding on the parties before the settlement commission and not to any other

AO and assessee who were not before Settlement commission . Undoubtedly

neither the assessee before us nor the Assessing Officer before us were party to the

ITA 124 /Agr/2014 & Ors 51

settlement proceeding before the settlement commission, hence the order of

settlement passed under subsection 4 of section 245D, by the settlement

commission in the settlement application filed byShri Ramesh Chandra Garg and K.S.

Oil is not binding and conclusive against the assessee and the Assessment Officer in

the present proceedings.

settlement commission order, is to conclusively settle the grievances of, assessee as

well as revenue who were parties to the settlement proceeding , however when the

assessee as well as the revenue authority other than that of Shri Ramesh Chandra

Garg, were not party in the proceedings in the settlement proceeding of the Shri

Ramesh Chandra Garg, than the order of settlement commission is neither binding

nor conclusive against them. In fact, it is another form of res-judicata which is

commonly applicable be civil proceedings.In our considered opinion principle of res

judicata as mention in section 11 of Civil Procedure code shall be applicable to the

proceedings before Settlement commission. Section 11 provides as under

No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has

ITA 124 /Agr/2014 & Ors 52

been subsequently raised, and has been heard and finally decided by such Court. Undoubtedly, for the conclusiveness of order of commission, the matter should

have been heard and decided by the court between the same parties. In our view

neither the issues before us are the same nor were decided among the same parties

in the proceeding before the settlement commission initiated on the application of

Shri Ramesh Chandra Garg and K.S. Oil , hence the decision of the settlement

commission is neither binding and enforceable against the present AO , assessee

and tribunal in the present proceeding.

33.1 Moreover the entire transaction of purchase of shares in the name of the

assessee, were termed by the assessee as benami of Shri R.C. Garg. However, merely

alleging that the assessee is benami of Shri R.C. Garg is not sufficient as various

other factors were required to be proved for treating the transaction as benami

.Assessee had failed to prove before the lower authorities that the shares purchased

by the assessee were in the nature of Benami properties of Sh Ramesh Chand Garg

in terms of law laid down by Hon’ble Supreme Court in the matter of MANGATHAI AMMAL (DECD.) THROUGH LRS AND OTHERS [2019] 414 ITR 358 (SC) 8. While considering the issue involved in the present appeal viz. whether the transactions/sale deeds in favour of defendant No. 1 can be said to be benami transactions or not, the law on the benami transactions is required to be considered and few decisions of this court on the aforesaid are required to be referred to.

8.1 In the case of Jaydayal Poddar (supra) it is specifically observed and held by this court that the burden of proving that a particular sale is benami and the apparent purchaser is not the

ITA 124 /Agr/2014 & Ors 53

real owner, always rests onthe person asserting it to be so. It is further observed that this burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of the benami transaction or establish circumstances unerringly and reasonably raising an interference of that fact. In paragraph 6 of the aforesaid decision, this court has observed and held as under :

"6. It is well-settled that the burden of proving that a particular sale is benami and the apparent purchaser is not the real owner, always rests on the person asserting it to be so. This burden has to be strictly discharged by adducing legal evidence of a definite character which would either directly prove the fact of benami or establish circumstances unerringly and reasonably raising an inference of that fact. The essence of a benami is the intention of the party or parties concerned ; and not unoften, such intention is shrouded in a thick veil which cannot be easily pierced through. But such difficulties do not relieve the person asserting the transaction to be benami of any part of the serious onus that rests on him ; nor justify the acceptance of mere conjectures or surmises, as a substitute for proof. The reason is that a deed is a solemn document prepared and executed after con siderable deliberation, and the person expressly shown as the pur chaser or transferee in the deed, starts with the initial presumption in his favour that the apparent state of affairs is the real state of affairs. Though the question whether a particular sale is benami or not, is largely one of fact, and for determining this question, no absolute for mulae or acid tests, uniformly applicable in all situations, can be laid down ; yet in weighing the probabilities and for gathering the relevant indicia, the courts are usually guided by these circumstances : (1) the source from which the purchase money came ; (2) the nature and possession of the property, after the purchase ; (3) motive, if any, for giving the transaction a benami colour ; (4) the position of the parties and the relationship if any, between the claimant and the alleged benamidar ; (5) the custody of the title deeds after the sale and (6) the conduct of the parties concerned in dealing with the property after the sale." In the case of Thakur Bhim Singh (supra) this court in paragraph 18 observed and held as under : "18. The principle governing the determination of the question whether a transfer is a benami transaction or not may be summed up thus : (1) the burden of showing that a transfer is a benami trans action lies on the person who asserts that it is such a transaction ; (2) it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who sup plied the purchase money, unless there is evidence to the contrary ; (3) the true character of the transaction is governed by the intention of the person who has contributed the purchase money ; and (4) the question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct, etc." 8.2 In the case of P. Leelavathi (supra) this court held as under : "9.2 In Binapani Paul case (supra), this court again had an occasion to consider the nature of benami transactions. After considering a catena of decisions of this court on the point, this court in that judgment observed and held that the source of money had never been the sole

ITA 124 /Agr/2014 & Ors 54

consideration. It is merely one of the relevant considerations but not determinative in character. This court ultimately concluded after considering its earlier judgment in the case of Valliammal v. Subra maniam [2004] 7 SCC 233 that while considering whether a particular transaction is benami in nature, the following six circumstances can be taken as a guide :

'(1) the source from which the purchase money came ;

(2) the nature and possession of the property, after the purchase ;

(3) motive, if any, for giving the transaction a benami colour ;

(4) the position of the parties and the relationship, if any, between the claimant and the alleged benamidar ;

(5) the custody of the title deeds after the sale ; and

(6) the conduct of the parties concerned in dealing with the pro perty after the sale. (Jaydayal Poddar v. Mst. Bibi Hazra (supra), SCC page 7, para 6)"

8.3 After considering the aforesaid decision in the recent decision of this court in the case of P. Leelavathi (supra), this court has again reiterated that to hold that a particular transaction is benami in nature the aforesaid six circumstances can be taken as a guide.

8.4 Applying the law laid down by this court in the aforesaid decisions to the facts of the case on hand and the reasoning given by the trial court confirmed by the High Court, it appears that both, the learned trial court and the High Court have erred in shifting the burden on the defend ants to prove that the sale transactions were not benami transactions. As held hereinabove in fact when the plaintiffs' claim, though not specifically pleaded in the plaint, that the sale deeds in respect of suit properties, which are in the name of defendant No. 1, were benami transactions, the plaintiffs have failed to prove, by adducing cogent evidence, the intention of the NarayanasamyMudaliar to purchase the suit properties in the name of defendant No. 1—his wife

33.2 Even if we assume the shares held by the assessee were benami then it would

fall within the definition of Benami Property as defined under Section 2(8) of the

Benami Transaction ( Prohibition ) Act 1988.In our respectfully understanding

Section 4 of the Benami Property Act prohibits the Benamidar to recover the

ITA 124 /Agr/2014 & Ors 55

property held under banami. We are reproducing herein below Section 2 and 4 of

the benami Act which are to the following effect:

“[Definitions. 2. In this Act, unless the context otherwise requires,— (1) "Adjudicating Authority" means the Adjudicating Authority appointed under section 7; (2) "Administrator" means an Income-tax Officer as defined in clause (25) of section 2 of the Income-tax Act, 1961 (43 of 1961); (3) "Appellate Tribunal" means the Appellate Tribunal established under section 30; (4) "Approving Authority" means an Additional Commissioner or a Joint Commissioner as defined in clauses (1C) and (28C) respectively of section 2 of the Income-tax Act, 1961 (43 of 1961); (5) "attachment" means the prohibition of transfer, conversion, disposition or movement of property, by an order issued under this Act; (6) "authority" means an authority referred to in sub-section (1) of section 18; (7) "banking company" means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act; (8) "benami property" means any property which is the subject matter of a benami transaction and also includes the proceeds from such property; (9) "benami transaction" means,— (A) a transaction or an arrangement— (a) where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by—

ITA 124 /Agr/2014 & Ors 56

(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family; (ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose; (iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual; (iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendent and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or (B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or (C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; (D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious. Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), if, under any law for the time being in force,— (i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and

ITA 124 /Agr/2014 & Ors 57

(iii) the contract has been registered; "4. Prohibition of the right to recover property held benami.—

(1) No suit, claim or action to enforce any right in respect of any property held benami against the person in whose name the property is held or against any other person shall lie by or on behalf of a person claiming to be the real owner of such property.

(2) No defence based on any right in respect of any property held benami, whether against the person in whose name the property is held or against any other person, shall be allowed in any suit, claim or action by or on behalf of a person claiming to be the real owner of such property.

(3) Nothing in this section shall apply,—

(a) where the person in whose name the property is held is a coparcener in a Hindu undivided family and the property is held for the benefit of the coparceners in the family; or

(b) where the person in whose name the property is held is a trustee or other person standing in a fiduciary capacity, and the property is held for the benefit of another person for whom he is a trustee or towards whom he stands in such capacity."

Prohibition ) Act 1988, it is abundantly clear that the benami property held by the

assessee cannot be recovered/ claimed back and cannot be transferred the way of

suit, claim or action to enforce the benami property.

share help by the assessee proper procedure and completeness are required to be

made by the assessee as well as Shri Ramesh Chandra Garg. In view of the above, in

our view the assessee is not entitled to transfer the long term capital gain in the

ITA 124 /Agr/2014 & Ors 58

hands of Shri Ramesh Chandra Garg. Having said so, we find that no explanation has

been given by the assessee in respect of long term capital gain and on the contrary,

the assessee had admitted that the shares were purchased from the money arranged

by Shri Ramesh Chandra Garg and long term capital gain/short term capital gain

arose to them on account of inflation or hike in price due to in said trading done by

the company or by the Managing Director of the company.

appropriate to remand these two issues i.e. Ground No. 2 and 3 also to the file of ld.

CIT(A) to decide all the grounds i.e. 1,2, and 3 afresh , as the ld. CIT(A) had relied

upon the non binding decision of settlement commission for deciding the issues in

favour of assessee and have failed to consider the binding decision of the Hon’ble

Supreme Court, requirement of Section 10(34),Section 10(38) of IT Act and various

other provisions of Benami Transaction ( Prohibition ) Act 1988.

consumption of the CBDT and Pr. Chief Commissioner of Income Tax emerging of

facts of the present case that Shri RC. Garg during the search has disclosed and

surrender the income of Rs.155 crore however thereafter filed the application for

settlement commission and in the settlement commission he had merely offered

additional income of Rs.84992154/- for the AY 2004-05 to 2011-12. In

contradiction to this additional income DCIT Gwalior in his report proposed the

ITA 124 /Agr/2014 & Ors 59

total income of Shri R.C. Garg at Rs.28,76,84,37,859/- (2876.84 crore) and the

settlement commission for the reason mentioned in the order had glossed over the

addition proposed by the CIT Gwalior. The Department in the proceeding though

had raised the issue that the individuals and the AOPs are not parties to the

proceeding and their alleged exempt income cannot be added to the exempt income

of Shri R.C. Garg and K.S. Oil however, the settlement commission ignoring the

objection have passed the order. Let this order be placed before the CBDT and Pr.

Chief Commissioner of Income Tax, Bhopal for taking steps in accordance with law.

(Order pronounced in the open Court on 19/08/2019)

Sd/- Sd/- (Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member Dated: 19/08/2019 Aks Tour

ITA 124 /Agr/2014 & Ors 60

Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Agra Bench, Agra