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Facts
The assessee claimed exemption for long-term capital gains of Rs. 2,17,29,566/- under Section 10(38) of the Income Tax Act. The Assessing Officer (AO) treated the company as a penny stock, reopened the assessment, and made additions. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the assessee had discharged the initial onus by providing documentary evidence of genuine transactions. The revenue failed to prove the assessee's active involvement in manipulating the scrip. Therefore, the addition made by the AO under Section 68 of the Act was directed to be deleted.
Key Issues
Whether the additions made by the AO and confirmed by the CIT(A) on account of long-term capital gains from the sale of shares were justified, particularly in light of the assessee providing documentary evidence of genuine transactions and the principles of natural justice regarding cross-examination.
Sections Cited
10(38), 68, 147, 143(1), 148, 144B, 263
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Income Tax Appellate Tribunal, “F” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN& SHRI OM PRAKASH KANT
Date of Hearing 10.11.2025 Date of Pronouncement 26.11.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
1. The present appeal has been filed by the assessee challenging the impugned order dt. 09.05.2025 passed u/s 263of the Income Tax Act, 1961 (‘the Act’), by the Ld. PCIT -42 for the assessment year 2014-15.
As per the facts of the present case, the return of income for the year under consideration was filed with a claim of Rs. 2,17,29,566/- as exempt capital gain u/s 10(38) of the act. However, on the basis of the information received by the AO, that the prices of the shares of the company were manipulated and 2 Vijaya Prakash Nagori, Mumbai. the company was a penny stock. Therefore, the assessment was reopened and ultimately order of assessment u/s 147/144B of the act was passed thereby making additions.
3. Aggrieved by the order of assessment, although appeal was filed but the same was dismissed by Ld. CIT(A) thereby confirming the additions made by the A.O.
Aggrieved by the order of Ld. CIT(A), the assesse has preferred the present appeal before us on the grounds mentioned herein below:
1. On the facts and circumstances of the case in law the ld. CIT erred in confirming addition of Rs. 2,17,29,566/-u/s 68 on account of alleged long term capital gain on sale of scripts of M/s. Excel Castronics Ltd 2. On the facts and circumstances of the case in law, Ld. CIT (A) erred in confirming stand of A.O. about the opportunity for cross examination with the person whose statement was recorded against her is not given. 3. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. about the not provide materials which were used against her. 4. On the facts and circumstances of the case in law the ld. CIT
(A) erred in confirming stand of A.O. whereas addition was made only on basis of investigation report forwarded to him and he did not apply his mind to consider the evidences produced by the appellant 5. The assessee craves leave to add, alter or amend the existing grounds of appeal on or before the date of hearing.
6. All grounds raised by the assesse are intererelated and interconnected and relates to challenging the order of Ld. CIT(A) in sustaining the additions made by the AO u/s 68 of the Act.
3 Vijaya Prakash Nagori, Mumbai.
Therefore we have decided to adjudicate the same through the present consolidated order.
7. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the revenue authorities and also relied upon the written submissions. Apart from this it was submitted that the assessee is a senior citizen and suffering from serious illness of cancer. In order to explain the back ground of the case it was submitted that the assessee purchased shares of M/s Indus Coil and Plates on 21.03.2012 and paid Rs. 10,00,000/- for 1,00,000/- shares @ Rs. 10 each through banking channel vide cheque no. 149143. Further the saidM/sIndusCoils & Plates Limited (ICPL) was merged with M/s Ahmedabad Gases Limited, pursuant to the scheme of amalgamation (herein after referred to as the “scheme of amalgamation”), which was approved by the Hon’ble High Court of Gujarat vide its order dated February 15, 2013. It was also submitted that M/sExcel Castronics Ltd. (Formerly Ahmedabad Gases Ltd.), was incorporated on August 25, 1992 under the Companies Act. Subsequently, the management of the company was taken over by the promoters of Excel Castronics Limited and the name of the company was changed from Ahmedabad Gases Limited to Excel Castronics Limited with effect from August 12, 2013. In this way, the assessee received shares of Excel Castronics Ltd as part of the dematerialization process after amalgamation; these shares were credited to the demat account, and thus the transaction statement shows both 4 Vijaya Prakash Nagori, Mumbai. the inward receipt and subsequent outward movement of shares in the account summary mentioned below:
Date Share Sold Closing Dematerialization Balance 03.09.2013 1,00,000 0 1,00,000 14.12.2013 10,000 90,000 17.12.2013 12500 77500 20.12.2013 10000 67500 24.12.2013 10000 57500 27.12.2013 5000 52500 30.12.2013 6000 46500 03.01.2014 5000 41500 08.01.2014 6000 35500 25.01.2014 1500 34000 26.12.2014 8000 26000 08.03.2014 4000 22000 11.03.2014 5000 17000 12.03.2014 6130 10870 13.03.2014 4000 6870 19.03.2014 6870 0
8. It was further submitted by Ld. AR that the assessee was a regular investor was holding share in Excel Castronics Limited, Sundaram Clayton Limited, Sundaram Investment Limited, Apollo Tyres Limited, Century Enka Limited, Eveready Industries India Limited, Finolex Industries Limited, McLeod Russel India Limited, SIL Business Enterprises Limited, UCO Bank, Videocon Industries Limited, Vijaya Bank, and ZF Commercial Vehicle Control Systems 5 Vijaya Prakash Nagori, Mumbai.
India Limited as reflected in the transaction statement. Even the balance sheet of the assessee clearly shows that she had made substantial investment in share market by way of purchases of shares and mutual funds. Ld. AR further pointed out that the assessee had received capital gains of Rs. 2,07,29,032/-, but the AO erroneously treated the investment portion as part of the sale proceeds. Whereas the assessee had sold the share through well know share broker i.e satco capital market limited on various dates at a price range between Rs. 186 to 260. Further the assesse had also paid Securitas transaction tax (STT), brokerage and service tax on said shares. The entire sales were made on BSE platform, and the sale proceeds were received in the bank of the assessee. It was also submitted that the assessee had not received any inquiry from SEBI regarding price manipulation, nor had any adverse order been passed against the assessee by the competent authority of SEBI.
9. Apart from above, the Ld. AR also relied upon the written submissions filed by the assesse which are reproduced herein below:
Assessee, an individual, filed her original return of income on 30.10.2014 for the year under consideration, declaring total income of Rs. 9,56,050/-. The return was processed u/s 143(1) of the Income Tax Act,1961 (Act).
2. She filed a return of income on 23.08.2022, in response to the notice issued u/s.148 of the Act, on 28.07.2022, declaring total income of Rs.9,56,050/-.
Ld. A.O. made addition on account of alleged long term capital gain u/s 10(38) of the Income Tax Act, 1961 and same is confirmed by CIT(A).
6 Vijaya Prakash Nagori, Mumbai.
Aggrieved by order of the Ld. A.O. made addition, Assessee filed appeal before your honors and raised following grounds of appeal which is reproduced as under.
1. On the facts and circumstances of the case in law the ld.CIT erred in confirming addition of Rs. 2,17,29,566/-u/s 68 on account of alleged long term capital gain on sale of scripts of M/s. Excel Castronics Ltd
2. On the facts and circumstances of the case in law, Ld. CIT (A) erred in confirming stand of A.O. about the opportunity for cross examination with the person whose statement was recorded against her is not given.
3. On the facts and circumstances of the case in law, Ld. CIT(A) erred in confirming stand of A.O. about the not provide materials which were used against her.
4. On the facts and circumstances of the case in law the ld. CIT (A) erred in confirming stand of A.O. whereas addition was made only on basis of investigation report forwarded to him and he did not apply his mind to consider the evidences produced by the appellant 5. The assessee craves leave to add, alter or amend the existing grounds of appeal
on or before the date of hearing.
5. In response of Ground No. 01 it is submitted that Ld. A.O. did not provide adequate time for filing reply against the show cause notice.
6. In respect of ground no. 02, 03 and 04, Ld. Assessing officer himself stated in assessment order for denied of statement, Materials and denied of cross examination which is reproduced as under. “With regard to query for providing of Statement of third person, it is informed that the statements and others material held with the Investigation Wing were only used as secondary material to show that the assessee has routed its unaccounted money through companies which were found to be involved in giving accommodation entries. The statement given by any person on oath stands unless & until the same is counter by any person against whom statement given or by the documentary evidence produced or provided to prove against the same. Further the person giving statement on oath is personally liable / accountable for the statement given before any competent authority. The primary onus to prove its claim was on the assessee itself. Under 7 Vijaya Prakash Nagori, Mumbai. such circumstances by asking for cross examination, assessee is trying to shift the burden of proof on the department. Thus, assessee’s request in this regard is not acceptable. This view is supported by the decision of the ITAT, Mumbai. The ITAT, Bombay Bench in the case of GTC Industries, [1998] 65 ITD 380 (Bombay) had held that where statements of witnesses were only secondary and of subordinate material used to buttress main matter connected with amount of additions, it had to be held that there was no denial of principles of natural justice if witnesses were not allowed to be cross-examined by assessee. The relevant part of the Bench’s decision is as follows: - “As regards the dictum ‘Audi Alteram Partem’ the assessee’s basic contention was that the statements of witnesses and materials which were relied upon by the Assessing Officer in the assessment order to reach the conclusions and findings which were adverse to the assessee should have been disclosed to the assessee and the witnesses should have been offered for cross- examination. The right to cross-examine the witness who made adverse report is not an invariable attribute of the requirement of the said dictum. The principles of natural justice do not require formal cross- examination. Formal cross-examination is a part of procedural justice. It is governed by the rules of evidence and is the creation of Court. It is part of legal and statutory justice, and not a part of natural justice, therefore, it cannot be laid down as a general proposition of law that the revenue could not rely on any evidence which had not been subjected to cross-examination. However, if a witness has given directly incriminating statement and the addition in the assessment is based solely or mainly on such statement, in that eventuality it is incumbent on the Assessing Officer to allow cross- examination. Adverse evidence and material relied upon in the order, to reach the finality, should be disclosed to the assessee. But this rule is not applicable where the material or evidence used is of collateral nature.” In relevance to the above discussion, the assessee is a beneficiary of the accommodation entry transaction taken in the shape of sale of share of M/s. Excel Castronics Limited and earned Long Term Capital Gain of Rs.2,17,29,566/- which has been claimed as exempt income u/s 10(38) in Income tax return filed for the year under consideration.
8 Vijaya Prakash Nagori, Mumbai.
It is submitted that The principle of natural justice and the established principles of tax jurisprudence stipulate that the assessee has to be provided a fair chance to defend his case. In Tin Box Company case the Hon’ble Apex Court has (page 218 of 249 ITR) held that assessment orders must be made after the assessee has been given a reasonable opportunity of setting out his case.
8. As the representative of ‘Sovereign’, Ld. A.O. supposed to follow the basic norms of a quasi- judicial authority i.e. to provide us the material to be against us. In the matter of Dhananjaykumar Singh (402 ITR 91) the Hon’ble Patna High Court has held as under: “It is a cardinal principle of law that if relevant materials and objections are produced before a quasi-judicial authority, the quasi-judicial authority is duty-bound, under law, to advert to them, discuss them and then reject them by recording reasons.”
9. In this regard, We would like to draw your attention to the judgment of the Hon'ble Supreme Court delivered in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice. It is a serious flaw which renders the order a nullity.
10. We would also like to refer to the judgment of the Hon'ble Apex Court delivered in the case of CIT Vs. Odeon Builders Pvt. ltd. (418 ITR 315) wherein also it was held that the addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross examination of the third party renders the addition/ disallowance bad in law.
11. Finally, We would like to refer to the decision delivered in case of H.R. Mehta v/s Assistant Commissioner of Income-tax, Mumbai 72 taxmann.com 110 (Bombay) delivered by the Hon’ble Bombay High Court and the same reads as under. In the light of the fact that the money was advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the Assessing Officer should have done was to grant an opportunity to the assessee to meet the case against 9 Vijaya Prakash Nagori, Mumbai. him by providing the material sought to be used against him in arriving before passing the order of assessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment and, therefore, renders the orders passed by the Commissioner (Appeals) and the Tribunal vulnerable. The assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents whose statements were relied upon by him. Despite the request seeking an opportunity to cross examine the deponents and furnish the assessee with copies of statements and disclose material, these were denied to him.
12. Therefore Ld. A.O. did not supplied the copy of any statement to assesse and any materials to assessee and not allowing any person mentioned in assessment order for cross examination, therefore considering all above, we are requested to quash the assessment proceedings which is clearly against the principle of natural justice.
13. On Merit of the case it is submitted that , Assessee had purchased 1,00,000 shares of Indus Coils and Plates Limited and paid Rs.10,00,000/-through account payee cheque dated 06.03.2012. The share certificate was duly issued on 25.03.2012 and said information was forwarded to Ministry of Corporate Affairs vide Form-2 duly filed by the company allotting the shares. Thereafter as per scheme of amalgamation, two corporate entities (Ahmedabad Gases Ltd, Excel Castronics Ltd and Indus Coils and Plates Limited) amalgamated and a new incorporated entity namely Excel Castronics Ltd (ECL) came into existence. As a result, the Appellant received shares of ECL in lieu of share of amalgamated company.
14. Excel Castronics Ltd. (Formerly Ahmedabad Gases Ltd.), was incorporated on 25.08.1992 under the Companies Act, 1956 and the registered address of the company was Imperial Heights, B- 301/302,3rd Floor, opp. Big Bazar, 150 Feet Ring Road, Rajkot, Gujarat -360005.ECL is engaged in the business of trading in agriculture commodities-majorly supplying castor seeds and castor oil.The company also exports its product to countries like China, Thailand, Russia and certain parts of Europe.
10 Vijaya Prakash Nagori, Mumbai.
The Appellant sold shares through Satco capital market limited, a well-known registered broker of Mumbai. The shares of the company are listed on Bombay Stock Exchange (BSE) and the said shares were appearing in the Demat account of the Appellant. The sale of shares is supported by contract notes issued by the Broker.
16. While filing his return of income the Appellant claimed that income arising out of the sale of shares of ECL amounting to Rs. 2,17,29,566/- was exempt as per the provisions of section 10(38) of the Act.
17. The company was showing good financials. Particulars 2017 2016 2015 2014 2013 Revenue 1,151.99 764.69 305.30 39.87 17.72 PBT 16.03 11.28 7.27 0.44 0.65
18. While completing the assessment on 23.05.2023,the ld. AO has made an addition of Rs. 2,17,29,566/- on account of sale of penny stock, invoking the provisions of section 68 of the Act.
19. The Ld. A.O. did not appreciate the fact that ECL was a dividend paying company that had declared dividend on 22 September 2016 vide Book Closure/Record BC 24/09/2016- 24/09/2016.The Ld. A.O. also ignored the fact that Canara Bank was holding share capital in ECL. Shareholding Pattern as on March-2016 shows that Canara Bank was holding 10,00,000/- shares in Excel which constituted 2.46% of total holding of the company.
20. The Ld. A.O. has not referred to any evidence of cash transactions in purchasing or selling the shares. There is no allegation that the assessee was involved in any price manipulation. He has ignored the fact that all the transactions of the Appellant are through banking channels only. There is clearly inwards and out of shares in Demat Account of assesse. The Demat account of assesse clearly shows her practice as regular investor in capital market. 21. We are reliance place on Principal Commissioner of Income- tax V/s. Kuntala Mohapatra reported [2024] 160 taxmann.com 608 (SC) whereas Hon’ble Apex Court dismissed SLP filed department and decision of Hon’ble Delhi High Court confirmed and finding of said decision reproduced as under.
11 Vijaya Prakash Nagori, Mumbai.
Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 - Capital gains - Income arising from transfer of long term securities (Illustrations) - Assessment year 2014-15 - Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' - On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax - Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing Officer's reliance on statements from 'entry operators' to support additions under sections 68 and 69 as those statements were recorded in unrelated proceedings before survey on assessee, and assessee was not afforded an opportunity to challenge or cross-examine providers of those statements - On revenue's appeal, High Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed - Held, yes [Para 3] [In favour of assessee] 22. We would like to draw your attention on Hon’ble jurisdictional high court in case of Principal Commissioner of Income-tax v/s. Indravadan Jain, HUF reported in [2023] 156 taxmann.com 605 (Bombay) held as under. While allowing the appeal filed by respondent, the Commissioner (Appeals) deleted the addition made under section 68. The Commissioner (Appeals) has observed that the Assessing Officer himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The Commissioner (Appeals) also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The Commissioner (Appeals) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of 12 Vijaya Prakash Nagori, Mumbai. purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes- cum-bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the Commissioner (Appeals) found there was no reason to add the capital gains as unexplained cash credit under section 68. The Tribunal while dismissing the appeals filed by the revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The Tribunal therefore had rightly concluded that there was no merit in the appeal. [Para 4] 23. We are gainfully referring decision of Hon’ble Bombay High Court in case of Commissioner of Income-tax-13 V/s. Shyam R. Pawar reported in [2015] 54 taxmann.com 108 (Bombay) held as under. Section 68 of the Income-tax Act, 1961 - Cash credit (Share dealings) - Assessment years 2003-04 to 2006-07 - Assessee declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assessee to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus - Whether on facts, transactions in shares were rightly held to be genuine and addition made by 13 Vijaya Prakash Nagori, Mumbai.
Assessing Officer was rightly deleted - Held, yes [Para 7] [In favour of assessee] 24. In the case of PCIT vs. Smt Krishna Devi Reported [2021] 126 taxmann.com 80 (Delhi) in , the Hon’ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon’ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains.
25. We are reliance place on decision of Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax (Central) v/s. Affluence Commodities (P.) Ltd reported [2024] 161 taxmann.com 476 (Gujarat) whereas held as under. Section 28(i) of the Income-Tax Act, 1961 - Business loss/deduction - Allowable as (Bogus purchases) - Assessment year 2015-16 - Assessee was engaged in trading penny stocks, specifically shares of AIGL and KPL, during relevant period - Assessing Officer alleged that purchases were made at artificially high prices and sold at significantly lower rates to create business losses, possibly to offset profits from commodities transactions - Despite transactions occurring on recognized stock exchanges, Assessing Officer disallowed claimed losses - However, both Commissioner (Appeals) and Tribunal overturned Assessing Officer's decision, concluding that assessee had demonstrated authenticity of transactions - They found evidence on online trading platforms indicating that assessee had no control over share prices and had genuinely incurred losses, particularly with AIGL shares where only a portion were sold, and rest were held into subsequent assessment year - Regarding shares of KPL, Tribunal reasoned that market rate being lower justified business loss, even though shares were not sold - Whether in view of above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, appeal, being devoid of any merits, was to be dismissed - Held, yes [Paras 8 and 9] [In favour of assessee] 26. We are reliance place on decision of Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) whereas held as under.
14 Vijaya Prakash Nagori, Mumbai.
Section 28(i) of the Income-tax Act, 1961 - Business loss/deduction - Allowable as (Bogus loss - Sale of shares) - Assessment year 2011-12 - An information was received from Deputy Director (Inv.) wherein, it was intimated that VIL was a pennystock which was used to provide accommodation entry of bogus LTCG/loss to beneficiaries - It was further intimated that assessee was one of beneficiaries/member of this accommodation entry syndicate - On basis of same, addition was made to income of assessee on account of bogus loss on sale of scrip of VIL by it - It was noted that Commissioner (Appeals) and Tribunal had observed that as per SEBI report, script VIL was not blacklisted and was not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commissioner (Appeals) in deleting addition on account of bogus loss on sale of scrip of VIL - Whether there were concurrent findings of fact by Commissioner (Appeals) and Tribunal, and thus, no substantial question of law arose against same - Held, yes [Para 4] [In favour of assessee] 27. We are reliance place on decision of Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under. Section 28(i) of the Income-tax Act, 1961 - Business loss/deduction - Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal - Revenue submitted that order of Tribunal was ex- facie erroneous, illegal and perverse because Tribunal deleted additions without appreciating that transaction was pre-arranged as well as sham and was carried out through penny scrip company - However, Tribunal had observed in impugned order that assessee was continuously dealing in share trading of various shares/scrips and said fact was not disputed - Further, Tribunal had observed that scrip of VAS was not black listed by SEBI at relevant point of time - Tribunal had also considered order passed by SEBI and nowhere in said order, scrip of VAS 15 Vijaya Prakash Nagori, Mumbai. was blacklisted or was pennystock or sham and bogus scrips/shares - Tribunal had also observed that entire transaction of purchase and sale of scrips was through Stock Exchanges, through authorized brokers and payments made to brokers were reflected in bank account - Tribunal had therefore opined that merely on conjecture and surmises, Assessing Officer could not make disallowance - Whether in view of above observations made by Tribunal, issue involved was purely a question of fact, and no question of law, much less, substantial question of law for consideration was found - Held, yes [Paras 5 to 7] [In favour of assessee] 28. We would like to refer the decision Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Mamta Rajivkumar Agarwal reported in [2023] 155 taxmann.com 549 (Gujarat) whereas held as under. Section 10(38) of the Income-tax Act, 1961 - Capital gains - Income arising from transfer of long term securities (Share dealings) - Assessment year 2013-14 - Assessee had sold shares of SNCFL and earned long-term capital gains - Assessing Officer issued a show cause notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income - Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker account copies, bills for sales, and bank statements and held that purchases were made through a recognized broker via cheque, establishing their genuineness and, thus, he directed Assessing Officer to delete addition of LTCG claimed as exempt under section 10(38) - Tribunal upheld Commissioner (Appeals) decision stating that there was no evidence implicating assessee or broker in any wrongdoing related to SNCFL script - Whether in view of concurrent findings of fact that there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [In favour of assessee] 29. We are gainfully refer the decision of Hon’ble Mumbai tribunal in case of Ramprasad Agarwal reported in [2018] 100 taxmann.com 172 (Mumbai - Trib.) whereas held as under.
16 Vijaya Prakash Nagori, Mumbai.
Section 68, read with section 10(38) of the Income-tax Act, 1961 - Cash credit (Share Transaction) - Assessment year 2014-15 - On basis of information from DGIT (Inv.), Kolkata that some companies were engaged in business of issuing pennystocks for which there were large number of beneficiaries claiming bogus long-term capital gain/short-term capital loss/business loss/speculation loss, Assessing Officer found that assessee was one of beneficiaries of said racket and had earned profit on sale of investments in equity shares of a company, (Rutron) and claimed same as exempt under section 10(38) - Assessee had produced relevant records to show allotment of shares by company on payment of consideration by cheque and he dematerialized shares in D-mat account which was also an independent material and said evidence could not be manipulated - Further, Assessing Officer had not brought any material on record to show that assessee had paid over and above purchase consideration - Whether in absence of any evidence, it could not be held that assessee had introduced his own unaccounted money by way of bogus long-term capital gain - Held, yes [Paras 9 and 10] [In favour of assessee] 30. We are also referring decision of Pavankumar Bachhraj Chandan reported in [2024] 161 taxmann.com 674 (Mumbai - Trib.) whereas held as under. Section 68, read with section 10(38), of the Income-Tax Act, 1961 - Cash credits (Share dealings) - Assessment year 2014-15 - Assessee had claimed long-term capital gain on sale of shares of STL - Assessing Officer observing that financials of STL were weak and that shares of STL had been used for providing bogus accommodation entry in form of LTCG/STCG, disallowed claim of long-term capital gain and added entire sale proceed of shares under section 68 - Whether since all transactions were carried out through regular bank accounts of assessee, allotment of shares and then holding of shares were proved by demat statement and sale of shares was made through BSE after remitting STT, assessee had discharged burden to prove purchase and sale of shares - Held, yes - Whether therefore, addition made by Assessing Officer was to be deleted and exemption claimed by assessee under section 10(38) was to be allowed - Held, yes [Paras 7 and 15] [In favour of assessee] 17 Vijaya Prakash Nagori, Mumbai.
Further we are also releinace place on decision on Farzad Sheriar Jehani reported in [2024] 159 taxmann.com 9 (Mumbai - Trib.) whereas held as under. Section 68 of the Income-tax Act, 1961 - Cash credit (Bogus LTCG on sale of shares) - Assessment year 2014-15 - Assessee had sold shares of a company held by it and claimed exemption under section 10(38) on account of long-term capital gain (LTCG) arose on such sale of shares - Assessing Officer, being of view that said trading transactions of purchase and sale of shares were not been effected for commercial purpose but to create artificial gains with a view to evade taxes, made an addition under section 68 - It was observed that assessee had purchased shares from open market, D-mated scrips and subsequently sold same in stock exchange - Further, there was no discrepancies in documents filed by assessee claiming deductions under section 10(38) and revenue had not brought on record any materials linking assessee in any dubious transactions relating to entry, price rigging or exit providers - Even in SEBI report, there was no mention or reference to involvement of assessee - Whether, therefore, impugned addition was to be deleted - Held, yes [Para 16] [In favour of assessee] 32. We are also reliance place on decision of Gopal Nihchaldas Pariani reported in [2023] 152 taxmann.com 252 (Mumbai - Trib.) held as under. Section 68, read with section 10(38), of the Income-tax Act, 1961 - Cash credits - (Share transactions) Assessment years 2014-15 and 2015-16 - Assessee had sold shares of 'P'ltd and earned a Long Term Capital Gain therein which was claimed as exempt in relevant assessment years - Assessing Officer noted that statement of some persons were recorded by DDIT, Kolkata to show that 'P' ltd was a company engaged in providing bogus accommodation entries - Assessing Officer held that long term capital Gain earned by assessee was bogus for reason that there was an unusual rise in price of script and further investigation wing had investigated trading of this company and found that accommodation entry providers were rigging price - Accordingly, he made addition under section 68 - Whether since assessee had submitted details of purchase of shares, payment for purchase of shares through banking channel, and had produced order of SEBI where assessee along with others had been exonerated in any 18 Vijaya Prakash Nagori, Mumbai.
manipulation , it clearly proved genuineness of transaction - Held, yes - Whether further since Assessing Officer had not made any inquiry about genuineness of these transaction on documents submitted by assessee and relied only on evidences collected by DDIT Kolkata which were good only for reopening of assessment and for making an addition holding that transaction were bogus, Assessing Officer should have made inquiries on documents submitted by assessee - Held, yes - Whether thus, in view of categorical finding of regulator SEBI exonerating assessee, and absence of any inquiry by Assessing Officer, impugned addition deserved to be deleted - Held, yes [Paras 33, 34 and 36] [In favour of assessee] 33. Therefore it is request to your honors to delete the addition by Ld. Assessing officer.
On the contrary, Ld. DR appearing on behalf of the department relied upon the orders passed by the revenue authorities.
We have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records, we noticed that the Assessee purchased 1,00,000 shares of Indus Coils and Plates Limited for a total consideration of ₹10,00,000/-, paid by account payee cheque dated 06.03.2012. The share certificate was duly issued on 25.03.2012, and the company filed Form-2 with the Ministry of Corporate Affairs, confirming the allotment of shares to the Assessee. Subsequently, pursuant to a scheme of amalgamation, M/sAhmedabad Gases Ltd, Excel Castronics Ltd, and M/s Indus Coils and Plates Limited were amalgamated, resulting in the formation of a new entity, M/s Excel Castronics Ltd (ECL). As a consequence, the Assessee received shares of ECL in exchange for the shares held in the 19 Vijaya Prakash Nagori, Mumbai. amalgamated companies. In support of these transactions, copies of sale contract notes, bank statements, purchase evidences, demat account statements, and other relevant documents have already been placed on record in the paper book.
12. We noticed that M/s Excel Castronics Ltd. (Formerly Ahmedabad Gases Ltd.), was incorporated on 25.08.1992 under the Companies Act, 1956.ECL is engaged in the business of trading in agriculture commodities-majorly supplying castor seeds and castor oil.
The assesse had sold the shares through Satco capital market limited, a well-known registered broker of Mumbai. The shares of the company were listed on the Bombay Stock Exchange (BSE) and the said shares were appearing in the Demat account of the assessee. The sale of shares is supported by contract notes issued by the Broker. It is pertinent to mention here that all the 1,00,000 shares were received in Demat account maintained in Central Depository Services India Limited. The shares were sold by the assessee time to time which is reflected in the Demat Account. The sale contract note distinctly reflects the details of the sale, including the price per share, quantity of shares sold, and the date and time of the transaction. Additionally, the Assessee had duly paid all applicable statutory charges, such as Service Tax, Securities Transaction Tax, Stamp Duty, Turnover Tax, and SEBI Turnover Tax, in compliance with the relevant legal provisions.
20 Vijaya Prakash Nagori, Mumbai.
However, AO was of the view that ECL was a penny stock company as per the information received from the investigation wing and the shares were manipulated by thebroker to give bogus entries of LTCG/LTCL. Therefore assessee was considered to be one of the beneficiaries of the non-genuine LTCG and thus additions were made u/s 68 of the Act.
15. Even we further found that ECL was listed in the exchange since long time, and it was regularly filing documents with ROC and Exchanges. Even SEBI or Exchange did not initiate any action against the assessee. Therefore from the above said factual data it is clear that ECL was neither penny stock nor a shell company nor was the transactions fictitious. As the assessee had solely purchased the shares for the purpose of investment on the basis of fundamentals and valuation of the company. It was also brought to the notice of the AO that no "information" existed on which the assessment was reopened u/s 147 of the Act. Even No material has been placed on record to demonstrate that SEBI or any other regulatory authority had even passed any order against the assessee. But, even then the AO without considering the above facts had held that the profit arising out of sale of shares was not genuine and consequently made addition of Rs.2,17,29,566/- crores to the income of the assessee.
In this regard, our attention was also drawn towards the quarterly financial results of ECL,which are mentioned as under:
21 Vijaya Prakash Nagori, Mumbai.
As per the available data on Bombay Stock Exchange , ECL was fast growing company which date reproduced as under. In Crores Particulars 2017 2016 2015 2014 2013 Revenue 1,151.99 764.69 305.30 39.87 17.72 PBT 16.03 11.28 7.27 0.44 0.65
The above financial results clearly demonstrates that the company had achieved robust growth, with sales increasing from ₹17.72 crore to ₹1,151.99 crore and profit rising from ₹0.65 crore to ₹16.03 crore. This substantial growth is evident from the records and underscores that ECL's performance improved significantly following the assessee's sale of shares.
Further, we find that the AO failed to appreciate that ECL was a dividend paying company and the assesse had acquired the shares through off market than new company ECL shares were allotted through process of amalgamation approved by Hon’ble High Court, whose supporting evidences have been placed before us. The purchase price had been paid through banking channels and subsequent thereto the shares were also found to have been credited to assessee’s demat account. The sale of shares took place on screen based trading platform of Bombay Stock Exchange. The transaction was settled by making / receiving payment by account payee cheque/s through proper banking channels. The assessee had also paid securities transaction tax (STT) on sale of shares. The transaction took place at the price 22 Vijaya Prakash Nagori, Mumbai. prevailing on stock exchange on respective transaction dates and there is no adverse finding by the lower authorities in respect to the documents produced by the assessee to substantiate the sale of these shares. Therefore, in the light of the documents mentioned as aforesaid, the assessee had fully discharged his initial onus to prove the genuineness of the long-term capital gain derived on sale of shares. Thereafter the ‘onus’ shift upon the AO, who had to verify the veracity of these documents and bring on record any infirmities if any, found regarding the same. We find that AO had not found any defects in the documents produced by the assessee to substantiate the LTCG claimed by the assessee. There is no adverse evidence brought before us to demonstrate that the documents filed by the assessee before the AO to substantiate the transaction regarding claim of capital gain in were false and fabricated.
At this juncture, it is pertinent to note that SEBI functions as the regulatory watchdog of share transactions. In the present case, SEBI had not conducted any inquiry, nor is there any allegation against the assessee regarding price manipulation. Therefore, considering the peculiar facts of this case and the direct evidence produced by the assessee, it is evident that, unlike others, the assessee was neither a participant nor a beneficiary in any alleged price rigging or manipulation. Consequently, the Revenue’s reliance on general observations in the assessment order about the brokers, syndicate members and entry operator, which, as discussed above, do not even relate to 23 Vijaya Prakash Nagori, Mumbai. the assessee, is clearly misplaced, erroneous, and unsustainable in law. It is also important that no cash trail was found in assessee’s case.
20. Further the Hon'ble jurisdictional high court in case of Principal Commissioner of Income-tax v/s. Indravadan Jain, HUF reported in [2023] 156 taxmann.com 605 (Bombay) held as under.
While allowing the appeal filed by respondent, the Commissioner (Appeals) deleted the addition made under section 68. The Commissioner (Appeals) has observed that the Assessing Officer himself has stated that SEBI had conducted independent enquiry in the case of the said broker and in the scrip of RFL through whom respondent had made the said transaction and it was conclusively proved that it was the said broker who had inflated the price of the said scrip in RFL. The Commissioner (Appeals) also did not find anything wrong in respondent doing only one transaction with the said broker in the scrip of RFL. The Commissioner (Appeals) came to the conclusion that respondent brought 3000 shares of RFL, on the floor of Kolkata Stock Exchange through registered share broker. In pursuance of purchase of shares the said broker had raised invoice and purchase price was paid by cheque and respondent's bank account has been debited. The shares were also transferred into respondent's Demat account where it remained for more than one year. After a period of one year the shares were sold by the said broker on various dates in the Kolkata Stock Exchange. Pursuant to sale of shares the said broker had also issued contract notes- cum-bill for sale and these contract notes and bills were made available during the course of appellate proceedings. On the sale of shares respondent effected delivery of shares by way of Demat instructions slip and also received payment from Kolkata Stock Exchange. The cheque received was deposited in respondent's bank account. In view thereof, the Commissioner (Appeals) found there was no reason to add the capital gains as unexplained cash credit under section 68. The Tribunal while dismissing the 24 Vijaya Prakash Nagori, Mumbai. appeals filed by the revenue also observed on facts that these shares were purchased by respondent on the floor of Stock Exchange and not from the said broker, deliveries were taken, contract notes were issued and shares were also sold on the floor of Stock Exchange. The Tribunal therefore had rightly concluded that there was no merit in the appeal. [Para 4]
We also place reliance upon the decision of the Hon’ble Jurisdictional Bombay High Court in the case of Pr. Commissioner of Income Tax–Central-3, Mumbai v. Surendra B. Jiwrajka, Income Tax Appeal No. 211 of 2024, wherein the Hon’ble Court categorically held that ‘when the assessee has no fault or involvement in the price increase, the assessee cannot be penalized for the same’. The relevant paragraph of the judgment is reproduced below.
Apart from the above position, this is a case where the Commissioner (Appeals) and ITAT have, on a concurrent review of the factual material on record held in favour of the Assessee and against the Revenue. The findings of fact have been concurrently recorded, and they are not basedon “no evidence or on any relevant evidence having been excluded from consideration”. Even the aspect of retraction has been duly considered. Ultimately, when exercising our jurisdiction under Article 260-A of the Income Tax Act, we cannot be expected to re-appreciate, re-evaluate, or delve into the factual material on record, particularly when we find no perversity.
13. The two authorities have also taken cognisance of the orders made by SEBI and other regulatory authorities,finding no fault with the Assessee’s role or conduct.
14. For all the above reasons, we decline to admit this Appeal on the ground that it involves no substantial question of law. The appeal is dismissed.
25 Vijaya Prakash Nagori, Mumbai.
20. Further we also noticed that in case of Pr. Commissioner of Income Tax-Central-3, Mumbai V/s Surendra B. Jiwrajka, Hon’ble Bombay High court in Income Tax Appeal No.329 OF 2024 it was held as under:-
7. In respect of the very same Assessee, we have dismissed Appeal No.211 of 2024 relating to the Assessment Year 2012-2013. Therein, we have discussed how the findings of fact concurrently recorded by the two authorities suffer from no perversity giving rise to any substantial question of law.
Therefore, by adopting the reasoning in our order dismissing the ITXA No.211 of 2024, we dismiss this Appeal as involving no substantial question of law. We also note that in this matter as well, the SEBI upon a detailed investigation concluded that the Assessee was not involved in manipulationaswas alleged.
For the above reason, we dismiss this Appeal without order for costs. 21. We are of the view that since the assessee was not subjected to any scrutiny, nor had SEBI initiated any investigation or inquiry against the assessee. There is even no whisper in the assessment order suggesting the assessee’s involvement in price manipulation. Therefore, the assessee’s case stands on a better footing.
Further we also place reliance upon the decision of the Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax V/s. Kuntala Mohapatra [2024] 160 taxmann.com 608 (SC) wherein the Hon'ble Court dismissed SLP filed by the department and held as under:
26 Vijaya Prakash Nagori, Mumbai.
Section 10(38), read with sections 68 and 69, of the Income-tax Act, 1961 - Capital gains Income arising from transfer of long term securities (Illustrations) Assessment year 2014-15 Assessee filed its return for relevant year - Subsequently, pursuant to a survey assessee filed revised return and claimed exemption in respect of long-term capital gains on shares under section 10(38) - Assessing Officer rejected assessee's plea and made additions under sections 68 and 69 by relying on statements from 'entry operators' - On appeal, Commissioner (Appeals) accepted assessee's claim, noting that shares were purchased via Account Payee Cheques, held in a Demat Account for over 12 months, and sold through a recognized stock exchange after payment of security transaction tax Tribunal upheld Commissioner (Appeal)'s decision, emphasizing assessee's right to correct mistakes and criticized Assessing Officer's reliance on statements from 'entry operators' to support additions under sections 68 and 69 as those statements were recorded in unrelated proceedings before survey on assessee, and assessee was not afforded an opportunity to challenge or cross-examine providers of those statements On revenue's appeal, High Court confirmed order of Tribunal - Whether there was no reason to interfere with order passed by High Court and therefore, SLP was to be dismissed Held, yes [Para 3] [In favour of assessee]
Hon'ble Bombay High Court in the case of Commissioner of Income-tax-13 V/s. Shyam R. Pawar reported in [2015] 54 taxmann.com 108 (Bombay) held as under.
Section 68 of the Income-tax Act, 1961 Cash credit (Share dealings) Assessment years 2003-04 to 2006-07 - Assessee declared capital gain on sale of shares of two companies - Assessing Officer, observing that transaction was done through brokers at Calcutta and performance of concerned companies was not such as would justify increase in share prices, held said transaction as bogus and having been done to convert unaccounted money of assessee to accounted income and, therefore, made addition under section 68 - On appeal, Tribunal deleted addition observing that DMAT account and contract note 27 Vijaya Prakash Nagori, Mumbai. showed credit/details of share transactions; and that revenue had stopped inquiry at particular point and did not carry forward it to discharge basic onus Whether on facts, transactions in shares were rightly held to be genuine and addition made by Assessing Officer was rightly deleted Held, yes [Para 7] [In favour of assessee] 24. In the case of PCIT vs. Smt Krishna Devi [2021] 126 taxmann.com 80, the Hon'ble Delhi High Court has noticed that the reasoning given by the AO to disbelieve the capital gains declared by the assessee, viz., astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. Accordingly, the Hon'ble Delhi High Court affirmed the decision rendered by ITAT in deleting the addition of capital gains.
We further also like to place reliance upon the decision of Hon'ble Gujrat High Court in the case of Principal Commissioner of Income-tax (Central) v/s. Affluence Commodities (P.) Ltd reported [2024] 161 taxmann.com 476 (Gujarat) whereas it was held as under.
Section 28(i) of the Income-Tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2015-16 Assessee was engaged in trading penny stocks, specifically shares of AIGL and KPL, during relevant period Assessing Officer alleged that purchases were made at artificially high prices and sold at significantly lower rates to create business losses, possibly to offset profits from commodities transactions Despite transactions occurring on recognized stock exchanges, Assessing Officer disallowed claimed losses However, both Commissioner (Appeals) and Tribunal overturned Assessing Officer's decision, concluding that assessee had demonstrated authenticity of transactions They found evidence on online trading platforms indicating that assessee had no control over share prices and had 28 Vijaya Prakash Nagori, Mumbai. genuinely incurred losses, particularly with AIGL shares where only a portion were sold, and rest were held into subsequent assessment year Regarding shares of KPL, Tribunal reasoned that market rate being lower justified business loss, even though shares were not sold - Whether in view of above concurrent findings of fact, no questions of law much less any substantial question of law would arise and accordingly, appeal, being devoid of any merits, was to be dismissed - Held, yes [Paras 8 and 9] [In favour of assessee]
Hon'ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Sangitaben Jagdishkumar Shah reported in [2023] 156 taxmann.com 147 (Gujarat) held as under Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus loss Sale of shares) - Assessment year 2011- 12 - An information was received from Deputy Director (Inv.) wherein, it was intimated that VIL was a pennystock which was used to provide accommodation entry of bogus LTCG/loss to beneficiaries It was further intimated that assessee was one of beneficiaries/member of this accommodation entry syndicate On basis of same, addition was made to income of assessee on account of bogus loss on sale of scrip of VIL by it - It was noted that Commissioner (Appeals) and Tribunal had observed that as per SEBI report, script VIL was not blacklisted and was not termed as pennystock - Assessee produced relevant documents such as contract note of transactions from stock broker, copy of trading bills - Assessee had also paid STT, and that all transaction were through banking channels - Moreover, Assessing Officer had not pointed out any discrepancy in evidences produced by assessee - Thus, Tribunal upheld order of Commissioner (Appeals) in deleting addition on account of bogus loss on sale of scrip of VIL - Whether there were concurrent findings of fact by Commissioner (Appeals) and Tribunal, and thus, no substantial question of law arose against same Held, yes [Para 4] [In favour of assessee] 29 Vijaya Prakash Nagori, Mumbai.
Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s., Genuine Finance P. Ltd. reported in [2023] 152 taxmann.com 330 (Gujarat) held as under.
Section 28(i) of the Income-tax Act, 1961 Business loss/deduction Allowable as (Bogus purchases) - Assessment year 2012-13 - Additions were made to income of assessee on account of bogus loss incurred in pennystock which were deleted by Tribunal Revenue submitted that order of Tribunal was ex-facie erroneous, illegal and perverse because Tribunal deleted additions without appreciating that transaction was pre-arranged as well as sham and was carried out through penny scrip company - However, Tribunal had observed in impugned order that assessee was continuously dealing in share trading of various shares/scrips and said fact was not disputed - Further, Tribunal had observed that scrip of VAS was not black listed by SEBI at relevant point of time Tribunal had also considered order passed by SEBI and nowhere in said order, scrip of VAS was blacklisted or was pennystock or sham and bogus scrips/shares Tribunal had also observed that entire transaction of purchase and sale of scrips was through Stock Exchanges, through authorized brokers and payments made to brokers were reflected in bank account - Tribunal had therefore opined that merely on conjecture and surmises, Assessing Officer could not make disallowance - Whether in view of above observations made by Tribunal, issue involved was purely a question of fact, and no question of law, much less, substantial question of law for consideration was found - Held, yes [Paras 5 to 7] [In favour of assessee]
In another decision of Hon’ble Gujrat High Court in case of Principal Commissioner of Income-tax V/s. Mamta Rajivkumar Agarwal reported in [2023] 155 taxmann.com 549 (Gujarat) whereas held as under.
30 Vijaya Prakash Nagori, Mumbai.
Section 10(38) of the Income-tax Act, 1961 Capital gains - Income arising from transfer of long term securities (Share dealings) - Assessment year 2013- 14- Assessee had sold shares of SNCFL and earned long-term capital gains - Assessing Officer issued a show cause notice alleging that transaction was a pennystock deal aimed at illegitimately claiming long-term capital gain exemption under section 10(38) - Assessing Officer treated purchase as bogus and added it to total income Commissioner (Appeals) examined all relevant documents provided by assessee, including bills of purchases, broker account copies, bills for sales, and bank statements and held that purchases were made through a recognized broker via cheque, establishing their genuineness and, thus, he directed Assessing Officer to delete addition of LTCG claimed as exempt under section 10(38) Tribunal upheld Commissioner (Appeals) decision stating that there was no evidence implicating assessee or broker in any wrongdoing related to SNCFL script - Whether in view of concurrent findings of fact that there was no evidence available on record suggesting that assessee or his broker was involved in rigging up of price of script of SNCFL, addition on account of LTCG claimed as exempt under section 10(38) had rightly been deleted - Held, yes [Paras 4 and 5] [In favour of assessee]
The grounds pertaining to cross-examination and reliance on statement materials indicate that the AO made only general observations without specifying any concrete allegations against the assessee. It is pertinent to note that, as recorded on page 34 of the assessment order, the AO himself stated that the statements of third parties and the materials in possession of the Investigation Wing were utilized merely as secondary evidence. Furthermore, the assessee’s request for cross-examination was denied in the assessment order without assigning any cogent or substantive reasons for such denial. The relevant extract of the Assessing Officer’s observations is reproduced below.
31 Vijaya Prakash Nagori, Mumbai.
“With regard to query for providing of Statement of third person, it is informed that the statements and others material held with the Investigation Wing were only used as secondary material to show that the assessee has routed its unaccounted money through companies which were found to be involved in giving accommodation entries. The statement given by any person on oath stands unless & until the same is counter by any person against whom statement given or by the documentary evidence produced or provided to prove against the same. Further the person giving statement on oath is personally liable / accountable for the statement given before any competent authority. The primary onus to prove its claim was on the assessee itself. Under such circumstances by asking for cross examination, assessee is trying to shift the burden of proof on the department. Thus, assessee’s request in this regard is not acceptable.
Hon'ble Supreme Court decision in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, ‘failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice. It is a serious flaw which renders the order a nullity’.
31. We also like placed reliance upon the decision of the Hon'ble Apex Court in the case of CIT Vs. Odeon Builders Pvt. ltd. (418 ITR 315) wherein also it was held that the ‘addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross examination of the third party renders the addition/ disallowance bad in law’.
32 Vijaya Prakash Nagori, Mumbai.
Further in the case of H.R. Mehta v/s Assistant Commissioner of Income-tax, Mumbai 72 taxmann.com 110 (Bombay) delivered by the Hon’ble Bombay High Court and the same reads as under. In the light of the fact that the money was advanced apparently by the account payee cheque and was repaid vide account payee cheque the least that the Assessing Officer should have done was to grant an opportunity to the assessee to meet the case against him by providing the material sought to be used against him in arriving before passing the order of assessment. This not having been done, the denial of such opportunity goes to root of the matter and strikes at the very foundation of the assessment and, therefore, renders the orders passed by the Commissioner (Appeals) and the Tribunal vulnerable. The assessee was bound to be provided with the material used against him apart from being permitting him to cross examine the deponents whose statements were relied upon by him. Despite the request seeking an opportunity to cross examine the deponents and furnish the assessee with copies of statements and disclose material, these were denied to him.
The AO did not provide the assessee with copies of any statements or materials relied upon in the assessment, nor was the assessee afforded the opportunity to cross-examine any persons whose statements were referred to in the assessment order. Therefore, considering the above, the assessment proceedings deserve to be quashed on this count alone, being in clear violation of the principles of natural justice.
33 Vijaya Prakash Nagori, Mumbai.
Therefore, after considering the entire facts and circumstances of the present case, as well as the legal propositions discussed hereinabove, we are of the considered view that the assessee was a regular investor and had duly discharged the initial onus by placing on record all the relevant documentary evidences to substantiate the genuineness of the transactions in the scrip in question. However, the Revenue has failed to rebut the aforesaid evidence or to bring any material on record to demonstrate that the assessee was actively involved in manipulating the said scrip. Accordingly, adhering to the principles of judicial consistency and discipline, and taking into account the totality of the facts and circumstances as discussed in detail in the foregoing paragraphs, the assessee’s claim deserves to be accepted. We direct the AO to delete the additions made u/s 68 of the Act. Consequently the grounds raised by the assessee are allowed.