SUNITA KEDIA vs. C I T JAIPUR

upholding assessment order. Factual matrix of case is that assessing officer passed assessment order on 28.09.2006 for assessment year 2004-05 under Section 143 (3) of the Income Tax Act, 1961, whereby he assessed a sum of Rs.13,66,775/- as income of // 2 // assessee as against returned income of Rs.11,30,275/-. In doing so, he made additions of - Rs.1,02,500/- originally declared by assessee as income other than long term capital gain; Rs.1,40,275/- of long term capital gain was treated as income from undisclosed sources and income of Rs.1,24,000/- was treated as income from unexplained creditors under Section 68 of the Act. Thus a total sum of Rs.13,66,775/- was assessed. While the CIT (Appeals), Jaipur, confirmed addition of income of Rs.1,40,275/- from long term capital gain treated as income from undisclosed sources, but he deleted a sum of Rs.75000/- out of addition of Rs.1,24,000/- made by assessing officer of unexplained creditors under Section 68 of the Act; thus, partly allowed the appeal. Further appeal preferred by assessee was also partly allowed by learned ITAT, Jaipur vide its order dated 10.04.2008, thereby deleting only addition of Rs.1,24,000/-. The assessee has come to this Court in appeal against all the aforesaid three orders. Shri N.L. Agrawal, learned counsel for assessee, has argued that assessee computed total income in return, declaring long term capital gain of Rs.11,40,225 from sale of share; she claimed investment of Rs.11,12,500/- out of // 3 // the aforesaid capital gain under Section 54F of the Act, in immovable property and showed balance taxable capital gain of Rs.27,775/- chargeable under Section 45 of the Act. Income of Rs.1,02,500/- was also shown from other sources. Assessing officer selected appellant's case for scrutiny and issued notice under Section 143(2) on 17.10.2005 fixing 26.10.2005 as date of hearing. Another letter dated 31.10.2005 enclosing therewith notice under Section 142 (1) of the Act was issued fixing 11.11.2005 as date of hearing, and on which date Shri S.K. Modi, Advocate, attended proceedings, filed power of attorney and informed the assessing officer about non-receipt of notice under Section 143 (2) of the Act for hearing on 26.10.2005, and argued that for that reason he could not file reply. A request was made for transferring the case to any Income Tax Officer in Hyderabad, for the reasons that the assessee was unable to travel conveniently because she was presently residing in Hyderabad, she is having children of tender age and also not feeling well from health point of view and if the case was transferred, she could give her evidence and simultaneously it was also prayed that time may be extended for submission of her // 4 // reply. It was further argued that matter was then adjourned to 07.12.2005 and thereafter to 19.12.2005, on which date Shri Suman Kumar Modi, Advocate, appeared and filed computerized copy of accounts along with balance sheet as on 31.03.2003 and 31.03.2004 and also filed reply accompanied with documents regarding purchase of ten thousand shares of M/s Boltan Properties Limited on 16.04.2002 from Calcutta Stock Exchange through M/s Prakash Nahta & Company, member of said Stock Exchange in the physical form and taken delivery thereof. The said share certificates were sent to company for transfer in favour of assessee and consolidation thereof, vide letter dated 21.04.2002. These shares were transferred by the company in favour of assessee and a consolidated share certificate in lieu of the former share certificate, was sent vide letter dated 30.04.2002 by the company to assessee. The said share certificate was dematerialized in due course with HDFC depository services and then were sold on 27.10.2003. Documentary evidence in support of all of above transactions were submitted along with reply dated 19.12.2005 to assessing officer. It was further argued that statement of one Pawan Purohit was illegally relied on by // 5 // assessing officer that M/s Prakash Nahta and Company was engaged in providing accommodation entries of long term capital gain and Bolten Property Limited is also a share script in which these accommodation entries were provided by brokers to beneficiary. This statement was recorded behind back of assessee without providing her opportunity of cross-examination. Said statement could not be therefore acted upon. Assessing officer supplied Photostat copies of Page Nos.1, 12 and 13 of statement of said witness and did not provide complete set of copy of statement. Even from that statement, it is not evident that any transaction was made by assessee through so-called Pawan Purohit of M/s B.C. Purohit & Company. It was contended that assessee replied show cause notice vide letter dated 27.03.2006 to same effect and denied having any concern with M/s B.C. Purohit & Company or even Shri Pawan Purohit. Shares in question were purchased by assessee from Kolkata and statement of a third person, namely, Shri Pawan Purohit, in this case would not be relevant. Statement of Prakash Chand Nahta of M/s Prakash Nahta & Company, Kolkata was not recorded before assessing officer. M/s. Boltan Property Limited was a company enlisted in Calcutta Stock // 6 // Exchange and there was no reason for declaring the company as forged or bogus company without any material in support of presumption of assessing officer. Assessee did not make payment in cash so that same could have been deposited in any bank account in HDFC or ICICI Bank in Jaipur. Assessing officer was wholly unjustified in treating long term capital gain of Rs.1,40,275/- as income from undisclosed sources, and instead the income from long term capital gain by selling of shares held for more than a year. The CIT (Appeals) and ITAT erred in upholding the suspicion entertained by assessing officer which was entirely based on statement of Shri Pawan Purohit. They also erred in not considering documentary evidence filed with reply dated 19.12.2005 by Shri S.L. Poddar, learned counsel appeared for assessee. Entire order of assessment was based on surmises and conjectures and on mere doubt and suspicion. There was absolutely no basis or foundation for passing such an order. Said shares were actually sold on 27.10.2003 in dematerialized form in consideration of total sum of Rs.11,81,475/- and payment thereof was received by assessee through account payee cheque and this material was illegally ignored by assessing officer as also by CIT (Appeals) and ITAT.

// 7 // is permissible; first one is when material or relevant evidence is not considered which, if considered, would have led to an opposite

conclusion and the appellate authority under a duty to examine entire relevant evidence on record, has refused to consider important evidence having direct bearing on the disputed issue. Resultant error arising therefrom is of a magnitude that it gives birth to a substantial question of law. The court in such circumstances is fully authorized to set aside such finding. Second situation in which interference with finding of fact is permissible is where a finding has been arrived at by appellate court by placing reliance on inadmissible evidence, which if it was omitted, an opposite conclusion was possible. The learned counsel therefore argued that substantial question of law as to admissibility // 8 // or relevance of statement of Shri Pawan Purohit arises in present case and question also arises as to fact that learned assessing officer as also appellate authorities have committed an error in not considering relevant evidence produced by assessee regarding transaction of purchase or sales. We have given our anxious consideration to submissions made by learned counsel and also carefully perused assessment order as also order of CIT (Appeals) and that of ITAT. We find from assessment order that as regards to income shown from long term capital gain, assessing officer noted that a search proceeding was carried out under Section 132 of the Act in premises of M/s B.C. Purohit & Company, Jaipur, on 12.04.2005 and it was gathered therefrom that M/s. Prakash Nahta & Company, Kolkata, was conduit in providing accommodation entries of such long term capital gain on transaction of share script of M/s Bolten Property Limited. Most of beneficiaries of such accommodation entries had surrendered such gains as their income from other sources. Fact of accommodation entries was taken as proved and believed by assessing officer that gains shown by assessing officer to be through similar channel is not exception of common modus // 9 // operandi

being

adopted

by all other beneficiaries. Two other family members of assessee had also shown long term capital gain from similar transactions of shares of same Company through M/s Prakash Nahta & Company through same broker. In this respect, statement of Shri Prakash Purohit, grandson of Shri B.C. Purohit, was also relied on, who clearly stated that M/s Prakash Nahta and Company, Kolkata was engaged in providing accommodation entries of long term capital gains and that they were helping Shri Nahta in that work. He also stated that common modus operandi for such long term capital gains was adopted by such beneficiaries. Though the assessee had filed certain details relating to those transactions vide earlier letter dated 19.12.2005, but he failed to appear before assessing officer and also failed to respond to his letter dated 11.08.2006. In response to that letter, assessee rather requested for time which was granted by assessing officer fixing 19.09.2006 as date of hearing, but on that date again neither assessee herself attended the proceeding nor her representative appeared nor any communication of any sort was sent. Faced with that situation, assessing officer had no alternative but to hold that long term capital gain declared by assessee // 10 // was her income from other sources. CIT (Appeal) and ITAT upheld those findings of assessing officer by further noticing that there was nothing on record to prove actual delivery of shares claimed to have been purchased by assessee in spite of opportunity given to her. Even if documents produced by assessee are taken to be genuine, she was required to prove physical delivery of shares taken at the time of purchase, and according to circumstances, namely that assessee got shares dematerialized in October, 2003, which were sold on 27.10.2003 and that shares were dematerialized immediately before sale was effected. In absence of physical delivery of shares on 16.04.2002, sale of shares declared by assessee did not take to be genuine.

Conclusion that was drawn by all authorities was that such long term capital gain was managed with a view to channelizing undisclosed income of the beneficiaries. In view of detailed discussion made by assessing officer as also CIT (Appeals) and ITAT, the argument that relevant and material evidence was not considered or that any irrelevant or inadmissible evidence has been acted upon, cannot be accepted and for that reason, judgments of Supreme Court in Ishwar Dass (supra) and Dilbagrai

Punjabi

(supra), // 11 // cannot be held to have any application to facts of present case. We therefore do not find any merit in this appeal and it is dismissed summarily. (Mohammad Rafiq) J. (Arun Mishra) J. //Jaiman//