ACIT I/C ITO - 22(2)(1), MUMBAI, PIRAMAL CHAMBERS, LALBAUG, MUMBAI vs. NARESH MANAKCHAND JAIN , PRABHADEVI, MUMBAI

The Assessee challenged the aforesaid additions by the AO, by filing respective appeals before the Ld. Commissioner, however, was of no avail, as the Ld. Commissioner vide order dated 01.12.2022, affirmed the aforesaid additions, by dismissing the quantum appeals of the Assessee.

Thereafter, thus the AO vide respective penalty orders, levied the following penalties:

Thereafter, the Hon’ble Co-ordinate Bench of the Tribunal, by composite order dated 27.06.2024 in the respective quantum appeals and by taking into consideration case pertaining to A.Y. 2013-14 in as a lead case, ultimately deleted the aforesaid additions on the legal aspects/additional grounds raised by the Assessee, by observing and holding as under:

In the preceding paragraphs, we have referred to various statements and observations made by the AO for making the addition of commission income. The AO has referred extensively to the statements of various persons. The question now arises is whether the statement of the assessee or the statements of third persons could constitute an incriminating material found during the course of search of assessee. In this regard, we would like to refer to the decision of the Hon’ble madras High Court in the case of B Kishore Kumar Vs DCIT (2014) 52 taxmann.com 449(madras), wherein the Hon’ble High Court held that when there is a clear and categorical, voluntary admission of the undisclosed income by the assessee himself, there is no necessity for a scrutinizing the documents and that would be good piece of evidence. In the instant case the admission of assessee engaged in providing accommodation entry has been retracted subsequently by the assessee, and therefore, the statement of assessee was voluntary or not is not free from doubts. Further, Hon’ble Delhi High Court in the case of CIT vs Harjeev Aggarwal reported in (2015) 62 taxmann.com 215, held that a statement recorded under section 132(4) of the Act by itself would not be sufficient to assess the income and it could be used for making the assessment but only to the extent it is related to the incriminating evidence/material unearthed or found during such. The relevant finding of the Hon’ble High Court is reproduced as under:

On perusal of above finding of Assessing Officer, we do not find reference of any seized material in making the analysis. The AO concluded that the role of Share Brokers in facilitating the transactions of bogus entities on stock exchanges is established, but he has not referred to any seized material for arriving that conclusion. Similarly, he concluded that the bank accounts of exit providers have been traced several layers downwards and a cash trail has been established along with the direct link to the trading of scrips. But, we find that AO has not referred to any seized material which could indicate cash trail between the assessee and alleged beneficiary of LTCG or exit provider except relying on statements of third parties. Further, regarding the email of kaamdenu@gmail.com also the AO has not pointed out the incriminality in correspondence through email.

Thus, we are of the opinion that either in the assessment order or in the order of ld CIT(A), there is no express reference of any seized material much less incriminating material found from the premises of the assessee in support of allegation of assessee being involved in business of accommodation entry of LTCG .

As far as the ‘digital data’ found from the premises of persons other than Shri Naresh Jain is concerned, same cannot be taken into consideration in the present proceedings u/s. 153A of the Act without invoking s. 153C of the Act.

During the course of hearing before us, the ld. D.R. referred to ‘loose’ papers marked as Annexure-A, which were seized from the premises of the assessee located at 602, Raheja Chambers, 213, Nariman Point, Mumbai. The ld. D.R. referred to the written submission of the Assessing officer dated 9/3/2024 and submitted that pages 172 to 145 of the said Annexure refer to shareholder agreement as entered among three parties namely, 52 Weeks Entertainment Ltd., Four Lions Films Private Limited and Mrs Gule Nagma Khan. He further submitted that Ms Karisma Jain (daughter of the assessee) is a Director of 52 Weeks Entertainment Limited, therefore, the assessee and his family are hand in glove in manipulation of shares of 52 Weeks Entertainment ltd. He further referred to the statement of the assessee dated 19.03.2019 recorded u/s. 132(4) of the Act and submitted that the assessee had admitted that 52 Weeks Entertainment Ltd. is one of the shares rigged by him and, therefore, this is one of the incriminating material. The ld Counsel for the assessee however responded that the said agreement was in respect of acquisition of the shares of Four Lions Pvt. Ltd. by M/s 52 Weeks Entertainment Ltd. The daughter of the assessee being director of 52 Weeks Entertainment Ltd. from 23.08.2014 and who subsequent became director of Four Lions P. Ltd. on 01.07.2015 , therefore, same was maintained as part of routine business practice, devoid of any incriminating content regarding share manipulation. Further, page Nos. 144-120 are in relation to pledge of shares of M/s Four Lions Films Pvt. Ltd. in lieu of convertible loan of 500 lacs given by M/s 52 Week Ltd. to Four Lions Ltd. Those documents were part of chain of documents in continuation to share of agreement available on page No. 72-145 of the said annexure. Regarding pages 119 to 112, which is a list of share allotment made on 18.09.2014 along with full address PAN etc. The Ld. Counsel for the assessee submitted that same is a public document downloaded from the Ministry of Company Affairs (MCA) Site. Regarding the loose papers seized at Serial No. 111 to 93 the Ld. DR submitted that those empty stamp papers in the name of M/s 52 Weeks Entertainment Ltd. are clinching evidences in support of the statement of the assessee that he was involved in front running and manipulation of scrip to accommodate bogus LTCG. The Ld. Counsel for the assessee however responded that those stamp papers were related to a film project that was to be produced by Shri Abbas Mastan and financed by M/s 52 Weeks Entertainment Ltd. and those papers were brought for execution of a specific contract for film production among the parties in whose name the stamp paper belonged. According to the Ld. Counsel there was nothing incriminating in respect of those stamp papers. The Ld. DR could not controvert his submissions. Similarly, the page No. 90 to 91 of the annexure is a resolution copy of the shareholder agreement which has been already referred in page No. 172 to 145 of the annexure. Regarding the page No. 89 to 86 the Ld. DR submitted that those documents indicate involvement in the shares of M/s 52 Weeks Entertainment Ltd. however, the Ld. Counsel responded that the documents relate to agreement for purchase of the property by Mono Type India Ltd. from Cosmos Infrastructure Ltd. and thus is was not even remotely connected with the allegation of bogus LTCG. Regarding pages 85 to 41 the Ld. Counsel for the assessee responded that same were official documents for allotment of the shares by M/s 52 Weeks Entertainment Ltd. and those documents had nothing to do with the allegation of rigging and front running of shares. Regarding the pages 40- 26 the Ld. DR submitted that those blank cheques were used for rigging the stock market. However, the LD. Counsel for the assessee given details submission in respect of the each black cheque. According to him, black cheque available on page 40-39 is a blanck cheque of Pranjali Pvt. Ltd. in which assessee is a director and in respect of that company no share trading activity had taken place nor a demat account had been opened and therefore, allegation of manipulation in shares was only presumption of ld DR. The page 38 to 35 was personal guarantee given to Nova Logistics Pvt. Ltd. and those cheques were taken as a counter guarantee to protect the assessee against the default by the borrower. Other pages are also similar guarantee and not in relation to any allegation of accommodation entry of LTCG. The other documents from 25 to 1 were also not found to be related to any of the allegation of providing accommodation entry of the LTCG.

The documents referred above, mainly pertain to 52 Weeks Entertainment Limited, a company where Ms. Karishma Jain, the daughter of the Assessee, was serving as a director. But none of, those seized materials qualify as incriminating in nature by collating with those 12 scrips. In view of detailed rebuttal by the ld Counsel for the assessee, it is evident that the documents seized alleged by the ld DR as incriminating material are general documents and nowhere suggest any kind of link with the allegation of accommodation entry business or commission income earned there on. The documents in any manner does not lead to the allegation of the lower authorities that cash was received from accommodation entry seeker by the assessee and after deposit into some personal accounts it was routed to the accounts of buyers of such scrip i.e. exit provider, and the assessee earned commission on such accommodation entry transactions. The above documents do not corroborate the statement recorded of the assessee as well as of the third parties under section 132(4) of the Act.

Ultimately, after meticulous consideration and rebuttal of each document by the counsel for the assessee, we find that none of the materials seized from Annexure-A substantiate the allegations of accommodation entries or commission income from such transactions, as posited by the lower authorities. The documents reviewed do not support the assertion that the assessee facilitated cash transactions from accommodation seekers, subsequently depositing funds into personal accounts and then redirecting them to buyers of the securities for a commission.

In conclusion, based on the comprehensive arguments presented before us, we are of the opinion that the documents contained in Annexure-A do not establish any nexus with the alleged modus operandi of generating bogus Long Term Capital Gains or Short Term Capital Losses. The contentions raised by the Departmental Representative regarding the incriminating nature of the seized materials have not been substantiated, thereby failing to uphold the additions made by the Assessing Officer concerning commission income.

The learned DR further submitted that the loose papers folder marked as Annexure A-1 seized from the premises of the assessee located 602, Raheja Chambers, Nariman Point, Mumbai comprises of phone call records of beneficiaries in excel format. However, on verification, same is found to be a list of phone numbers only, which does not lead to any link with the allegations by the Assessing Officer.

The learned DR further submitted that from the office of the assessee, emails have been retrieved from the email account kaamdenu@gmail.com, in which assessee was communicating with his associates regarding scrips under reference. According to the learned DR the email correspondence indicates his active involvement/anchoring in the modus operandi of providing bogus LTCG/STCL. Before us learned DR filed a copy of letter dated 26/02/2024 addressed by the Assessing Officer to the Bench, which is placed on record. The said letter contains print out of the email correspondence as Annexure U-1 and Annexure U-2. On perusal of Annexure U-1, we find that same contain a table with heading as ‘steel Exchange India Limited’ and subheading as ‘buyers list 24/11/2017 INE503B01013’. The various columns of the table contain SNO. Folio, Name, holding as on 31/10/2017, shares bought, holding as on 24/11/2017. There are three more tables having similar columns i.e. details of the names and No. of shares. We do not understand as how above list indicate or give lead to support the allegation that assessee was engaged in providing accommodation entries in the shares of steel exchange of India Ltd. The first page of annexure U-2 refers to email related to annul report of Divine Multimedia (India) Ltd., second page refers to some name of shares and their numbers, third page refers to notice for annual general meeting of Nyssa Corporation Ltd. , other pages refers to annual general meeting or ledger account etc. These mails are on behalf of Monotype India Ltd. We find that no efforts have been made by the lower authorities that those email correspondence corroborate to statement of assessee of having engaged in providing accommodation entries. It seems that lower authorities have first concluded that assessee was engaged in providing accommodation entries and thereafter they have referred to certain pages claiming to be incriminating material, without actually analyzing those documents.

Similarly, the image of logo of Monotype India Ltd. or other images which have been referred by the ld. D.R. as part of data seized, does not establish that those documents are incriminating in nature.

Further, the ld DR submitted that cash of Rs. 1,11,790/- found from the premises of the assessee was incriminating material. We find the Assessing Officer in the impugned order has nowhere mentioned that the cash found was incriminating in nature. We also find that no addition has been made by the AO for unexplained cash found. Any way such small amount found can’t support the huge addition of more than Rs. 9 crores made in hands of the assessee as commission income for the year under consideration. The Ld DR further referred to the material seized from premises of other persons, but same can’t be taken into consideration under present proceedings u/s 153A of the Act because same could have been only considered u/s 153C proceedings of the Act.

We have perused the entire assessment order and submissions of the ld. D.R., but we find that the documents seized in Annexure A-1 from Raheja Chambers including e-mail correspondence etc. does not show any kind of incriminality in itself. Those documents could not be considered as incriminating material corroborating to the statement of the assessee. The ld CIT(A) held that besides confessional statement of assessee, a large number of incriminating material /digital data have been found during the course of search, which conclusively prove that the group concern of assessee were used as conduit for providing accommodation entries, but he has nowhere mentioned any single such incriminating material. In paragraph 8.4 of the impugned order, which has been reproduced above, the Ld. CIT(A) observed that main motive of the assessee was to bring unaccounted cash of various beneficiaries to the mainstream of books of accounts by claiming the same as long-term capital gain and in this whole process the assessee played a very crucial role by interlinking beneficiaries, brokers, intermediaries and exit provider for which he charged a specific commission. But the analysis of the seized document submitted by the learned departmental representative before us do not indicate any such lead regarding the role of the assessee in interlinking of beneficiaries, brokers, intermediaries and exit provider. In the entire seized documents there is no reference of any commission charged by the assessee. This entire addition made by the Assessing Officer is merely based on the confessional statement of the assessee, statement recorded in earlier search and addition proposed in earlier assessment years. The said statements cannot be held to be incriminating material in view of the decisions of the various Hon’ble High Courts discussed above.

In view of the above, the addition of commission income made by the AO merely relying on the statement of the assessee as well as the statements of other parties, cannot be sustained in absence of an incriminating material corroborating those statements, in view of the decision of the Hon’ble Bombay High Court in the case of Continental Warehousing Corporation (supra) which has been upheld by the Hon’ble Supreme Court Abhisar Buildwell (P) Ltd. (supra). The additional ground No. 1 of the appeal of the assessee is accordingly allowed.

Before us the learned counsel for the assessee has raised another additional ground challenging that the Assessing Officer had not followed direction of the CBDT issued by way of circular for citing document identification Number (DIN) on the assessment orders. The learned counsel for the assessee extensively argued in support of this additional ground. Since, we have already allowed the first additional ground in favour of the assessee, therefore adjudication of the additional ground on the issue of the DIN is merely rendered academic and thus, we are not adjudicating upon the same. The other grounds raised by the assessee also rendered academic in view of our finding on the additional ground No. one of the appeal. Accordingly, we are not adjudicating upon those remaining grounds of the assessee challenging merit of addition etc.

Similar additional ground have been raised by the assessee in other appeals from assessment year 2014-15 to 2017-18. In view of discussion in AY 2013-14, the additional grounds raised in AYs 2014-15 to 2017-18 are admitted for adjudication. Following our finding in assessment year 2013-14, the additional ground challenging validity of the addition in absence of an incriminating material, is allowed in favour of the assessee. The other grounds and additional rounds raised in those appeals are rendered academic and therefore same not adjudicated upon.

In the result, the appeals of the assessee are partly allowed.”

Thus, in view of the above decision of the Hon’ble Co-ordinate Bench of the Tribunal in the quantum appeals mentioned above, wherein additions on the basis of which the penalties were levied have already been deleted, the penalties levied by the AO, are un- sustainable and therefore in our considered view, have rightly been deleted by the Ld. Commissioner vide impugned orders even dated 08.01.202. Admittedly, it is also not the case of the Revenue Department that the composite order dated 27-06-2024 in the quantum appeal by the co-ordinate Bench of the Tribunal, has either been stayed or set aside by the Hon’ble High Court. Thus, the appeals filed by the Revenue are liable to be dismissed.

In the result, the appeals filed by the Revenue Department stand dismissed.