INTERNATIONAL FINANCIAL SERVICES LTD MUMBAI,MUMBAI vs. DCIT CC 2(2) , MUMBAI

The brief facts and background of the case as culled out from the records placed before us are that, assessee is engaged in the business of share trading and stock broking and he is part of Ajmera family which have various businesses and industries and all of them were high net worth individuals. Amongst family members few of them had share broking business and were SEBI and others Shri Jiten K Ajmera and Others registered stock brokers of BSE and NSE since1996. It is also a matter of record that all these family members were regular investors in shares and securities and have invested substantial amount in various shares and securities running into several crores. All these details have been placed before us in the paper book. It is only with regard to share transaction of Pranneta Industries Ltd., (herein after referred to as PIL), later on changed to Aadhar Ventures India Ltd., is the subject matter of dispute of being treated as bogus long term capital gain. The fact relating to said purchase and sale are that assessee alongwith his family members had subscribed for shares of PIL on 04/08/2009. Assessee has allotted 2,40,000 shares at Rs.2.25/- each and the payment for purchase was made in the earlier year through account payee cheque. All the necessary documents and evidences in support of the purchase of shares are part of the record which was also filed before the ld. AO and ld. CIT (A).

One very important fact is that these shares were not purchased from market as assessee had subscribed convertible warrants of PIL offered at Rs.2.25/- per warrant to be converted into share having face value of Rs.1/- with premium of Rs.1.25/- as per the pricing formula of SEBI; and at that time market price of a listed share at Bombay Stock Exchange was around Rs.4.5/- per share. One very important fact is to be noted that ld. AO has not disputed the purchase of the shares as he has taxed net long-term capital gain only. Thus, the factum and quantum of purchase has not been disputed. Only sale of shares through online platform of BSE has been treated as bogus transaction. and others Shri Jiten K Ajmera and Others 6. These shares were sold on 15 occasions spanning over two accounting years between 16/08/2010 to 06/06/2011. The shares were sold from the stock exchange online screen based mechanism of BSE, through registered broker on which STT was also paid. Assessee has filed documents like brokers note, contract note, D-mat statement, bank statement evidencing sale receipt etc., were filed. Accordingly, the assessee had declared long term capital gain which was claimed as exempt u/s. 10(38) of the Act of Rs.3,28,601/- arising on account of sale of shares in PIL in his return of income filed for the A.Y.2012-13.

Another important fact which has been brought on record is that shares of same company, PIL was purchased by the assessee for the first time in the year 2005 and had done transaction in the scrip earlier also, and the LTCG on sale were accepted to be genuine. The purchase and sale of the same scrip in the year 2005 before any such information coming on record stood accepted by the department.

Regarding scrip of PIL it has been stated that it was a registered NBFC and the company was active and was regularly traded in the Bombay Stock Exchange till the year 2001 and was listed with BSE since year 2002 upto the year 2020. Another fact is that assessee had sold only 75% of its stock and the balance 25% still remained as ‘closing stock.’ It has been brought on record that scrip was actively traded during this period with multiple buyers and sellers handling all kind of clients and it was not only the assessee but also other corporate entities have and others Shri Jiten K Ajmera and Others traded in this scrip and more so various reputed FIIs like Credit Suisse, JP Morgan, etc., had also purchased and sold these shares. Apart from that, the assessee has also received dividend on this scrip in the F Y 2010-11.

Post the transaction of purchase and sale of PIL, a search and seizure action u/s.132 was carried out on 23/07/2013 at business establishment of the assessee and his family members and which continued till 29/07/2013. This search was conducted subsequent to the search u/s.132 in the case of Shri Shirish C. Shah and Pranneta Industries Ltd. on 09/04/2013, wherein the Investigation Wing found that Shri Shirish C Shah was involved in providing accommodation entries in the form of bogus long term capital gain in the shares there from PIL to assessee group and concerns. It was also found that PIL was not carrying any substantial business activities and did not have any underlying assets. Ld. AO in his assessment order has noted the claim of exempt long term gain from sale of shares of PIL by the various family members which has been tabulated by him in para 5 of the assessment order the details of which has also been given in the foregoing para. The ld. AO during the course of assessment proceedings made independent enquiries from BSE in respect of the aforesaid share transactions and found that the shares sold were mostly purchased by various group companies of Shri Shirish C Shah, the details of these companies had been provided from pages 3-9. The details contained the companies of Shri Shirish C Shah purchasing various other shares, the list of which have been elaborated in para 7.2 and there were similar and others Shri Jiten K Ajmera and Others purchases by his companies for PIL and found that 25,39,315 number of shares were purchased by these entities. The ld. AO has further noted that search was also carried out u/s.132 at the office premises of PIL on 09/04/2013 alongwith search in the residence and office premises of Shri Shirish C Shah. It was found by the investigation wing that books of accounts were maintained by Shri Shirish C Shah from Mumbai and there were no underlying assets and all the activities shown in the annual report were just window dressing. The ld. AO also issued summons u/s.131 to various concerns of Shri Shirish C Shah who had purchased shares of PIL from assessee, however, the summons was returned unserved.

Another fact which has been brought on record by the ld. AO that there were some ledger accounts found and seized from the premises of Shri Shirish C Shah which showed some cash movement from the assessee’s group to him and subsequently there was sale of shares of PIL. The ld. AO has stated that the ledger account was confronted to Shri Jasmin Ajmera and other family members available at the time of search and in his statement recorded u/s.132(4), he has admitted the said transaction shown in the ledger account.

In response to the show-cause notice, assessee had submitted his detailed submissions which have been incorporated in the assessment order from pages 10 to12. It was stated that Shri Jasmin Ajmera has filed a detailed rebuttal and retraction of the statement immediately after 5 days of and others Shri Jiten K Ajmera and Others conclusion of search; and again in affidavit filed before the Investigation Wing and other before the AO. It was stated that the statement of Shri Jasmin Ajmera was given in his individual capacity who agreed to offer the amount of capital gain of taxation. Apart from his statement, there is no evidence in support of any allegation nor there any incriminating documents / evidences were found during the course of search from his or any other premises of the property. It was also stated that in his affidavit and in several representations, Shri Jasmin Ajmera has stated that the statement was taken under extreme coercion, threat and pressure and intimate and undue influence which was given stress and he was subjected to search continuously for various days and for 48 hours he was kept in the room and he was not in a frame of mind and the statement and the answers were pre-scripted. Thus, such statement cannot be the basis for drawing any adverse inference in the case of the present assessee. In any case, the statement of Shri Jasmin Ajmera is not binding on the assessee as he has not confessed any such disclosure despite so many statements of Ajmera family members were taken and all these family members had put to pressure to confirm the statement of Shri Jasmin Ajmera without showing them the statement and all these family members were made to subscribe the signatures on the pre-printed documents. Two retraction affidavits were filed, one dated 02/08/2014 and another 14/08/2015, wherein the entire incidents have been explained in detail. Regarding Shri Shirish C Shah it was stated that there is no co-relation between the assessee and his family and others Shri Jiten K Ajmera and Others members or any of the company of Shri Shirish C Shah and further if there is any material or information, the same was requested to be provided as well as cross examination of the concerned person. All these detailed submissions have been incorporated in the assessment order. The ld. AO then provided certain seized material and other documents which has been listed at page 13 and in response assessee has also given his detailed submissions which too has been incorporated in para 9 from pages 13-20 where various discrepancies were also pointed out with regard to the seized material and stated that some of the transactions which have been mentioned which purportedly stated to have been purchased by Ajmera family in various other scrips through cheque, but no such scrips were purchased and no such amount was ever paid by any of the family members. Like in the information there was mention of purchase of shares of Channel Guide India Ltd., which was never purchased. Thus, it shows that these documents are either forged or have no co- relation with the actual facts from the case of the assessee or the family members. Thereafter, the document-wise reply has been given which has been incorporated in the assessment order.

12. Ld. AO held that all these documents clearly prove that these companies have been used by Shri Shirish C Shah, who had indulged in providing accommodation entries of share capital, exempt long term capital gain to various parties including the assessee. These seized material show financial activities like allotment of share capital, purchase and sale of PIL by way of companies of Shri Shirish C Shah. The ld. AO also and others Shri Jiten K Ajmera and Others referred to copies of affidavits of various persons who were Directors` in these companies, who clearly explained how various companies were used to provide entries with dummy Directors with full control of Shri Shirish C Shah. List of the persons who had given their affidavits have been provided from pages 20-31 and he has also listed name of various parties who were sent summons in the post search proceedings which were received unserved. Finally, he made the addition after observing and holding as under:-

Further it may also be appreciated that it cannot be just mere coincidence that most of the shares when sold by the assessee and his family members and various entities were purchased by the companies controlled by Shri Shirish C Shah. Considering the human probabilities, it is completely impossible that almost all the shares so sold were purchased by companies controlled by Shri Shirish C Shah unless these companies specifically instructed by Shri Shirish C Shah to come forward for such purchases.

Out of these webs of companies, certain companies as mentioned above purchased and sold the shares of Prraneta Industries Ltd now known as Aadhar Ventrue India Ltd. It may be appreciated that there is overall more shares have been purchased by these companies than that of actual sale by them. The various purchase of buying shares is made the stock less liquid in the market. When the liquidity of a particular stock in the market is lesser, it would be easy to jack up the price of the shares.

It may be further appreciated that in such transactions, there may not be a direct evidence to exchange of money by the assessee to the broker / intermediate broker. It has to be gathered from the circumstantial evidences.

In this particular case, ledger account maintained by Shri Shirish C Shah was found and provided Ito the assessee at the time of search as well as during the course of assessment proceedings also. Further all the family members sold these shares in particular period realizing huge gain. Such a systematic transactions in buying and selling of shares of Prraneta Industries Ltd now known as Aadhar Ventrue India Ltd resulting in huge tax free profit defeat all possible human probabilities especially in the share markets. Therefore the assessee's contention that the transaction was screen based and he was not aware about the seller is not acceptable. Moreover, in this particular case, shares purchased at and others Shri Jiten K Ajmera and Others the time of sale of shares were by the companies controlled by Shri Shirish C Shah. This fact get further support from the ledger account of the assessee group found from the office of Shri Shirish C Shah. Copy of which is already provided to the assessee.

Even during the course of assessment proceedings when assessee had filed all the documents like contract cum bill of sale of shares, Demat transaction, payment of STT and the details of shares acquired in the earlier years as well as in the previous year alongwith details retraction affidavit and explanation for each of every issues raised in the notice, ld. AO has simply relied upon the statement recorded in the search of Shri Shirish C Shah and statement of Shri Jasmin Ajmera for drawing adverse inference.

In sum and substance he has given the detailed summary of various replies in response to the notices issued by the ld. AO are as under:- iii) Re: Reliance on statement of JA (a) First of all, except for this statement there is absolutely no evidence in support of the allegation. No incriminating document/ evidence were found during the search from his or our property. Now, as far as the sole reliance on statement is concerned, we understand that such action is contrary to the specific directions issued by the CBDT. In any case, and otherwise also, we believe that the law is quite well settled in this regard and it has been emphatically held that no addition can be made to the income of an Assessee, merely on the basis of a statement, without any and others Shri Jiten K Ajmera and Others corroborative evidence found during the search supporting such addition. (b) In any case, the statement of Shri Jasmin Ajmera was taken in coercion, pressure and undue influence and given in stress and utter duress. Therefore, we believe such statement is not a valid statement in the eyes of law and consequently, is not binding on the person who gave the statement and least binding on any third party. Further, the entire statement stood fully retracted by Shri Jasmin Ajmera in his detailed affidavit dated 02/08/2013 and 14/08/2015, submitted to the department, Shri Jasmin Ajmera in his affidavits, have very exhaustively dealt with the entire chain of events which transpired during the course of the search, as well as, has also placed on record the manner in which he was pressurized, threatened and also the circumstances under which this so called confession in the form of statement was extracted from him. (c) Shri Jasmin Ajmera has retracted from the statement/ confession so extracted. We say that in the given circumstances, the so called statement has absolutely no evidentiary value, on fact, as well as in law. (d) In any case, the statement of Shri Jasmin Ajmera is not binding on him as he has not confessed any such disclosure. He has also submitted his affidavit dated 02.08.2013, the circumstances and his absence during the whole of search and seizure period. in the given circumstances, even this so called statement has absolutely no evidentiary value, on fact, as well as in law. (iv) Search proceeding against SCS (a) It appears that your observation is also based on the alleged information gathered in course of search action against one SCS. (b) The Assessee was never confronted with SCS nor even aware about the information/material alleged to have been gathered during course of the search nor any copies of such material is given. As such, material cannot be used against the Assessee in any case. Meaningful reply can be given only after being provided and others Shri Jiten K Ajmera and Others with entire material as well as after giving opportunity of cross examination. (v) BSE Data (a) It appears from the data of BSE provided that this data shows sale and purchase transactions of PIL. (b) Our preliminary observation on going through this data is as under: It is seen that the scrip was actively traded during this period. It is seen that there were multiple buyers and sellers in the market. It is seen that there was participation from all kind of cliental like retails/Corporates/Institutions. It is further seen that, in fact many parties who had purchased the shares sold by us in the market had resold in the open market. Please note this data confirms our transactions are executed through the Stock Exchange, at the prevailing market rate and same authenticates the bills cum contracts and bank statements already submitted by us in our previous submissions. (c) Screen based computerized trading mechanism, transactions of purchase and sale of shares of a particular company gets automatically concluded when offer of purchase of the shares at a particular price for a particular quantity placed by a broker on behalf of a willing purchaser is match by / accepted by another broker acting on behalf of holder of the shares who accepts to sell at that price and or vis-e-versa. The important thing is that the transaction is concluded automatically through the stock exchange mechanism on the matching parameters of price and up to that quantity only without any description / choice of the selling broker /buying broker. In fact, the very purpose behind this mechanism is to bring transparency and not to give any such discretion / choice to the brokers / clients. Most importantly, neither the selling person nor his broker is aware about who is the actual purchaser and others Shri Jiten K Ajmera and Others of the share. As such, when we sold the shares through our broker, we were not even aware about the person purchasing the shares much less we had no means to know that. (d) As such, your listing down names of various parties who supposed to have purchased the shares sold by us has absolutely no bearing on our case, as we are not at all concerned with the names of the purchasers, much less we also would not have the knowledge as to why such person purchased the said shares. Therefore, in any case, we had absolutely no concern with the alleged group purchasing the said shares, much less their reason for purchasing the same. (c) Kind attention is also drawn to the quantity of the shares, ie. to say that the quantity of the shares which were sold by us and the shares purchased by the purchasers, as shown in reason for reopening of assessment miss matches. (1) Ongoing through the list of the entities who alleged to have purchased the shares sold by us and which alleged to have been managed and owned by SCS are public limited listed companies. For example, Avance Technologies Ltd/Mahan Industries Ltd and few more. Sir, How can that be possible? We believe that public listed companies are owned by the shareholders of the said company. (g) The Assessee is least concerned with who purchased the shares and what they did of the shares purchased from the Assessee. In any case, in fact, this proves genuineness of the transaction as the purchasers have not disposed of the entire shares so as to complete the alleged circle. This is also against the theory of alleged accommodation entry propounded by the A.O.. (h) In absence of any copies of the alleged material found from the premises of SCS, no comments are offered. (i) As regards affidavits alleged to have been executed by some directors of the companies who had purchased the shares, the Assessee is least concerned with the purchaser much less their internal administration.

Even before the ld. CIT (A), assessee has filed detailed submissions for each and every point raised by the ld. AO and also pointwise rebuttal of every allegation made including the retraction affidavit filed by the family members and Shri Jasmin Ajmera, however, ld. CIT(A) has simply brushed aside all those contentions.

Regarding statement of Shri Jasmin Ajmera taken during the search operation the submissions filed by the ld. AR before us was as under:- (i) In the assessment order, there is merely a passing reference to the statement u/s. 132 (4) recorded during course of the search proceeding against Mr.Jasmin K. Ajmera. Of course, after taking note of the exhaustive reply of Mr.Jasmin K. Ajmera on this aspect, in the ultimate analysis, the A.O. does not appear to have relied upon this statement. In any case, a copy of the so called documents seized from Mr. Shirish Shah and as referred at Question 18 put to Mr. Jasmin Ajmera on 27.07.2013 was neither confronted to him nor was a copy thereof given to him at the time of taking his statement. Similarly, the statement of Jasmin Ajmera as referred at Question 6 of the statement of the Assessee taken on 28.07.2013 was not shown at the time of taking his statement. Mr. Jasmin Ajmera had, in his detailed Affidavit submitted to the A.O., already clarified this very aspect. In any case, there is no statement of the Assessee accepting any such contention. (ii) Without prejudice to the above preliminary objection, it is submitted that the said statement(s) recorded during the search on 25 to 29 July, 2013 were categorically retracted vide affidavit and others Shri Jiten K Ajmera and Others dated 02.08.2013 as the same were taken under coercion, undue influence and utter duress to the point of calling it white collar extortion. Therefore, such a statement is not a valid statement in the eyes of law and, consequently, is not binding on the person who gave the statement and least binding on any third party. The kind of mental torture Shri Jasmin Ajmera and his family had to go through is extremely disturbing. These facts were also communicated to the A.O. vide letter dated 18.10.2013 since the search proceedings continued till 25.09.2013 [Ref: Pg. Nos. 78-104 of the P.B.] It is worth mentioning here that the AO in his entire order has nowhere disputed the contents of the affidavit filed by Mr. Jasmin Ajmera. In fact, there is not even a mention about the retraction made by the Mr. Jasmin Ajmera and the Assessee. It is a settled law that if the facts as stated are not disproved or disputed by the Department then the same have to be treated as true and correct [Ref.: DevjiRavji Patel ws. Balasubramaniam, Second Income tax Officer [(1994) 210 ITR 925 (Bom)). It is equally settled that apparent is to be treated as real unless disproved (Ref.: CIT v/s. Daulatram Rawatmull [(1973) 87 ITR 349 (SC)] (iii) Further, the entire statement stood fully retracted by Shri Jasmin Ajmera in his detailed affidavits dated 02/08/2013 and 14/08/2015[Ref: Pg. Nos. 71-74 and 266292 of the P.B.), submitted to the department. Shri Jasmin Ajmera in his affidavits, has very exhaustively dealt with the entire chain of events which transpired during the course of the search, placing on record the manner in which he was pressurized, threatened and also the circumstances under which this so called confession in the form of statement was extracted from him. Shri Jasmin Ajmera has emphatically retracted from the statement/ confession so extracted. The Assessee submits that in the given circumstances, the so called statement has absolutely no evidentiary value, on fact as well as in law. In fact, nowhere in his order has the A.O. disputed the said affidavits. A retracted statement has no evidentiary value. This has now been amply clarified by the Hon'ble Supreme Court in the case of Vinod Solanki v/s. UOI- [(2008) 16 SCC 537 (SC)) [Pg. 247 to 251 of P.B.) The Assessee therefore submits that no addition can at all be made relying on the said statements.

Another important fact he has submitted that none of the regulatory authorities like SEBI, BSE, RBI etc., have taken any adverse view regarding PIL with the involvement of the assessee family. In some case SEBI has investigated and in case of few persons who have invested in shares but all of them got absolved by SAT. He has also pointed out that the entire allegation is that assessee was involved with purchasing of said shares through Shri Shirish C Shah, however, it is a matter of fact that many public listed companies and FIIs have also purchased shares of PIL through stock exchange. The total quantity of shares of PIL alleged to have been purchased by companies managed and controlled by Shri Shirish C Shah are far less than the quantities and others Shri Jiten K Ajmera and Others sold in the stock exchange. Regarding sole reliance upon alleged evidences collected in the course of search proceedings against Shri Shirish C Shah in the comments of the assessee, he has submitted that cannot be taken into consideration as same is illegal and bad in law for the following reasons:- i) The material so relied upon is found from a third party's place and not from the Assessee's place. (ii) As is self evident from the replies given in course of the assessment proceeding, as well as the submissions made hereinabove, such material has no relevance with the Assessec. (iii) In any case, even legally, no reliance could have been placed upon such material as it is not known who was author of such material, nor the Assessee was given any opportunity to cross examine such author, despite specific requests, so as to bring out the truth. (iv) Further, it is an undisputed fact that SCS was neither director nor holding any post in PIL (v) Strictly without prejudice to the above, it is submitted that - a. Without admitting, and in any case, at the most, such material merely indicates that Mr. Shah might be de fecto controlling certain companies, for which the Assessee has absolutely no concern. b. Further, according to the A.O., the material indicates that the companies alleged to have been controlled by Mr. Shah happened to have purchased shares of the same company which were sold by the Assessee. c. Transaction through screen based stock exchange mechanism at prevailing market rate. d. Majority of the shares were purchased and sold by outsiders, at the same prevailing rate, which are, admittedly accepted on genuine.

Further, the A.O., in his impugned order, has mentioned about a whole bunch of documents unearthed / seized from the premises of Shirish C. Shah who was searched by the Department, purportedly on the basis of which the additions have been made by him, though the documents based on which the impugned addition has been made, have not been categorically identified by the A.O. as far as the Assessee is concerned. Further, the Assessee during the course of assessment has explained the irrelevancy of the said documents or the inapplicability thereof to the Assessee. He also referred to the letter dated 23.02.2016 before the ld. A.O. in this regard, and submitted that the contents of which are self explanatory. Even those facts have not been disputed by the ld.AO anywhere in his order. In fact, certain documents relied on by the ld.AO were even stated to be legally inadmissible. Thus, no addition can be made in the hands of the assessee merely relying on the statements made by some third party. The ld. AO's allegation is that the price of the stocks of Prraneta Industries was rigged. However, there has been no enquiry or investigation or prosecution or even any allegation of price manipulations in this script against the Assessee or the Ajmera Family or any authority by the Securities and Exchange Board of India (SEBI) or the BSE or any other authority regulating stock markets in India. To the knowledge of the Assessee there is no such finding even in case of the brokers involved on this aspect. This fact was brought to and others Shri Jiten K Ajmera and Others the notice of the ld.AO which he has conveniently ignored to comment on. Hence, the least that could be said is that the entire allegation of the ld. AO is baseless. It is amply clear, based on the above facts and evidences, that the entire transaction is genuine. He submitted that there was no cogent reason with the ld. A.O. to treat the said transaction as bogus. As such, it prayed that the addition made by the ld. AO be deleted.

Therefore, apart from the above, he also submitted that the A.O. has not brought on record any evidence much less cogent evidence to show that the Assessee had paid any cash to Shirish C. Shah in order to obtain the alleged accommodation entries. It is a settled law that onus is on the one who alleges and not on the one who denies. Thus, if the A.O. alleges that the Assessee paid cash in order to obtain the accommodation entries then the onus was on him, and that too, very heavy, to prove these facts which has not at all been done by the A.O. in the present case. Further, it is also a settled law that the onus is on the Department to prove that a particular receipt is taxable and that it could be brought under the taxing provision. Reliance in this regard is place on the decision of the Hon'ble Supreme Court in the case of Janki Ram Bahadur Ram vs.CIT reported in (1965) 57 ITR 21.

Lastly, he submitted that Securities Appellate Tribunal, Mumbai vide judgment dated 05/10/2020 which was with respect to investigation conducted in the scrip of PIL, later on known as Aadhar Ventures India Ltd. for the period 01/01/2009 and others Shri Jiten K Ajmera and Others to 24/04/2015 wherein, the allegation was that price was artificially raised fraudulently through a trading pattern which was manipulative. The SAT in the case of Indivar Traders Pvt. Ltd. vs. Wholetime Member SEBI had held that in the instant case there was no direct evidence of operation of fraud between the assessee as a seller with that of the buyer or with other notices in the impugned order and the assessee has not contributed through LTP on the basis of one trade executed on the self-side unless connection was established with the buyer which in the instant case was lacking and thus, it was held that there was no fraudulent or unfitted facts in securities. Thus, in the case of transaction of scrip of PIL it was held that there was no fraudulent and the practice adopted. He further, reiterated that scrip of PIL was active till 2019-20 and the company was alive till 2022 and the shares were regularly traded in the stock exchange and there is no ban either by the SEBI or any action which has been taken against PIL or the persons who have sold and purchased the shares and even in some cases where there was some investigation, the SAT has clearly held that there was no fraudulent transaction between sellers and purchasers. Thus, the entire addition made by the ld. AO and confirmed by the ld. CIT(A) and the reasons given cannot be upheld.

On the other hand, ld. CIT DR after relying upon the various observation and finding of the AO as well as the ld. CIT (A), submitted that once there is a specific evidence and statement of Shri Jasmin Ajmera u/s. 132(4) regarding share transaction and corresponding cash movement and the supporting evidences in and others Shri Jiten K Ajmera and Others the form of ledger note found from Shirish Shah which corroborate his statement. In light of these materials, the retraction of Shri Jasmin Ajmera has no legs to stand upon. The retraction statement has no legal standing as per the ratio of the catena of judgments as the retraction is based on any evidence that statement was recorded under duress or that it was made under mistaken belief of facts or law. On the contrary, the evidentiary value of the statement recorded u/s 132(4) cannot be refuted as the same is backed by corroborative documentary evidences in that form of the above-mentioned ledger account and the above-referred contract notes for sale of shares. Further, the subsequent retraction of his statement by Shri Jasmin Ajmera is not valid as the statement u/s 132(4) of the Act, which actually contained specific details of share transactions and movement of cash between the assessee & Shri Shirish C Shah and was supported by corroborative evidences. On the other hand, the retraction is not backed with any cogent reasons as to why facts stated in the earlier statement were wrong nor has the assessee established that the said statement was given under pressure or coercion. The CIT (A) in para numbers 7.18 to 7.24 has lucidly addressed the issues pertaining to the retraction and has elaborated on how the retraction is not lawful. He has referred to the incident of tearing of papers by the assessee during the search proceedings which reflected the hostile and inimical attitude of the assessee He has also mentioned the DDIT's letter dated 19-11-2013 giving detailed reasons for rejecting the said retraction of the assessee. The ld. DR has also and others Shri Jiten K Ajmera and Others filed paper book containing statement of Shri Jasmin Ajmera and the ledger account showing the movement of cash with Shri Shirish C Shah which was confronted to Shri Jasmin Ajmera while recording his statement u/s. 132(4) of the Act dated 27/07/2013. She has also filed certain SEBI orders with respect to trading in respect of Aadhar Ventures Pvt. Ltd. (formerly known as PIL). Thus, it was submitted that in view of this statement of Shri Jasmin Ajmera alongwith other seized documents, it is clear that the entire transaction of shares of PIL was nothing but an accommodation entry for getting long term capital gain for the entire family. DECISION 25. We have heard rival submissions, perused the relevant material referred to before us at the time of hearing and also the relevant finding given in the impugned orders. The case of the Revenue before us to treat the long term capital gain of Rs.3,28,601/- as bogus long term capital gain as it was in the nature of accommodation entry is based on:- firstly, search conducted u/s.132 in he case of Shri Shirish  C Shah and Pranneta Industries Ltd., (PIL) (now known as Aadhar Ventures India Ltd) on 09/04/2013 wherein they were confirmed to be involved in providing accommodation entries in the form of bogus capital gain in the shares of PIL in the assessee group of concerns.  Secondly, Pranneta Industries Ltd was found to be not carrying any business activities and was not having any underlying assets.

Before dealing with the charges against the assessee by the department while treating the long term capital gain as bogus, it would be relevant to discuss the background of the assessee before us with respect of purchase of the shares of PIL. It has been stated that assessee and Ajmera family members were regular investors in equity markets having substantial portfolios in volume and value. A detail summary of investments made in hundreds of scrips has been given in the paper book. Further, there were family broking concerns and SEBI registered stock brokers of BSE and NSE since 1996 and all the family members were regularly making investments and dealing in different shares including PIL in earlier years and some of the transactions in PIL undertaken in the year 2005 and LTCG in such transaction in the shares of PIL have been accepted by the department. In so far as purchase of shares of PIL is concerned as noted in the foregoing paragraphs, assessee has subscribed to convertible warrants of PIL which was offered at Rs.2.25 per warrant when the market price of the listed share of PIL in the stock exchange was Rs.4.5 per share and the entire consideration was paid by account payee cheque. These shares were sold in two accounting years ranging from Rs. 43.90/- to Rs. 78.95/- and not all the shares were sold and almost more than 25% shares of PIL were still held by the assessee. Further, all the documents relating to purchase and sales were filed before the ld. AO and ld. CIT (A).

Before us, it has been pointed out that from the bare perusal of the ledger account it is seen that there is no name mentioned of any of the members of the assessee’s family or any concern belonging to Ajmera family. One of the biggest allegations of the assessee against the department was that the so called seized documents found from Shri Sirish C Shah which was put to Shri Jasmin Ajmera on 27/07/2013 was neither confronted to him nor copy was given to him at the time of taking the statement. This aspect has been challenged and objected by Shri Jasmin Ajmera before the Investigation Wing immediately after five days after the recording of the statement on and others Shri Jiten K Ajmera and Others 02/08/2013, whereby Shri Jasmin Ajmera has filed retraction affidavit stating the entire facts and the circumstances in which the statement was recorded and no such document was even confronted or made to be read by him. Apart from stating that statement was taken under traumatized conditions and coercion and threat, it was stated that the statement was not even provided to him on which his signatures were taken and also most of the questions and answers were already pre-fabricated and prepared. Thereafter, there were various communications by Shri Jasmine Ajmera and other family members with the department asking for the copies of documents seized and retracting that statement given was under extreme duress and pressure to sign on the pre drafted/ prepared answers. It has also been stated that before the Investigation Wing on 06/08/2013 a detailed response was filed by Shri Jasmin Ajmera and none of these retraction affidavits or letters / submissions were dealt with by any of the authorities and nowhere has it been pointed that in what circumstances the affidavits filed by the family members have been rejected. The assessee kept on requesting that opportunity should be given to explain the stand of the Shri Jasmin Ajmira who has given the statement. Thereafter, additional detailed retraction affidavit of Shri Jasmin Ajmera running into 25 pages giving point wise clarification and explanation to each and every answer and material was filed before the AO which again has been rejected summarily without even calling him for cross examination or asking him about any details. Before us many contradictions have been pointed out and others Shri Jiten K Ajmera and Others between various questions which were asked and the answers which have been recorded in the said statement. The details of these contradictions have been filed before us in the written submissions which are very exhaustive and we do not deem necessary to elaborate. Even during the course of assessment proceedings, assessee filed another retraction affidavit, the contents of which we have already reproduced in the earlier part of the order. But none of these retractions and affidavits or objection has been taken into consideration except for summary rejection by the investigation wing without dealing with the points raised therein.

Now here is a situation where there is a statement on oath recorded by search party of Shri Jasmin Ajmera wherein in answer to certain questions he has admitted that he has dealt with Shri Sirish C Shah and has paid cash for taking some bogus long term capital gain and on the other hand there are various retraction affidavits, representations and letters submitted before the Investigation Wing immediately after the search and also retraction filed before the ld. AO giving rebuttal and clarification for every question and answer given and also stating that statement taken was under huge pressure and pre fabricated answers and question and he was not shown the document at the time of statement. Once the assessee or Shri Jasmin Ajmera alongwith other family members have retracted statement and have given pointwise rebuttal and details for each and every question in the additional affidavit dated 14/08/2015 and also before the Investigation Wing on August 2013, then at and others Shri Jiten K Ajmera and Others least department should have called Shri Jasmin Ajmera or all those persons who have filed their affidavits either to cross examine them or seek explanation of each and every aspect narrated in the affidavit and the submissions made. They should have called upon him and examined or ask them to testify the retraction made through averment made on oath. All these averments made on oath in the affidavits and the submissions at least should have been dealt either by the Investigation Wing or by the ld. AO. Once the assessee has made several representations and filed various explanation and submissions and retraction, then it was incumbent upon the ld. AO to cross examine them and as to why the earlier statement given should not be taken as a correct statement. This is a serious flaw made by the Revenue authorities, which has been frowned upon the Hon’ble Supreme Court in the case of Vinod Solanki and Union of India & Anr. (2008) 16 SCC 537, wherein it has held that if any confession has been recorded by force, coercion or threat which has been retracted thereafter, there is a necessity for corroboration. The Hon’ble Supreme Court made following observations:- “2.3. It is a trite law that evidence brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidence, which would lend adequate assurance to the court that it may seek to rely thereupon. We are not oblivious of some decisions of this Court wherein reliance has been placed for supporting such contention but we must also notice that in some of the cases retracted confession has been used as a piece of and others Shri Jiten K Ajmera and Others corroborative evidence and not as the evidence on the basis whereof alone a judgment of conviction and sentence has been recorded. (See Pon Adithan. Marcotics Control Bureau). “31. Leave apart, even if the officers of the Enforcement intend to rate action against the deponent of a statement on the basis of his inculpatory statement which has been subsequently repudiated, the officer concerned must take both the statements together, give a finding about the nature of the repudiation and then act upon the earlier inculpatory one. If on the other hand, the officer concerned bisects the two statements and make use of the inculpatory statement alone conveniently bypassing the other such a stand cannot be legally permissible because admissibility, reliability and the evidentiary value of the statement of the inculpatory statement depend on the benchmark of the provisions of the Evidence Act and the general criminal law.” 29.1. The Hon’ble Supreme Court has also referred to another judgment of the Hon’ble Supreme Court in the case of KTMS Mohammed and Anr. vs. Union of India reported in (1992) 3 SCC 178, a reference was made to para 31 and 34 of the order which reads as under:- 34 But suffice it to say that the core of all the decisions of this Court is to the effect that the voluntary nature of any statement made either before the Custom Authorities or the officers of the Enforcement under the relevant provisions of the respective Acts is a sine qua non to act on it for any purpose and if the statement appears to have been obtained by any inducement, threat, coercion or by any improper means that statement must be rejected brevi manu. At the same time, it is to be noted that merely because a statement is retracted, it cannot be recorded as involuntary or unlawfully obtained. It is only for the maker and others Shri Jiten K Ajmera and Others of the statement who alleges inducement, threat, promise, etc. to establish that such improper means has been adopted. However, even if the maker of a the statement fails to establish his allegations of inducement, threat, etc. against the officer who recorded the statement, the authority while acting on the inculpatory statement of the maker is not completely relieved of its obligations in at least subjectively applying its mind to the subsequent retraction to hold that the inculpatory statement was not extorted. It thus boils down that the authority or any court intending to act upon the inculpatory statement as a voluntary one should apply its mind to the retraction and reject the same in writing. It is only on this principle of law, this Court in several decisions has ruled that even in passing detention order on the basis of an inculpatory statement of a detenu who has violated the provisions of the FERA or the Customs Act, etc. the detaining authority should consider the subsequent retraction and record its opinion before accepting the inculpatory statement lest the order will be vitiated."

The Hon’ble Supreme Court after referring to series of judgments on this point have finally held that, “evidence brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidence which would lend adequate warrants to the Court for relying thereupon. The person accused of committing offence is not accepted to prove to be held (confession) obtained from him by any inducement or a promise by a person in authority. The burden is on the prosecution to show that confession is voluntary in nature and not obtained as outcome of threat etc., The Court is always obliged to take into consideration the pros and cons of both confession and detection made by and others Shri Jiten K Ajmera and Others the accused. The assessee’s failure to discharge the burden to prove that he made confession in threat or coercion would arise only if burden was on him. If the burden is on the appropriate authority it was now the authority to prove the said fact”.

This salutary principle of the Hon’ble Supreme Court has to be followed even in the case of statement recorded by the Investigation Wing of the Income Tax department. If the entire basis for drawing adverse inference against the assessee is based on the statement of Shri Jasmin Ajmera, then same has been retracted immediately within 5 days of search not only once but all also on several occasions even highlighting the discrepancies and comments upon every question and answer. Assessee has even narrated the facts and sequence and also the circumstances of trauma cast upon Shri Jasmin Ajmera before recording his statement. This has been stated several times before the Revenue authorities and even before us. If the retraction has been made on the ground that there was extreme coercion, threat and pressure on Shri Jasmin Ajmera and Family members continuously for 4 days and most importantly when there was an allegation that the questions and answers were pre- prepared and he was not shown the documents and he and his family members were forced to sign because of the unceasing pressure on Jasmin Ajmera continuously for 48 hours during the search, then onus all the more was on the Investigation Wing and the Assessing Officer to verify the contention of the retraction of Shri Jasmin Ajmera and he should have been put to and others Shri Jiten K Ajmera and Others cross examine once again as to why he is retracting his earlier statement. In such a situation as held by the Hon’ble Supreme Court, it is very difficult to treat the inculpatory statement of Shri Jasmin Ajmera against assessee especially in light of other facts and material of the case. Though assessee cannot prove that statement was taken under duress and coercion, but once this fact of statement was recorded under pressure or coercion has been stated or alleged, then ld. AO or Investigation Wing all the more should have negated this allegation made by the person who has given the statement and he should have been cross examined or at least asked upon to substantiate the retraction. If this process has not been followed then as per the principle laid down by the Hon’ble Supreme Court, the statement cannot be the basis of any adverse inference.

Now coming to the alleged ledger account found from the possession of Shri Shirish C Shah, it is seen that there is no name mentioned of any Ajmera family, however, even if such a document found from the possession of third party (i.e. Shri Shirish C Shah) then it is equally imperative, whether any opportunity of cross examination was given to the assessee when assessee has specifically asked before the ld. AO and Investigation Wing to cross examine him about the veracity of the documents. It is also not culled out whether Shirish S Shah was questioned about assessee or Ajmera family that he has taken any cash from them as stated in the ledger or any question about ledger or any where he has explained the alleged transaction. To negate the authenticity of the said document, it has been pointed and others Shri Jiten K Ajmera and Others out that he has also mentioned transaction of scrip of ‘Avans’ which assessee or any of family members has never dealt with at all. Apart from that, Shri Shirish C Shah has mentioned many other scrips which assessee has not even dealt with, for instance even as noted by the ld. AO with regard to scrip of Channel Guide India Ltd. If the said document found from third party is used against assessee then it was imperative that at the first instance when assessee asked for cross examination of Shri Shirish C Shah should have been provided to the assessee. This is more so relevant because later on Shrish S Shah has retracted with his statement and this fact was brought on record that he retracted from his statement before the Investigation Wing and before the department and nowhere it has been brought on record what happened with such retraction or fate of assessments in his case. Under these circumstances it is very critical, whether such document should at all be used against the assessee when there are discrepancies in the figures noted therein and mention of the name of the scrips which assessee has never dealt. If such ledger account has been prepared by a third party wherein assessee and his family members have been implicated and if assessee has denied any such transaction, then it was incumbent upon the department to cross examine such person from whose possession document was found. Thus, without cross examination, such documents loses its evidentiary value in view of the judgment and principle laid down by the Hon’ble Supreme Court in the case of Andaman Timber and others Shri Jiten K Ajmera and Others Industries reported in (2016) 15 SCC 785 and catena of other judgments which has been given before us.

One very important point which has been raised by the ld. DR before us that there are series of SEBI orders in respect of scrip of PLI. With respect to three SEBI orders referred by the ld. DR before us, analysis of all these orders has been filed before us by the ld. Counsel. From all these SEBI reports it is seen that neither the name of the assessee nor the family members or any of the brokers with whom assessee had undertaken the sale transaction was part of the investigation report of the department on the basis of which SEBI had initiated enquiry. SEBI has taken action against certain persons who have dealt with the selling of shares post information given by the Investigation Wing, but nowhere SEBI has treated assessee or his family members as suspected persons having indulged into alleged price manipulation in the shares of PIL or sold the shares to dubious or controlled entitles of Shrish S Shah. One very important fact which has been brought on record that in the SEBI report which has divided the transaction in three categories i.e. patch 1 - period from 01/01/2009 to 01/08/2011; patch 2 – period from 02/08/2011 to 30/02/2011 and patch-3 period from 01/01/2012 to 24/12/2015, wherein various noticees were roped in who were involved in sale and purchase of shares, it is seen that in most of the cases SEBI has dropped the proceedings against various noticees and in some cases wherein adverse report was given, then in all these cases the Security Appellate Tribunal have quashed the order of the SEBI. Before us few SAT and others Shri Jiten K Ajmera and Others orders have been cited wherein the issue of charge of rigging in shares of PIL was found not tenable in law in absence of any direct or any cogent material. Once such reference was made to Umang Dhanuka vs. SEBI reported in 129 taxmann.com 90 (SAT Mumbai). A reference was also made to another SAT order before us in the case of Indivar Traders Pvt. Ltd. vs. SEBI (supra) which was in respect of investigation conducted in the scrip of Aadhar Ventures Pvt. Ltd., erstwhile PIL between the period 01/01/2009 to 24/04/2015. It was a case of one of the trader and investor in the capital market who has purchased and sold shares of PIL. In the said Order Court held after referring to the judgment of the Hon’ble Supreme Court in the case of SEBI vs. Kishore Ajmera (2016) 6 SCC 368 held that the quantity of shares traded by itself does not indicate manipulation unless collusion with others is found. If there is no direct evidence of operation of fraud between the assessee as a seller with that of the buyer or with other notices in the impugned order, no adverse inference can be drawn. Thus, we also hold that it is imperative that there has to be some categorical finding that assessee was involved in any kind of fraudulent practice while selling the shares and here in this case all of the SEBI orders which has been referred, there is no reference of assessee or assessee’s family.

Another important fact is that at no point of time SEBI has banned the trading of PIL during the relevant period as stated above, the shares of PIL continued to be traded till 2019-20 and there was no such ban on trading. If the shares were traded and others Shri Jiten K Ajmera and Others openly in the Bombay Stock Exchange and has been sold online system of Stock Exchange and in one of the cases of the buyer for the shares action taken by the SEBI has been reversed by the SAT, then, transaction of sale of shares in the hands of the assessee cannot be held to be non-genuine. Accordingly, the SEBI orders referred by the ld. DR does not support the case of the Revenue because in none of the orders any reference has been made to the assessee or assessee family and even such orders passed by SEBI have been quashed by the SAT.

Now coming to the merits of the case we have already noted that all the family members and the assessee were regular investors who had invested in several scrips including that of Pranneta Industries Ltd., and once these shares were allotted through convertible warrants in the year 2009 and were sold in AY 2010-11 on the price quoted in the stock market and on the stock exchange online screen based mechanism after paying STT and duly supported by statutory contract notes, it cannot be held that sale proceeds are bogus.

Another important fact is that ld. AO has not doubted the purchase of the shares and if the shares purchased in the earlier year have been accepted and if the part of the said shares have been sold during the year and all the documents for online sale and demat account, brokers note, etc., has been filed, it cannot be held that the sale transaction is bogus especially when the scrip was actively traded during its period and there were multiple buyers and sellers in the markets including big FIIs and and others Shri Jiten K Ajmera and Others there was participation of large corporate clients, then it cannot be held that only few persons have traded in this scrip for malafide benefits and all those persons or FIIs or entities who have dealt in purchase and sale of the scrips have done any kind of bogus long term capital gain or short term capital gain.

Thus, when the scrip of PIL at the relevant period was actively traded en masse on BSE and when there was no ban on trading on this scrip by the regulatory authority, then any such transaction by the assessee, (when purchases has been accepted), sale cannot be held to be bogus. The factors like assessee was regular investor and dealt with hundreds of scrips worth several crores which are not in doubt then sale on one scrip for such a petty amount of Rs.3,28,601/- goes in favour of the assessee and it cannot be held to be bogus. Another crucial point as discussed above that in some of the case of investors and sellers where SEBI has passed adverse orders, has been reversed by SAT also goes to prove that there was no substance found in alleged mal practice in selling of shares. All the documents relating to purchase and sale has not even been discussed or commented upon by the AO and CIT (A). Only reliance was placed on the statements of Jasmine Ajmera and piece of document found from third party, which we have dealt above that same cannot be relied upon for the reason given above. Lastly, whether the PIL had any worth to justify the trading of shares at Rs. Rs 40 to Rs. 70, the same is immaterial, because there was no ban by SEBI or BSE in trading of shares and this scrip was traded freely in stock exchange even by big and others Shri Jiten K Ajmera and Others corporate entities and FIIs. All these factors of preponderance of probabilities go in favour of the assessee.

Factors favoring the department stands diminished in light of the failure to examine Jasmine Ajmera and his family members who have retracted the statement by several affidavits highlighting the grievance and shortcomings and proper rebuttal of each point, the significance and evidentiary value of the statement gets diminished, when they were not examined post retraction and rebuttal, in line with the judgement of Hon’ble Supreme Court in Vinod Solanki and Union of India & Anr. (supra) and KTMS Mohammed and Anr. vs. Union of India (supra). Lastly, material found from the possession of the third party also gets negated for the reasons mentioned above that it contained certain transaction in the name of assessees which was not undertaken and when it was denied in retraction and rebutted several times, then it was not put to cross examination from the person from whose possession it was found when he himself has retracted. Thus, the entire edifice on which the sale and resultant LTCG has been treated as bogus, disintegrates.

Thus, in view of our aforesaid observations and the findings, we are unable to take into cognizance the reasons given by the Revenue for treating the long term capital gain of Rs.3,28,601/- as bogus long term capital gain. Accordingly, the addition made by the ld. AO is deleted and we hold that assessee is entitled for exemption of long terms capital gain of Rs.3,28,601/-. and others Shri Jiten K Ajmera and Others 40. In so far as addition of notional estimated addition made by the by the ld. AO of Rs.17,249/- u/s.69C on account of estimated unexplained expenses for getting the long term capital gain, since we have held that claim of LTCG is allowable and it is not bogus in terms of our finding given above, the notional addition is also deleted.

As admitted by both the parties, the facts and the finding given in all other assessees are exactly same, therefore, our finding given in the aforesaid appeal will apply mutatis mutandis in all these appeals also and accordingly, the additions in all the appeals as incorporated in chart at para 3 are deleted.

In the result, all the appeals of the assessee are allowed. Order pronounced on 13th January,2025.