CHETNA SURESH GADA,MUMBAI vs. ITO 18 (1)(3), MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-53, Mumbai ( in short ‘the CIT(A)’) dated 05/04/2019 for the assessment year 2014-15.

The assessee in appeal has assailed the findings of CIT(A) in confirming the of Rs.7,72,167/- under section 69C of the Income Tax Act, 1961 ( in short ‘the Act’) on account of commission allegedly paid on procuring accommodation entries.

Shri Bhadresh Doshi, appearing on behalf of the assessee narrating the facts of the case submitted that the assessee offered long term capital gain of Rs.1,54,43,335/- on sale of shares of M/s. Parag Shilp Investment Ltd. under Income Declaration Scheme 2016 ( in short ‘IDS 2016’). The Assessing Officer in scrutiny assessment proceedings for assessment year 2014-15 accepted that the long term capital gain on sale of shares of PS IT Infrastructure and Services Ltd.( formerly known as M/s. Parag Shilp Investment Ltd.) in financial year 2013-14 relevant to assessment year 2014-15 was declared by the assessee under IDS-2016, however, the Assessing Officer held that the assessee has declared bogus LTCG on Penny Stock Scrip of M/s. Parag Shilp Investment Ltd. The Assessing Officer made addition under section 69C of the Act on account of alleged commission paid by the assessee to the bogus entry provider. The Assessing Officer estimated the commission @5% on the long term capital gains and made addition of Rs.7,72,167/-. The ld.Authorized Representative of the assessee submitted that for making the aforesaid addition the CIT(A) placed reliance on the statement of Divesh Upadhyay and Vipul Bhatt, the alleged accommodation entry providers. The ld.Authorized Representative of the assessee vehemently argued that no reliance can be placed on the statements of aforesaid persons as they were neither related to the transactions carried out by the assessee nor the assessee was afforded opportunity to cross examine the said persons whose statements were used for making addition in the hands of assessee. The ld.Authorized Representative of the assessee contended that the assessee again made request for cross examination of the alleged entry providers before the CIT(A). The request of the assessee was rejected by the CIT(A). The ld.Authorized Representative of the assessee further contended that Divesh Upadhyay in his statement recorded under section 131 of the Act admitted to have charged commission @ 7% and Vipul Bhatt in his statement recorded under section 132(4) of the Act admitted to charging the commission @ 4% for providing accommodation entry penny stocks. However, it is not emanating from the assessment order that the rate of commission stated by the aforesaid persons in their respective statement is in respect of any specific scrip. The statement is general and hence, the rates admitted by the aforesaid persons cannot be applied on penny stock scrip traded by the assessee.

Per contract, Shri Sanjay J. Sethi, representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld.Departmental Representative submitted that the assessee under IDS-2016 had declared only bogus long term capital gain. The commission paid to entry providers for procuring accommodation entries in respect of said LTCG on sale of shares was not declared by the assessee. Therefore, during the assessment proceedings only addition in respect of undeclared expenditure was made. The ld.Departmental Representative submitted that the assessee has not denied payment of commission and has only disputed the rate of commission.

I have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee has challenged the addition in respect of alleged payment of commission by raising three contentions:

A perusal of the assessment order shows that the statement of Divesh Upadhyay and Vipul Bhatt, alleged bogus entry providers were recorded under section 131 and 132(4) of the Act, respectively. The Assessing Officer has estimated rate of commission at 5% on the basis of statement of aforesaid persons. Though it is not emanating from the assessment order that the assessee asked for cross examination of the aforesaid persons, however, in the impugned order the CIT(A) in para 4.3 has recorded the fact of assessee’s request for cross examination of the aforesaid persons. The request of the assessee to cross examine the aforesaid persons was rejected by the CIT(A). It is further observed that the Assessing Officer while placing reliance on the statement of aforesaid entry providers has nowhere mentioned that these entry providers were instrumental in providing accommodation entries in respect of penny stock of PS IT Infrastructure and Services Ltd. to the assessee or any other persons. Thus, addition by placing reliance on the statement of aforesaid persons is flawed. The Assessing Officer is not bound by any technical rules of the law of evidence. He can collect the material to frame assessment by way of private enquiries. However, the principle of natural justice demands that if he desires to use the material so collected, the Assessing Officer must confront the collected evidence to assessee and seek his comments. If any statement is recorded, which Assessing Officer intends to use against the assessee, an opportunity should be granted to the assessee to cross-examine the person making the statement. The Hon'ble Supreme Court of India in the case of Andaman Timber (supra) has held that if opportunity for cross examination is not provided to the assessee any addition made on such statement is unsustainable in law.

In the present case, the Assessing Officer has alleged that the assessee has paid commission on bogus penny stock transactions. Onus is on the Assessing Officer to prove that the assessee has paid commission to bogus entry providers. It is trait law that no addition can be made on mere suspicion howsoever strong it may be unless it is supported by corroborative evidence. Addition on mere surmises, suspicion and conjectures would fail the test of judicial scrutiny. The Hon’ble Apex Court in the case of Umacharan Shah & Bros. Vs. CIT reported as 371 ITR 271 held that suspicion howsoever strong, cannot take the place of evidence. The Hon’ble Supreme Court of India in the case of CIT vs. Daulat Ram Rawat Mull reported as 87 ITR 349 held that the onus to prove that the mistake apparent is not read is on the party who claims it to be so. Here it is the Assessing Officer who is alleging that the assessee has paid commission to bogus entry provider. The burden is on the Assessing Officer to adduce evidence to prove payment of alleged commission to bogus entry provider. The Assessing Officer has failed to discharge onus cast upon him. The addition under section 69C of the Act has been made on suspicion and conjectures without there being any cogent evidence. Thus, in the light of the facts of the case and the law laid down by the Hon’ble Apex Court, the impugned order is set aside and the appeal by the assessee is allowed.

In the result, appeal by the assessee is allowed. Order pronounced in the open Court on Monday the 22nd day of February, 2021.