SHRI HASMUKHLAL INDERCHAND RANAWAT,MUMBAI vs. ITO 18(1)(4), MUMBAI

आयकर अपीलीय अिधकरण “ए” �ायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI माननीय �ी अमरजीत िसंह, �ाियक सद� एवं माननीय �ी मनोज कुमार अ�वाल ,लेखा सद� के सम�। BEFORE HON’BLE SHRI AMARJIT SINGH, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM (Hearing through Video Conferencing Mode) आयकरअपील सं./ (िनधा�रण वष� / Assessment Year: 2014-15) Shri Hasmukhlal Inderchand Ranawat Income Tax Officer-18(1)(4) बनाम/ Room No.203, 2nd Floor 32/33, Dagina Bazar Mumbadvi Road, Mumbadevi Earnest House, NCPA Marg Vs. Mumbai-400 002. Nariman Point, Mumbai-400 021. �थायीलेखासं./जीआइआरसं./PAN/GIR No. AACPR-2925-E (अपीलाथ�/Appellant) (��थ� / Respondent) : Assessee by : Shri Rajeev Khandelwal-Ld. AR Revenue by : Shri Sunil Deshpande-Ld. DR सुनवाई की तारीख/ : 03/12/2020 Date of Hearing घोषणा की तारीख / : 19/02/2021 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 contest the order of Ld. Commissioner of Income Tax (Appeals)-29, Mumbai [CIT(A)], Appeal No.CIT(A)-29/625/ITO-18(1)(4)/2016-17 dated 10/04/2019. The assessment was framed by learned Assessing Officer u/s 143(3) vide order dated 30/12/2016.

3. It is admitted position that the facts as well as issues in this appeal are pari-materia the same as in the case of related assessee namely Smt. Chhaya Hasmukhlal Ranawat V/s ITO (ITA No.3278/Mum/2019) which has been adjudicated by this very bench vide order dated 03/02/2021. During the course of hearing, both the sides converged on the point that our adjudication in shall, mutatis- mutandis, apply to this appeal also. In the said background, we proceed to adjudicate the appeal in the subsequent paragraphs. Proceedings before Ld. AO 4.1 While framing an assessment u/s 143(3) vide order dated 30/12/2016, the assessee was denied exemption u/s 10(38) on certain Long-term capital gains (LTCG) earned on sale of shares of an entity namely M/s Sunrise Asia Limited (SAL). The sale proceeds of these shares were ultimately added to the assessee’s income as unexplained cash credit u/s 68 and the estimated commission allegedly paid against these transactions was added as unexplained expenses u/s 69C of the Act. 4.2 In support of these transactions, the assessee furnished sale contract notes issued by the brokers, demat statement and bank statements evidencing movement of shares from assessee’s account as well as receipt of sale proceeds through banking channels. In support of purchase transactions, copy of allotment advice and bank statement highlighting payment of purchase consideration through banking channel was also enclosed. On the strength of these documents, the assessee maintained that the transactions were genuine in nature and eligible for exemption u/s 10(38). 4.3 However, in the background of investigation carried out by Kolkata / Mumbai investigation wing in the matter of penny stocks, it was alleged by Ld. AO that gains were pre-arranged, premeditated and bogus. The true of nature of such transactions lacked commercial contents, being artificially structured transactions entered into with sole intent to evade taxes. The aim of the scheme was to route the unaccounted money of beneficiaries as exempt income in the garb of LTCG by showing sale of shares of premeditated scrips on recognized stock exchanges. After making preferential allotment, the price of the shares would be rigged up and jacked up through circular trading by cartel of brokers acting in concert. This would be managed by the operator of the scrip which would manage overall affairs of the scheme. During the investigation, statements of various operators, entry providers and stock brokers were recorded wherein the said facts of their engagement in providing accommodation entries in the form of Long-Term Capital Gains (LTCG) / Short-Term Capital Losses (STCL) were admitted. 4.4 During search & seizure action u/s 132 in the case of Shri Anil Agarwal, director of M/s Comfort Securities Ltd. (a registered stock broker) and his group entities, his statement was recorded on 12/04/2015 u/s 132(4). In the said statement he admitted to be helping various persons in obtaining accommodation entries. He also admitted that he provided such entries with regard to the shares of M/s Sunrise Asia Limited (SAL) besides various other concerns. In the statement, he explained the modus operandi adopted by him with a view to provide bogus LTCG / STCL. Similar statements were recorded from various sub-brokers of Kolkata who admitted to be indulging in similar activity of providing accommodation entries in lieu of commission. 4.5 Upon perusal of financial statements of M/s SAL, it was noted that its net worth was not significant and it incurred losses in few years. The price movement of shares reflected phenomenal increase over a short period of time which was not supported by company’s fundamentals or genuine factor. It was alleged that the prices were rigged in a pre- planned systematic manner by conducting limited trades and with miniscule volume. 4.6 As per the investigation finding, many of these entities were stated to be paper entities being controlled by one Shri Vipul Bhatt. His statement was recorded u/s 132(4) during search operations wherein he admitted to be acting as accommodation entry provider. He also admitted that M/s SAL was paper company which was being used to provide bogus accommodation entries to various beneficiaries through various intermediaries. He also stated the modus operandi, brokers involved and the name of the persons used as exit providers. 4.7 In the background of all these facts, the assessee was examined on oath u/s 131 on 16/12/2016 which is extracted at para-19 of the assessment order. However, the assessee maintained that the shares were sold through stock exchange. The detail of investments made by him was also elaborated. The investment in M/s Santoshima was stated to be made in preferential allotment on the basis of advice given by her brother. The assessee denied having obtained any accommodation entry in the scrip of M/s SAL and also denied having paid any cash for the same. 4.8 Finally, in the light of aforesaid facts & findings, a conclusion was drawn by Ld. AO that the assessee resorted to pre-conceived scheme to procure LTCG by way of price difference in share transactions which was not supported by market factors. The commutative event in transactions would reveal that the same were devoid of any commercial nature and fell in realm of not being bona-fide and the LTCG so earned was not allowable. The assessee failed to discharge the onus of proving the unusual rise and fall of shares prices to be natural and based on the market forces. The stated transactions were alleged to be closed circuit transactions & structured one. Though the net-worth of M/s SAL was negligible but the share prices were artificially rigged to unusual high levels. 4.9 Ultimately, the assessee was denied exemption u/s 10(38) and the sale proceeds as received by the assessee was added to his income as unexplained cash credit u/s 68. The assessee was saddled with another addition u/s 69C on account of commission allegedly paid against these transactions. Proceedings before Ld. CIT(A) 5.1 Before Ld CIT(A), the assessee maintained that the findings of investigation wing and the observations of Ld. AO were general observation without any specific reference to the transactions of the assessee. These findings had no connection or relation with assessee’s case and do not have direct evidentiary value. The adverse statements being relied upon by Ld. AO were never confronted to the assessee nor any opportunity of cross-examine the person making those statements was ever provided to the assessee. The opinion formed by Ld. AO was without any basis. The stock prices fluctuate widely in the secondary stock market and the prices would be determined by market forces. There was no reference to assessee in the statement made by Shri Anil Agarwal u/s 132(4). The assessee never entered into transactions with any of these parties making the adverse statement. Further, the statement would have no value unless the cross examination of persons making those statements was provided to the assessee. The attention was drawn to the fact that the shares were sold in online mechanism i.e. BOLT of BSE which is monitored by Bombay Stock Exchange. The assessee also denied having any link with Shri Vipul Vidur Bhatt since the shares were sold in online mechanism through authorized stock broker of BSE. It was submitted that the allegation of price manipulation was based on mere suspicion and guess work without any basis or evidence on record. The attention was also drawn to the subsequent retraction statement made by Shri Vipul Vidur Bhatt. Rather, the assessee prima-facie discharged the onus to prove the genuineness of acquisition and sale of shares and the transactions were genuine transactions. To disregard the same, there must be something more than mere suspicion to support the assessment as per the decision of Hon’ble Apex Court in Dhakeshwari Cotton Mills Ltd. V/s CIT (26 ITR 775). The assessment should not be based merely on suspicion or guess work but on legitimate material from which reasonable inference of income could have been drawn. In the said background, the additions so made by Ld. AO were vehemently contested. 5.2 However, the said arguments could not convince Ld. CIT(A) who chose to confirm the action of Ld. AO by observing that the assessee has mis-utilized the provisions of Sec.10(38). None of the parameters which were essential for increase in price of shares was present. The Ld. AO established the manipulation in trading of shares as it was categorically admitted by the key persons that M/s SAL was a penny stock and its prices were rigged to provide bogus LTCG to various beneficiaries. Finally relying upon the findings of Ld. AO, the impugned additions were confirmed. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 6. After going through factual matrix as enumerated in the preceding paragraphs as well as after perusal of orders of lower authorities, we find that the facts as well as issues in this appeal are pari-materia the same as in the case of related assessee namely Smt. Chhaya Hasmukhlal Ranawat V/s ITO (ITA No.3278/Mum/2019) which has been adjudicated by this very bench vide order dated 03/02/2021. During the course of hearing, it was admitted position that adjudication in shall, mutatis-mutandis, apply to this appeal also.

7. We find that the whole basis of disregarding these transactions is the findings rendered by investigation wing, Kolkata merely on the basis of statement of various operators, entry providers and stock brokers including the statement of Shri Anil Aggarwal. It is noteworthy that that the assessee has not been named in any of the statement made by any of these persons rather the basis of additions is the general statement that the shares of M/s SAL were used to provided bogus LTCG / STCL. More so, all these statements are not backed up any cogent corroborative material on record to establish the assessee’s involvement in price rigging of shares of M/s SAL. Similar is the statement of Shri Vipul Bhatt which is general in nature without naming the assessee or establishing her involvement in obtaining bogus LTCG. The Ld. AO has nowhere established the involvement of the assessee in price rigging or price manipulation. No collusion between the assessee and alleged entry providers or operators is shown to have existed. Another noteworthy point is that no opportunity to cross-examine the persons making adverse statement was provided to the assessee despite being specifically pointed out before lower authorities. There is no admission or evidence based finding that any cash got exchanged between the assessee and any of the alleged bogus entities. It is trite law that no additions could be made merely on the basis of suspicion, conjectures or surmise. The addition thus made purely on the basis of third-party statement recorded at the back of the assessee could not be sustained in the eyes of law unless the same are confronted to the assessee and the same are backed by any corroborative material. No effective investigation is shown to have been carried out by Ld. AO to dislodge the assessee’s claim by bringing on record cogent evidences as well as confronting the same. However, except for general allegations as narrated in the investigation wing report, there is no evidence which would link assessee’s involvement in jacking up the prices of the shares with a view to earn artificial gains. The Hon’ble Apex Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. The proposition that that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law stem from the decision of Hon’ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151) wherein it was held that the suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). The additions made on mere presumptions could not be sustained and there must be something more than mere suspicion to support the assessment as per the decision of Hon’ble Apex Court in Dhakeshwari Cotton Mills Ltd. V/s CIT (26 ITR 775). The assessment should not be based merely on suspicion or guess work but on legitimate material from which reasonable inference of income could have been drawn.

8. Another aspect of the matter is that the additions have been made u/s 68 which was not applicable in view of the fact that sale transactions took place through recognized stock exchange and the money was received in settlement through banking channels. The assessee had delivered the shares from her demat account to the broker, who, in turn, paid sale consideration to the assessee. Therefore, the source of credit received in the bank account could not be held to be unexplained unless it was established that assessee’s own money was routed in her bank account in the garb of LTCG.

7. As against the assessee’s position, the primary material to make additions in the hands of assessee is the statement of Shri Vipul Bhat and the outcome of search proceedings on his associated entities including M/s SAL. However, there is nothing on record to establish vital link between the assessee group and Shri Vipul Bhat or any of his group entities. The assessee, all along, denied having known Shri Vipul Bhat or any of his group entities. However, nothing has been brought on record to controvert the same and establish the link between Shri Vipul Bhat and the assessee. The opportunity to cross-examine Shri Vipul Bhat was never provided to the assessee which is contrary to the decision of Hon’ble Supreme Court in M/s Andaman Timber Industries V/s CCE (CA No.4228 of 2006) wherein it was held that not allowing the assessee to cross-examine the witnesses by the adjudicating authority though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principal of natural justice because of which the assessee was adversely affected. The whole basis of making the addition is third party statement without there being any tangible material. It is trite law that additions merely on the basis of suspicious, conjectures or surmises could not be sustained in the eyes of law as held by Hon’ble Supreme Court in Omar Salay Mohamed Sait V/s CIT (1959 37 ITR 151). The suspicion however strong could not partake the character of legal evidence as held by Hon’ble Supreme Court in Umacharan Shaw & Bros. V/s CIT (1959 37 ITR 271). Therefore, we find that onus as caster upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and various entities of Shri Vipul Bhat. We find that the whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue.

9. The fact that the assessee could not produce the concerned person of M/s SAL was rightly controverted by submitting that the aforesaid entity was not under the control of the assessee and the assessee was under no obligation to do so. The existence of M/s SAL is beyond doubt since it was a listed corporate entity and secondly, it was subject matter of scheme of amalgamation u/s 391 to 394. The scheme of amalgamation was duly been approved by Hon’ble Bombay High Court. Therefore, the existence of the said entity could not be doubted, in any manner.

, to that extent, stand allowed. The facts as well as issues are pari-materia the same in the present appeal. No distinguishing feature could be pointed out by the revenue. In view of the forgoing, it could very well be said that onus casted upon revenue to corroborate the impugned additions by controverting the documentary evidences furnished by the assessee and by bringing on record, any cogent material to sustain those additions, could not be discharged by the revenue. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said parties. As against this, the assessee’s position that that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue.

10. Finally, going by the factual matrix and respectfully following the earlier view of coordinate bench in the cited order, we are of the considered opinion that the additions thus made by Ld. AO and confirmed by Ld. CIT(A) are not sustainable in the eyes of law. Therefore, we are inclined to delete the same. Consequentially, the addition of estimated commission also stands deleted. The ground stand allowed accordingly.

11. Ground numbers 3 & 4 are related to levy of interest as well as initiation of penalty. The same being mandatory and consequential in nature would not require any specific adjudication on our part.

12. Resultantly, The appeal stand partly allowed in terms of our above order.