SHANTABEN ANRAJ SHAH,MUMBAI vs. INCOME TAX-OFFICER-19(3)(3), MUMBAI

On appeal the Ld.CIT(A) confirmed the action of the Assessing Officer in denying the exemption claimed u/s. 10(38) of the Act on sale of shares and also in bringing to tax the purchase consideration as unexplained investment u/s. 69 of the Act. Further, the Ld.CIT(A) also directed the Assessing Officer to disallow commission @2% of the sale consideration received and also on the purchase consideration paid by the assessee.

5 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 of the Act. It is also submitted that Assessing Officer made an addition of ₹.24,201/- u/s. 69C of the Act being commission @2% of the ₹.12,10,065/-. It is submitted that Ld.CIT(A) upheld the action of the Assessing Officer as regards the addition u/s. 68 of the Act and also the addition made u/s. 69C of the Act in respect of the commission. Learned Counsel for the assessee submitted that this position is common in all other appeals. Learned Counsel for the assessee submitted that in the present appeals assessee challenged the order of the Ld.CIT(A) on both the grounds i.e. addition u/s. 68 as well as u/s. 69 of the Act and also challenged the reopening of assessment.

6 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 dated 22.12.2016 filed with the Assessing Officer in the course of the assessment proceedings submitted that the assessee has requested for statements and also for providing cross examination of the persons whose statements on oath the Assessing Officer is relied upon for making the additions u/s. 68 and u/s. 69 of the Act. Ld. Counsel for the assessee further submitted that in spite of request made by the assessee for providing the statements and the cross examination neither the statements nor cross examination has been given to the assessee. Learned Counsel for the assessee submitted that in all these appeals this position is same. It is submitted that in all these appeals the Assessing Officer neither provided the statements on which reliance is placed for making addition nor provided any cross-examination of the persons who made the statements. Therefore, it is submitted that having not given the cross examination more so when specifically asked by the assessee the addition made by the Assessing Officer as confirmed by the Ld.CIT(A) ought to be deleted. Ld. Counsel for the assessee placed reliance on the following decisions in respect of the above contention: - (a) Kishinchand Chellaram [125 ITR 713 (SC)] (b) Andaman Timber-Civil Appeal no 4228 of 2006 (SC) dated 02.09.2015 (c) Shyam Pawar [54 Taxmann.com 108 (Bom HC)] (d) Anraj Shah HUF in ITA No 4514/Mum/2018 (family matter) of the same group (e) Mukesh B Sharma in ITA No 6249Mum/2018

7 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 7. Ld. Counsel for the assessee placing reliance on the judgement of the Hon'ble Supreme Court in the case of Kishinchand Chellaram (supra) and also the decision of the Andaman Timber (supra) submitted that the Hon'ble Supreme Court held that if the addition is made relying on the statement of a third party and cross examination of the said party is not given to the assessee then such statement ought to be ignored and without that the assessment is baseless.

8 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 Sr. Particulars 4 Settlement bills (2 nos) dated 25.09.2008 and 26.09.2008 evidencing sale of shares 5 Demat statement of the period 01.04.2004 to 31.03.2013 6 Bank passbook for the period 23.01.2008 to 01.10.2008 7 Acknowledgement evidencing filing of return of income together with computation of total income and statement of capital account for Assessment Year 2006-07.

10 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 After we received the copy of beneficiaries list & Statement recorded on oath on perusal of the same we request for an opportunity to cross-examine the said party. I would like to state that sale consideration received on account of sale of share of M/s. Sunrise Asian Ltd. is genuine & should not be added to my total income. To substantiate the above we have to state the following: > The purchase contract note is already submitted in the earlier letter. > The Sale Contract notes is already submitted in the earlier letter. > The payment received for the said transaction is done through Bank which is disclosed source of investment. The Bank statements has already been submitted to you in earlier letter. > The D-mat Statement is already submitted in earlier letter. > Sale of share is through recognize stock exchange > Sale consideration for sale of share is received by account payee cheque. > S.T.T has been duly charged in the contract note penny stock brokers. Further we state that the share sold are genuine and there is no lapse on the part of the assessee and no accommodation entries have been passed by the assessee. We have submitted sufficient documentary evidences to substantiate that the Share Sold through the above party are genuine. There is no material on record to suggest that the transactions entered into by the assessee were bogus either in the terms of sale in the terms of rates at which these shares were sold. Rather assessee has filed evidence to show that these shares were sold for a price which were prevalent in the market and payments received through banking channel. These shares were also credited & debited

11 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 in the D-mat account the relevant documentary evidence has been filed duly the assessment proceeding. We have to state that just on the basis of statement under oath and declaration given by operators or brokers, it cannot be concluded that the transactions are accommodation entries. Further no documentary evidence are given to us for the alleged transactions. Based on the above facts we request you not to treat sale consideration of Rs. 12,10,065/- should not be treated as unexplained cash credit u/s. 68 of the I.T. Act and the same cannot be; treated as sham transaction and hence sale consideration cannot be treated as bogus LTCG. You have mention in show cause "Further, as there was collusion with the broker/ operator to arrange the said transaction, so explain as to why accommodation charges @2% of the sale consideration of share sold not he added hack to the income u/s. 69C of the Income tax Act 1961. " In response to the above I would like to state that kindly give us the details of the operator brokers wherein details of accommodation charges are available in my name. Further kindly give us the Xerox copy of the proof wherein distinctly my name is mention Lastly request for opportunity to cross-examine of the said operator/brokers & such other person on which you have relied for the above matter. Bassed on the above facts & No concrete/specific details from your end the propose addition u/s. 68 of Rs.12,10,165/- & u/s. 69C of 2% of sales consideration is not justifiable & bad in law.”

12. It is not in dispute that that the transaction of purchase and sale of shares was treated as non-genuine based on the statements recorded during the course of the investigations made by the DIT(Inv.), Kolkata and also in the survey proceedings in certain companies. It is also not in 12 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 dispute that the statements of the third parties on whose statements the Assessing Officer placed reliance for making the addition not furnished nor the request of the assessee for providing cross examination was adhered to. I found that the cross examination of the party on whose statement the Assessing Officer is relied upon has not been given to the assessee and the decision of the Hon'ble Supreme Court referred to above squarely applies to the facts of the assessee’s cases. The question as to whether the assessment order can be sustained in the absence of providing cross examination to the assessee especially when the additions/disallowance were made based on the statements recorded in the case of third parties and in the light of the judgment of the Andaman Timber Industries v. CCE (supra) has been considered on identical facts by the Ahmadabad Bench in the case of Smt. Sunita Jain & Smt Rachna Sachin Jain v. ITO in ITA.No. 501 & 502/AHD/2016 dated 09.03.2017 and the Ahmadabad bench held as under: - “11. For the sake of completeness of the adjudication, even on merits of the case, the additions do not survive. A perusal of the orders of the authorities below shows that the claim of capital gains was denied by the revenue authorities on the strength of the statement of Shri Mukesh M. Choksi and the materials found from the third party i.e. books etc. in the case of M/s. Mahasagar Securities group and Mukesh M. Choksi. The revenue authorities were of the strong belief Shri Mukesh M. Choksi was providing accommodations entries by issuing bogus bills of share purchases of companies which were not listed on the stock exchanges and, 13 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 therefore, the capital gains discussed by the assessee are the outcome of fraudulent transactions and cannot be accepted as such. Accordingly, the gains were treated as undisclosed income of the assessee.

13. Per contra, the DR strongly supported the findings of the Revenue Authorities. It is the say of the DR that the assessment is not merely based upon the statement of Shri Mukesh Choksi, but also on the fact that the entire transactions of the assessee were bogus.

14. The entire assessment is based upon the statement of Shri Mukesh Choksi. It is an undisputed fact that neither a copy of the statement was supplied to the assessee nor any opportunity of cross- examination was given by the Assessing Officer/CIT(A). The Hon’ble Supreme Court in the case of Andaman Timber Industries in Civil Appeal No. 4228 of 2006 was seized with the following action of the Tribunal:- “6. The plea of no cross examination granted to the various dealers would not help the appellant case since the examination of the dealers would not bring out any material which would not be in the possession of the appellant themselves to explain as to why their ex factory prices remain static. Since we are not upholding and applying the ex factory prices, as we find them contravened and not normal price as envisaged under section 4(1), we find no reason to disturb the Commissioners orders.”

15. The Hon’ble Apex Court held as under:- “According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the 14 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of crossexamination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the 15 & 7227/MUM/2018 ITA NOs. 3998, 4927, 4928 & 5009/MUM/2019 directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.”

The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE (supra) held that when the assessment was made on the basis of the statements recorded from third parties and those statements were not provided nor cross examination was given to the assessee, the Assessment Order made based on those statements is bad in law.

Order pronounced on 05.02.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.