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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI A K GARODIA
Per Bench These are appeals by 5 different assesses against separate orders all dated 17.07.2019 of the CIT(Appeals)-2, Bengaluru and all appeals relate to assessment year 2015-16.
The issue that needs to be adjudicated in these appeals is as to whether the revenue authorities were justified in treating the long term capital gain (LTCG) on sale of shares declared by the assessee as unexplained cash credit u/s. 68 of the Income-tax Act, 1961 [the Act] and adding the same to the total income of the assessee as income under the head ‘income from other sources’.
All the assesses are individuals. During the relevant previous year they sold shares of a company by name Lifeline Drugs & Pharma Ltd. and declared LTCG on sale of those shares. The LTCG so declared was claimed as exempt u/s. 10(38) of the Act.
The AO noticed that there was an investigation carried out by the Directorate of Investigation throughout the country in which it came to light that there was an organized racket of generating bogus entries of long-term capital gain which is exempt. The modus operandi was to buy shares of companies controlled by the operators at a less price and thereafter rig the price of the stock to a high level and sell the shares and declare long-term capital gain. According to the investigation carried out by the department, the operators were dummy paper companies and the long-term capital gain declared and claimed as exempt was nothing but assessee’s own money which has to be added u/s. 68 of the Act.
Based on the above said investigation carried out by the Directorate of Investigation, Kolkata, and the statements of various operators, entry providers and stock brokers admitting accommodation entries of long term capital gain, the AO was of the view that the long-term capital gain declared by the assessee has to be treated as unexplained cash credit and added to the total income of the assessee. Accordingly, the AO treated the long term capital gain as unexplained cash credit u/s. 68 of the Act and added the same to the total income of assessee. The CIT(Appeals) confirmed the order of AO.
6. At the time of hearing, the ld. counsel for the assessee brought to our notice that the conclusions of revenue authorities are based on investigation report carried out by the Directorate of Investigation, Kolkata and the said report has not been confronted to the assessee. The revenue authorities have also placed reliance on statement of persons who are alleged to have been part of the pre-arranged method to evade taxes and launder money. The ld. counsel for the assessee brought to our notice that the claim of assessee was supported by valid documents and that cannot be ignored. It was also submitted that there was no specific reference to name of assessee in any investigation report or communication of the assessee with the alleged entry operators. Our specific attention was drawn to ground No.1 of the grounds of appeal filed before the CIT(Appeals) wherein the assessee has specifically submitted that the conclusions drawn by the AO in the order of assessment are in violation of principles of natural justice and not valid because of non-compliance of legal requirements in quasi-judicial proceedings. Thus, the assessee has challenged the non-furnishing of investigation report and statements of persons on the basis of which conclusions have been drawn by the AO. He also brought to our notice that the CIT(A), despite specific objection, has not chosen to address the same. Our attention was also drawn by the ld. counsel for the assessee to ground No.2.1 of the grounds of appeal, which reads as follows:-
“2.1 In any case the assessment order passed is in gross violation of the principles of natural justice and fair play, especially in the absence of report/information and cross examination of person whose statements were relied upon by the Assessing officer while passing the order, makes the order totally bad in law and liable to be cancelled.” According to him, therefore the entire addition made is liable to be set aside.
7. The ld. counsel for the assessee filed before us a copy of the order dated 05.12.2018 in the case of Shri Ramesh Kumar Shah Vs. ACIT wherein this Tribunal on identical facts of violation of principles of natural justice, remanded the matter for fresh consideration to the AO with the following observations:- “3.3 Per contra, the learned DR for Revenue submitted that on similar facts and circumstances as in the case on hand, issue for consideration is covered by the decisions of the Bengaluru ITAT in the cases of Arvind Kumar Moochand in ITA No.509/Bang/2017 and Pukhraj Hasmukhlal in ITA No.1927/Bang/2017 wherein the Tribunal has restored the issue to the file of the AO having observed that the additions were made based on reports of the Investigation Directorate at Kolkata and statements of various persons without confronting OR making them available to the assessee for rebuttal. In those cases, the Tribunal restored the matter to the file of the AO with the direction to confront the matter to the file of the AO with the direction to confront the assessee with the reports / documents / statements proposed to be used against the assessee, allow rebuttal thereof and cross examination of parties on whose testimony is proposed to be relied upon and the matter be adjudicated afresh after affording the assessee adequate opportunity of being heard and to also file details / submissions in this regard. 3.4 In Rejoinder, the ld.AR for the assessee did not dispute the proposition put forth by the ld. DR for restoring this issue to the file of the AO for de novo adjudication.
3.5 We have heard both parties and perused and carefully considered the material on record; including the judicial decisions cited and the orders of the authorities below. Taking into consideration the facts and circumstances of the case that the assessee specifically requested for cross-examination of the deponents whose statements were the basis of addition by the AO and also the report of the Investigation Directorate, Kolkata for rebuttal; from the judicial decisions cited, we find that the issue for consideration is squarely covered by the orders of the Bengaluru ITAT in the cases of Arvind Kumar Moolchand (supra) and Pukhraj Hasmukhlal (supra). Following the aforesaid orders (supra), we set aside the orders of the AO and restore the matter of treatment of profit declared on sale of shares, claimed as exempt u/s 10(38) of the Act, to the file of the AO to re- adjudicate the issue afresh; after making available to the assessee for rebuttal all documents; including Statements, Investigation Reports, etc., relied upon by Revenue for making the additions/disallowances and providing adequate opportunity to the assessee for crossexamination of persons whose statements are being relied upon. It is accordingly ordered. Consequently, ground No. 2 is disposed off as above. "
8. A copy of the judgment of the Hon’ble Karnataka High Court in the case of Mrs. Chandra Devi Kothari Vs. ITO W.P.39370/2014 (T-IT) was also filed before us wherein on identical issue of accommodation/bogus entries based on statement of third parties, the Hon’ble Karnataka High Court took the view that the matter requires to be re-considered by providing fair and reasonable opportunity of hearing to the Assessee after providing copies of statement relied upon by the revenue.
The ld. DR submitted that the AO has given valid reasons based on which he has come to the conclusion that LTCG declared by the assessee is bogus. According to him, it cannot be said that the conclusions drawn by the AO which was confirmed by the CIT(A) are without any basis and therefore there is no requirement to remand the issue to the AO for fresh consideration.
The ld. DR also placed reliance on the Hon’ble Delhi High Court decision in the case of Sumant Poddar v. ITO in dated 17.09.2019 wherein the Hon’ble Delhi High Court noticed that the ITAT Delhi had given the following observations with regard to violation of principles of natural justice in such cases:- “11. …………….. Regarding failure to accord opportunity of cross examination, we rely on judgment of Prem Castings Pvt. Ltd. Similarly, Tribunal in case of Udit Kalra, ITA No. 6717/Del/2017 for assessment year 2014-15 has categorically held that when there was specific confirmation with Revenue that assessee has indulged non-genuine and bogus capital gains obtained from transactions of purchase and sale of shares, it can be good reason to treat transactions as bogus. differences of case of Udit kalra attempted by Ld. AR does not add any credence to justify transactions. Investigation Wing has also conducted enquiries which proved that assessee is also one of beneficiaries of transactions entered by Companies through multiple layering of transactions and entries provided. Even BSE listed this company as being used for generating bogus LTCG. On facts of case and judicial pronouncements will give rise to only conclusion that entire activities of assessee is colourable device to obtain bogus capital gains. Hon'ble High Court of Delhi in case of Udit Kalra, ITA No. 220/2009 held that company had meager resources and astronomical growth of value of company's shares only excited suspicion of Revenue and hence, treated receipts of sale of shares to be bogus. Hon'ble High Court has also dealt with arguments of assessee that he was denied right of cross examination of individuals whose statements led to enquiry. ld. AR argument that no question of law has been framed in case of Udit Kalra also does not make any tangible difference to decision of this case. Since additions have been confirmed based on enquiries by Revenue, taking into consideration ratio laid down by various High Courts and Hon'ble Supreme Court, our decision is equally applicable to receipts obtained from all three entities. Further, reliance is also placed on orders of various Courts and Tribunals listed below. MK. Rajeshwari vs. ITO in ITA No.1723/Bang/2018, order dated 12.10.2018. Abhimanyu Soin vs. ACIT in ITA No. 9511Chdl2016, order dated 18.04.2018. Sanjay Bimalchand Jain vs. ITO 89 taxmann.com 196. Dinesh Kumar Khandelwal, HUF vs. ITO in & 591/Nag/2015, order dated 24.08.2016. Ratnakar M Pujari vs. ITO in IT No. 9951Muml2012, order dated 03.08.2016. Disha N. Lalwani vs. ITO in ITA No. 6398/Mum/2012, order dated 22.03.2017, ITO vs. Shamim. M Bharwoni [2016] 69 taxmann.com 65. Usha Chandresh Shah Vs ITO in ITA No. 6858/Mum/2011, order dated 26.09.2014. CIT vs. Smt. Jasvinder Kaur 357 ITR 638.
12. Facts as well as rationale given by Hon 'ble High Court are squarely applicable to case before us. Hence, keeping in view overall facts and circumstances of case that profits earned by assessee are part of major scheme of accommodation entries and keeping in view ratio of judgments quoted above, we, hereby decline to interfere in order of Ld. CIT(A).” (emphasis supplied) 11. The Hon’ble Delhi High Court agreed with the aforesaid reasoning of the Tribunal. Our attention was also drawn to certain observations of the Hon’ble Delhi High Court in the case of Udit Kalra in ITA No.22/2019 dated 08.03.2019 wherein it was observed by the Hon’ble Delhi High Court, in answer to violation of principles of natural justice in as much as the statement of persons on whose basis the revenue authorities concluded that transaction of sale of shares were pre-arranged transactions were not confronted to the Assessee, that the findings of the revenue authorities as well as the Tribunal were concurred findings of facts which does not call for interference.
Further reliance was also placed by the ld. DR on the decision of the ITAT Bangalore Bench rendered in the case of Shri Rameshchand Kothari v. ACIT in for AY 2014-15, order dated 28.08.2019, wherein the Tribunal observed as follows:-
5. We are conscious of the principle that, without opportunity of cross- examination, such statements cannot be relied upon against any person. However, such right, as held in various decisions by Hon’ble Supreme Court, is not an absolute right and depends on the circumstances of the case and the statute concerned as held in State of J&K Vs. Bakshi Gulam Mohd. AIR 1967 (SC) 122, and Nath International Sales Vs. UOI reported in AIR 1992 Del 295. In case of T. Devasahaya Nadar V. CIT reported in (1964) 51 ITR 20 (Mad) it has been held that; it is not an universal rule that any evidence upon which the department may rely should have been subjected to crossexamination, if the assessing officer refuses to produce an informant for cross-examination by the assessee there cannot be any violation of natural justice.”
Further in case of GTC Industries Ltd. V. Asstt. CIT reported in (1998) 60 TTJ (Bom-Trib) 308 , it has been held that, where statement and report of third parties are only secondary and subordinate material which were used to buttress the main matter connected with the quantum of addition, denial of opportunity to cross examine third parties did not amount to violation of natural justice. Each case has got to be decided on facts and circumstances of that case. Thus in our considered opinion, relevant factors to be considered are surrounding circumstances, objective facts, evidence adduced, presumption of facts based on common human experience in life and reasonable conclusions.
It is further observed that Ld. AO has not examined/called for any evidences in respect of purchase/sale of alleged scripts. Assessee is therefore directed to provide all relevant documents to establish sound financial of alleged companies and that fluctuation in price was market driven. Ld.AO shall take all evidences into consideration and then decide the issue as per law. In the event de hors statement, there are overwhelming evidences and assessee is unable to establish genuineness of sale and purchase of alleged scripts, adverse view would be taken by holding the transaction to be sham.
Ld.AO is directed to provide all statements recorded by investigation wing to assessee, referred to in assessment order. In the event, statements recorded are not of secondary and subordinate category, cross examination has to be granted to assessee. Ld.AO is directed to re-examine the case of assessee in the light of aforestated direction in accordance with law. Needless to say that proper opportunity shall be granted to assessee to represent its case as per.” 13. According to the ld. DR, therefore, the plea of assessee for remand should be rejected and the addition made by the revenue authorities should be confirmed.
We have considered the rival submissions. We find that identical issue was considered by this Tribunal in the case of Shri Ramesh Kumar Shah (supra) and the Tribunal remanded the issue to the AO for fresh consideration with a direction that the assessee should be provided with all the relevant evidence relied upon by the AO for making the addition and also allow opportunity of cross-examination of statements of persons which has been relied upon by the Investigation Agency. We also find that the Hon’ble High Court of Karnataka has given similar directions in the case of Mrs. Chandra Devi Kothari (supra) wherein also the issue was with regard to long term capital gain on sale of shares being treated as unexplained cash credit u/s. 68 of the Act by the revenue. In the light of the aforesaid directions, we set aside the order of the CIT(Appeals) and remand the question of treating the long term capital gain as unexplained cash credit to the AO for fresh consideration as directed by the Tribunal in the case of Shri Ramesh Kumar Shah (supra). We make it clear that all issues raised by the assessee in this appeal are also left open for consideration.
We have considered the decision cited by the ld. DR and we find that that the decision rendered in the case of Sumant Poddar (supra) by the Hon’ble Delhi High Court is on the facts where the assessee did not produce evidence of contract notes issued by the share broker. This fact is noticed in para 8 of the Hon’ble Delhi High Court’s order. In the present case there is no such deficiency of non production of required documents.
As far as the decision of the Hon’ble Delhi High Court in the case of Udit Kalra (supra) is concerned, the decision was rendered purely on the basis that the findings of the lower authorities were entirely on concurrent finding of facts and therefore the Hon’ble High Court refused to admit the appeal on the ground that no substantial question of law arose.
As far as the decision of Bangalore Tribunal in the case of Shri Rameshchand Kothari (supra) is concerned, the issue was remanded to the AO for fresh consideration to provide copies of statements to the assessee with certain directions to the AO.
Since the matter is being remanded, we do not want to make any observations which will cause prejudice to the parties in the set aside proceedings and are of the view that the issue should be left open for consideration by the AO, with liberty to the assessee to make his submissions on reliance on statements made by the persons who have no connection whatsoever with the transaction of sale of shares by the assessee giving rise to long term capital gain.
For the reasons given above, we are of the view that the issue should be remanded for fresh consideration by the AO on the lines indicated in the earlier paragraphs of this order. We direct accordingly. With these observations, we allow all these appeals of assesses for statistical purposes.
In the result, all the appeals are treated as allowed for statistical purposes. Pronounced in the open court on this 3rd day of January, 2020.