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Income Tax Appellate Tribunal, BANGALORE BENCHES : “C”, BANGALORE
Before: SHRI N.V.VASUDEVAN & SHRI B.R.BASKARAN
PER SHRI N.V.VASUDEVAN, VICE PRESIDENT :
This is an appeal filed by assessee against order dated 19/09/2017 passed by Ld. CIT(A)-5, Bangalore relating to assessment year 2014-15 on following grounds of appeal.
Assessee is an individual. During the year relevant to AY: 2014-15 the assessee sold 6,590/- equity shares of a company by 2 name M/s NCL Research and Financial Services Ltd. and received a sale proceeds of Rs.1,04,86,840/-. Assessee also sold 68,426/- shares of M/s Lifeline Drugs and Pharma Ltd., and received a sale proceeds of Rs.1,21,94,369/-. Assessee in the return of income for the assessment year 2014-15 declared long term capital gains(LTCG) on sale of the aforesaid shares of Rs.2,18,94,467/- and claimed the same as exempt u/s 10(38) of the IT Act, 1961. The details of the transactions of sale and the sale details of the purchasers are as follows;
The AO examined the claim of assessee for exemption u/s 10(38) of the IT Act, 1961 on the long term capital gains of shares. The AO issued letters u/s 133(6) o the IT Act, 1961 to the purchasers of shares calling for details of the transactions from the purchasers of the shares from the assessee. They did not however respond to the notices of the AO.
3 4. The AO in the order of assessment has made a reference to an investigation by the Directorate of Investigation, u/s133A of the IT Act, 1961 wherein the statement of one Devesh Uphadhyaya was recorded u/s 131(1) of the IT Act, 1961. He was managing and controlling the affairs of M/s Katyani Commodities Pvt.Ltd.Kolkata and this company was used for providing accommodation entries of bogus LTCG to various beneficiaries. Three other companies namely M/s Dhanraksha Vincom Pvt.Ltd, M/s Linus Holdings Ltd and M/s Ridhi Vincom Pvt.Ltd. were also used to provide accommodation entries on LTCG. The AO issued notices to all the aforesaid companies u/s 133(6) of the IT Act, 1961, but no reply was received from them.
The AO thereafter, referred to the investigation conducted by the Directorate of Investigation, Kolkata, wherein there was a finding that undisclosed and unaccounted cash get deposited in various accounts and ultimately gets transferred to companies, who existed only on paper. According to the AO, the investigation also revealed that some companies were used as entry operators to provide entries of bogus LTCG. There is also reference to the fact that scrip M/S.NCL Research and Financial Services ltd has been suspended for trading by the Securities and Exchange Board of India (SEBI) in the order of Assessee. Assessee’s statement was recorded in which he maintained that transaction were in fact carried out by him but did not know anything about the investigation on these scrip by the IT Department. Thereafter, the AO has referred to the transaction having been done by the assessee through Anand Rathi Share and Stock Brokers Ltd, the fact that these brokers were also part of the modus operandi of 4 providing accommodation entry for LTCG. The AO ultimately brought to tax the entire consideration received on sale of the shares to tax, a unexplained cash credits u/s 68 of the IT Act, 1961.
On appeal by the assessee, the CIT(A) confirmed the action of AO. Aggrieved by the order of ld.CIT(A), the assessee has preferred the present appeal before the Tribunal.
At the time of hearing of this appeal, ld. Counsel for the assessee brought to our notice order dated 05-04-2019 in & 2784(B)/2018 for AY: 2015-16 in assessee’s own case wherein on identical issue of LTCG and exemption u/s 10(38) of the IT Act, 1961 the Hon'ble Tribunal held that the issue whether the transaction were genuine or not and the claim of the assessee for exemption u/s 10(38) of the IT Act, 1961 has to be examined fresh by the AO. The Tribunal held that the statement on which the AO placed reliance for coming to this conclusion in the order of assessment were not confronted to the assessee. The Tribunal therefore, directed the AO to furnish such statement and also afford the right of cross examination to the assessee. Following were the relevant observation of the Tribunal; “8.Having considered both sides, we find that although the AO has brought out various facts in relation to modus operandi and methodology used by assessee and other persons involved in bogus long term capital gain issues but the AO went on to make additions only on the basis of 3rd party information against the assessee. We further noticed that the AO has brought out complete details of sale transactions and also brought out certain facts to come to the conclusion that the prices of shares has been rigged in the market so as to get the benefit of long term capital gain but while making the additions used the statement of 3rd parties against the assessee without
5 providing an opportunity to the assessee for cross examination. When the AO has used 3rd party information, it is the duty of the AO to give an opportunity to the assessee to rebut the evidences used against him otherwise it will amount to violation of principal of natural justice. In this case, the entire case is based on the statement of person who is involved in the penny stock issue. Unless the statement of the 3rd persons who gave the statements against the assessee is provided to the assessee for his rebuttal, the AO cannot make additions only on the basis of such statement when the assessee has filed complete details of sale transaction to prove the genuineness of such transactions. We further noticed the Hon’ble Karnataka High Court in a series of Writ Petitions ad an occasion to examine the issue of penny stocks in the re-opened asst. proceedings and after considering the relevant facts held that re- asst. orders passed without notice to the petitioners over a statement of certain persons, is illegal and cannot be sustained. However the court further held that liberty is reserved to the Assessing authorities to issue notice to the petitioners, furnish copies of the statement, the basis of such notes and extent reasonable opportunity of hearing to the petitioners and thereafter pass orders in accordance with law. Although, the Hon’ble Court has allowed the Writ petition filed by the petitioners but finally liberty has been given to the revenue to proceed against the petitioners by giving evidences used against them and thereafter pass orders in accordance with law.
9.Therefore we are of the considered view that the issue needs to be reexamined by the AO in the light of the claim of the assessee that evidences used against the assessee was not given for his rebuttal. Therefore, we set aside the issue to the file of the AO and direct him to redo the asst. after giving reasonable opportunity of hearing to the assessee including the evidences if any used against him.
In the result, the appeal filed by the assessee is allowed for statistical purposes”.
The facts and circumstances in the present assessment year are also identical an therefore, we deem it fit and proper to set aside the order of the CIT(A) on the issue in question to the AO for 6 fresh consideration on lines indicated by the Tribunal in the order referred to above.
In the result, the appeal is treated as allowed for statistical purposes.
Order pronounced in the open court on June, 2019.