Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI M. BALAGANESH (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
1. This appeal has been filed by the assessee against the order dated 29.06.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Thane, for the assessment year 2014-15, whereby the Ld. CIT (A) has dismissed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
2. The Brief facts of the case are that the assessee an individual having income from business, capital gain and other sources, filed its return of income for the assessment year under consideration declaring the total income of Rs. 5,52,150/-. Since, the case was selected for scrutiny, the AO issued notice u/s 143 (2) and 142 (1). In compliance thereof, the authorized representative of the assessee appeared before the AO and furnished written submission and furnished contract notes, ledger, D-mat holding and capital gain working along 2 Assessment Year: 2014-15 with details of bond purchased. The AO after verifying the details treated the long term capital gain of Rs. 13,98,729/- claimed by the assessee as bogus transaction and added the said amount to the income of the assessee as unexplained credit. Accordingly, the AO passed the assessment order u/s 143 (3) of the Act determining the total income of the assessee at Rs. 19,50,880/- as against the return income of Rs 5,52,150/- after making addition of Rs. 13,98,729/- as unexplained credit u/s 68 of the Act. The assessee challenged the assessment order before the CIT (A). However, the Ld CIT(A) dismissed the assessee’s appeal and confirmed the addition made by the AO.
3. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- 1. ”In the facts and circumstances of the case and law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of completing the assessment u/s 143 (3) and making addition of Rs. 13,98,729/- and disallowing he LTCG claim of Rs. 13,98,729/- u/s 10(38) merely on the basis of alleged statements of third parties, without providing the copies of such statements and without providing the opportunity to cross-examine such parties, thus violating the principles of natural justice as upheld by Honorable Supreme Court in case of Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006) and Kishanchand Chellaram v. CIT AIR 1980 SC 2117.
2. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of holding that the transaction of the sale of shares of M/s Sunrise Asian Ltd. is bogus and sham and making addition of Rs. 13,98,729/-.
In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of not granting the exemption of long terms capital gain under section 10(38) of the Act on sale of listed equity shares sold through recognized stock exchange which has duly been 3 Assessment Year: 2014-15 subjected to security transaction tax (S.T.T.) on surmises, conjecture and suspicion.
4. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of treating the transaction of sale of shares of M/s Sunrise Asian Ltd. as income from undisclosed sources and making addition under section 68 of the Act for the amount credited in bank account.”
4. Before us, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has wrongly confirmed the order passed by the AO. Since the AO had rejected the claim of the assessee merely on the basis of statement of third party without providing the copies thereof and without affording an opportunity to cross examine the witnesses, the Ld. CIT (A) ought to have set aside the findings of the AO that the transaction of sale of shares of M/s Sunrise Asian Ltd. is bogus and sham. The Ld. counsel submitted that the appellant purchased 3000 shares of Conart Traders Ltd. (later on merged with Sunrise Asian Ltd. as per the scheme of merger approved by the Hon’ble Bombay High Court. The assessee has furnished the copy of bank statement showing payment of Rs. 60,000/- made for purchase of the shares, copy of share certificate issued by Conart Traders Ltd. in favour of Santoshima Trade Links which were subsequently endorsed by Conart Traders Ltd. in favour of the assessee, copy of D-mat account in the name of assessee, copy of order of the Hon’ble Bombay High Court approving merger of Conart Traders Ltd., copy of balance sheet etc in order to establish genuineness of the purchase of shares. The Ld. counsel further contended that the assessee sold all the shares on trading platform of the stock exchange on 22, 23 and 24 July, 2013 and furnished share broker contract notes, copy of D-mat account, ledger account of the broker, copy of bank statements and copy of ledger account of the share broker in the books of the appellant in order to prove the sale of the shares in question. The Ld. counsel further submitted that the AO has not found any discrepancies with regard to the documentary evidence produced by the 4 Assessment Year: 2014-15 assessee to demonstrate the genuineness of purchase and sale of shares. The Ld. counsel further pointed out that the AO had passed the assessment order on the basis of the information received from DDIT (Inv.) without applying his mind and pointing out any evidence to corroborate the allegations against the assessee. In view of the aforesaid facts, the Ld. counsel for the assessee submitted that since the Ld. CIT (A) has wrongly upheld the addition made by the AO, the said order is liable to be set aside. The Ld. counsel relied on the following cases to substantiate his contentions:
i) CIT vs. Shyam R. Pawar, IT Appeals No. 1568 to 1571 of 2012 (Bom.) ii) CIT vs. Shri Mukesh Ratilal Marolia Income Tax Appeal No. 456 of 2007 (Bombay). iii) CIT vs. Smt. Sunita Dhadda Income Tax Appeal No. 191/2012 (Raj.). iv) Sri Dolarrai Hemani vs. Income Tax Officer, (Kolkata Tribunal) v) Smt. Shikha Dhawan vs. ITO, ITA No. 3035/Del/2018, SMC, New Delhi. vi) Ms. Farrah Marker vs. ITO, ITA No. 3801/Mum/2011 (Mumbai Tribunal) vii) Manish Kumar Baid vs. ACIT, ITA No. 1236/Kol/2017 and Mahendra Kumar Baid vs. ACIT, ITA No. 1237/Kol/2017 (Kolkata Tribunal)
On the other hand, the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below submitted that the Directorate of Investigation, Kolkata carried out a countrywide investigation to unearth the bogus operators, who used to provide bogus entries to facilitate beneficiaries in claiming bogus capital gains. These operators used to transfer shares to the beneficiaries at a very nominal price through preferential allotment or offline sale to save securities transaction tax (STT). The beneficiaries after holding the share for one year used to sell the same and claim LTCG u/s 10(38) of the Act.
5 Assessment Year: 2014-15 The Ld. DR further submitted that the Directorate of Investigation, Kolkata investigated transaction in 84 such cases and examined a large number of brokers, Directors of the Companies. Investigation revealed that in Kolkata some of the beneficiaries, who had obtained bogus entries voluntarily surrendered for taxation and some of them filed revised return. As per the AO, the assessee in the present case is one of the beneficiaries, who has obtained bogus entry of Rs. 13,98,729/- in connivance with one of the such bogus operators. The Ld. DR further submitted the script was a penny stock purchased at a very low price in the physical form and dematerialized subsequently. Since, no response was received by the AO to the notice issued u/s 133 (6) to Sunrise Asian Ltd, the Ld. CIT (A) has rightly confirmed the addition made by the AO treating the LTCG claimed by the assessee as bogus transaction.
We have heard the rival submissions and also perused the material on record, including the cases relied upon by the parties, in the light of the rival contentions. The only grievance of the assessee is that the Ld. CIT (A) has wrongly confirmed the action of the AO in rejecting the claim of long term capital gain holding the transaction as bogus. As pointed out by the Ld. counsel for the assessee, the AO has rejected the claim of the assessee on the basis of the outcome of investigation carried out by the investigation wing of the department which unearthed the organized racket which used to provide bogus entries to the beneficiaries to facilitate them in claiming exempt income u/s 10(38) of the Act. As pointed out by the Ld. counsel, the AO neither provided the copies of statement of witnesses relied upon nor provided an opportunity to cross examining those witnesses. We notice that the authorities below have not referred any witness, who has deposed during investigation that the assessee obtained accommodation entries in the present case from the bogus operators. We further notice that AO has not doubted the sale and purchase of the shares in question. We further notice that the authorities 6 Assessment Year: 2014-15 below have not pointed out any cogent and convincing evidence to hold that the transaction is bogus. The AO has not doubted the genuineness of the bank statement showing payment of Rs. 60,000/- made for purchase of shares of Conart Traders Ltd. Similarly, the AO has not doubted the sale of the shares in question. So the AO has held the transaction as bogus on the basis of the general report of the investigation wing of the department without affording an opportunity to confront or cross examine the witnesses whose statements were relied upon by the AO. In the case of Smt. Shikha Dhawan vs. ITO (supra), the SMC Bench of the Delhi Tribunal has held that where the AO fails to afford an opportunity to the assessee to cross examine the witnesses whose statements were relied upon, such evidence cannot be used against the assessee. The operative part of the said order read as under:
“8. I have heard the rival submissions and perused the material available on record. The assessee placed sufficient documentary evidences before the AO which are copy of the shares certificates with transfer form, copy of debit note issued by Shreeji Broking (P) Ltd., copy of cash receipt of Shreeji Broking (P) Ltd., copy of the account statement of the assessee in the books of the broker, copy of ledger account of Indus Portfolio (P) Ltd., copy of evidence for payment of securities transaction tax and copy of the bank statement of the assessee to show that the assessee had entered into genuine transaction of purchase of share which were later on sold through the broker on recognized stock exchange after payment of STT. The claim of the assessee for sale of shares has been supported by the documentary evidences which have not been rebutted by the authorities below. Whatever inquiry was conducted in the cases of other parties and statement recorded of several persons namely Sh. Anil Khemka, Sh. Sanjay Vohra and Sh. Bidyoot Sarkar as referred in the assessment order and the report of the Investigation Wing were not confronted to the assessee and above statements were also not subject to cross- examination on behalf of the assessee. Therefore, such 7 Assessment Year: 2014-15 evidences cannot be read in evidence against the assessee. The order of the SEBI was also not confronted to the assessee. AO did not mention any such fact in assessment order. More so in those reports and statements, the name of the assessee has not been referred to. Ld. counsel for the assessee, therefore, rightly contended that the twin conditions of section 10(38) of the Act have been satisfied in the case of the assessee. The assessee has been able to prove that she has entered into the genuine transaction of purchase and sale of shares and the sale consideration is received from broker through banking channel. The brokers have not denied the transaction with the assessee. The assessee rooted the transaction of sale of shares through recognized stock exchange after making payment of STT. In similar circumstances, ITAT SMC Bench, Delhi in the case of Meenu Goel vs ITO (supra) following the decision of Jurisdictional Hon’ble P&H High Court in the case of Pr.CIT vs Prem Pal Gandhi (supra) deleted the similar addition. Therefore, the issue is covered in favour of the assessee by the order of ITAT, Delhi Bench in the case of Meenu Goel vs ITO (supra) followed by judgement of Jurisdictional P&H High Court which is binding. There is no other material available on record to rebut the claim of the assessee of exemption claimed u/s 10(38) of the Act.
9. Keeping in view of the above discussion and the material on record, in the light of the order of the Tribunal in the case of Meenu Goel vs ITO (supra), I set aside the orders of the authorities below and delete the addition of Rs.19,51,357/-. The appeal of the assessee is, accordingly, allowed.”
In the case of Ms. Farrah Marker vs. ITO, for the AY 2005-06, “F” Bench of the ITAT has dealt with the similar issue and decided the same in favour of the assessee. In the said case also the AO did not provide opportunity to the assessee to cross examine the witness whose statement was relied upon to decide the issue against the assessee overlooking the direct evidence placed on record to establish the genuineness of the 8 Assessment Year: 2014-15 transaction of purchase and sale of the shares. The findings of the Bench read as under: “3.4.8 From the appreciation of the facts of the case, the material evidence placed on record by the assessee and in the light of the discussion of the factual and legal matrix of the case as discussed from para 3.1 to 3.4.7 of this order (supra), we are of the considered opinion that the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in the form of brokers contract notes for purchases and sales of the ‘said shares’ of M/s. Shukun Constructions Ltd., copies of the physical share certificates and her D-MAT account statement establishing the holding of the shares in her name prior to the sale thereof; confirmation of the transactions of buying and selling of the ‘said shares’ by the respective stock brokers, receipt of sale proceeds through banking channels, etc. As observed earlier in this order, we are of the view that the statement recorded from Shri Niraj Sanghvi on 31.12.2007, the day the order of assessment was passed, would have no evidentiary or corroborative value to be the basis for coming to an adverse view in the case on hand, since it was recorded behind the assessee’s back, from a person who was not involved in the purchase of the said shares and also since the assessee was not afforded opportunity for rebuttal of the same and to cross- examine the said person. We are also of the view that the ratio and the factual matrix of the decisions in the cited case, i.e. Jatin Chhadwa (supra), Harkhchand K. Gada (HUF) & others (supra) and Andaman Timber Industries (supra) would be applicable and support the case of the assessee since no adverse finding has been rendered in respect of the direct material evidence placed on record in respect of her transactions of purchase and sale of the ‘said shares’ of M/s. Shukun Constructions Ltd. which stand duly disclosed in her audited Balance Sheets filed with the return of income of assessment years 2004-05 and the current year under consideration. In this factual and legal matrix of the case, as 9 Assessment Year: 2014-15 discussed above, we find that the addition of `95,12,812/- under section 68 of the Act made and confirmed by the authorities below to be unsustainable and therefore direct the AO to delete the said addition and accept the LTCG income of `93,00,012/- shown as exempt under section 10(38) of the Act. Consequently, ground No. 1 of the assessee’s appeal is allowed.”
The Hon’ble Supreme Court in the case of M/s Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata, Civil Appeal No. 4228 of 2006 has held that where the adjudicating authority gives its findings on the statements of witnesses, not allowing assessee to cross-examine witnesses is a serious flaw which makes the order void as it amounts to violation of principles of natural justice. In the said case the plea of the appellant was that since the adjudicating authority did not allow it to cross examine the witnesses, whose statements were relied upon, the order is bad in law. The Hon’ble Supreme Court allowed the plea of the assessee holding as under:-
According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements 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 10 Assessment Year: 2014-15 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.
In the present case, the assessee has submitted following documents to prove the transaction of purchase of shares in question:-
1. Copy of statement of bank account showing payment of Rs. 60,000/-made for purchase of shares in question.
Copy of share certificate issued by Conart Traders Ltd in favour of Santoshima Tradelinks Ltd which was subsequently endorsed by Conart Traders Ltd in favour of the assessee when it was purchased by the assessee from Santoshima Tradelinks Ltd. 3. Copy of Demat Account in the name of the assessee issued by BCB Brokerage Pvt. Ltd. showing inward entry of shares in Demat account after BSE allowed its dematerialization on approval of merger of Conart Traders ltd. with Santoshima Tradelinks Ltd. by the Hon’ble Bombay High Court. 4. Copy of Balance Sheet as on 31.03.2012 and 31.03.2013,
Similarly, the assessee has submitted the following documents to prove the sale of shares in question:
Share Broker’s contract notes issued by Dilip C Bagri (registered with BSE and SEBI) 2. Copy of Demat account with BCB Brokerage Private Limited showing debit/outward entries. 3. Ledger account of the Broker Dilip C. Bagri showing transaction of sale of shares 11 Assessment Year: 2014-15
Copy of bank statement of the assessee showing receipt of amounts from share broker in respect of the shares sold, an 5. Copy of ledger account of the share broker in the books of the assessee.