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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, Shri Arun Kumar Bhaiya (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 16.02.2018 passed by Ld. CIT (Appeals)-28, New Delhi qua the assessment year 2014-15 on the grounds inter alia that :-
“1. That the CIT(A) has erred on facts and in law in confirming the action of the assessing officer in disallowing long term capital gain amounting to Rs.66,79,985 treating the same as unexplained cash credit in terms of section 68 of the Income Tax Act, 1961, alleging that the same has been earned by the assessee from sale of penny stock.
1.1 That the CIT(A) has erred on facts and in law in confirming the action of the assessing officer as above without appreciating that the aforesaid addition was made solely on the basis of information received from the investigation wing without affording any opportunity to the assessee to rebut the same. 1.2 That CIT(A) has erred on facts and in law in holding as above without appreciating that the alleged penny stock were listed in a recognized stock exchange and the assessee had duly submitted all the relevant details / documents in support of his claim which were not taken cognizance by the assessing officer. 1.3 That the Ld. CIT has erred on facts and in law in holding as above without appreciating that the assessee has duly discharged his onus cast on him under section 68 of the Income Tax Act, 1961 and assessing officer has failed to bring any cogent material on record in support of his contention of treating the aforesaid long term capital gains as unexplained cash credits in terms of that section.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : During the assessment proceedings, Assessing Officer noticed that the assessee has shown long term capital gain of Rs.66,79,985/- from two scrips viz. one lac shares of Unnao Industries Ltd. with purchasing cost of 125 shares at Rs.1,49,522/- and acquired remaining shares as bonus shares on different dates for a sale consideration of Rs.29,02,569/- and one lac shares of Kailash Auto Finance Ltd. with purchasing cost of Rs.1,10,211/- and the sale consideration on different dates is shown at Rs.40,37,149/-. Declining the contentions raised by the assessee, AO proceeded to conclude that the assessee has claimed bogus long term capital gain being not genuine investor and thereby disallowed the long term capital gain to the tune of Rs.66,79,985/- and treated the same as unexplained cash credit found in the books of the assessee and made addition thereof to the total income of the assessee.
Assessee carried the matter by way of appeal before the ld. CIT (A) who has confirmed the addition by dismissing the appeal.
Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
The ld. AR for the assessee challenging the impugned order contended inter alia that the entire assessment order has been based upon the report given by the Investigation Wing of the Income-tax Department and no independent enquiry has been conducted by the AO; that all the shares have been purchased by the assessee through banking channel for which STT payment has been made which is duly reflected in the contract note itself; that the Security Exchange Board of India (SEBI) has not taken any adverse inference against Unnao Industries Ltd.; that the assessee has supplied the entire data to the assessment proceedings which have not been relied upon.
However, on the other hand, to repel the arguments advanced by the ld. AR for the assessee, the ld. DR for the Revenue supporting the order passed by AO and ld. CIT (A) contended inter alia that circumstantial evidence brought on record by the AO apparently go to prove that as against 125 shares originally purchased by the assessee, 9875 shares have been allegedly allotted to the assessee as bonus shares which have been sold by the assessee immediately after the same were dematerialized which is humanly not possible; that value of the shares purchased by the assessee increased 29 times and 40 times within a short period which makes all the transactions unusual and suspicious.
Undisputedly, AO has based assessment order on the report given by Investigation Wing of the Income-tax Department that the long term capital gains on shares have been claimed by the assessee is result of bogus transactions. For facility of reference, operative part of the assessment order is extracted as under :-
“ The reply of the assessee has been duly considered but not found acceptable and the set of facts of the case laws quoted in it are different from the set of facts in this case. The assessee has sought the report of the wing which has already been shown to the director in the course of statement, it also asked the certified true copy of the investigation report of the SEBI; the report of the SEBl is online and also with the investigation wing and the gist of this report was shown to the assessee during the course of statement. Further the assessee has also asked to present the persons for confrontation who has given the statement of this vicious plan before the investigation wing on oath and the same is not possible at the fag end of the assessment proceedings.”
Bare perusal of the assessment order goes to prove that the AO has botched up the enquiry by denying opportunity of being heard to the assessee who has not been allowed to cross examine the witnesses. AO has also not enquired from the Stock Exchange so as to work out if by applying the rule of circuit breaker the appreciation in shares to the tune of 29 times or 40 times in a short period is feasible, rather AO has merely relied upon report of Investigation Wing. No doubt, SEBI has not drawn any adverse inference in case of Unnao Industries Ltd. company but that report is against the company and not the individual who have been instrumental in getting the transactions in question matured, but AO has also not associated any of the brokers involved in the transactions of shares purchased by the assessee and subsequent sale thereof.
9. AO has also not made any enquiry as to the trading value of the shares at time when the same was dematerialized nor has made any enquiry from the company itself by perusing their financial statement. AO has based the assessment order on preponderance of probabilities by relying upon circumstantial evidence by entirely ignoring direct evidence available in this case. AO has also not made enquiry from the father of the assessee who was Financial Adviser for the sale and purchase of the shares in question by the assessee as disclosed in the statement extracted in the assessment order. AO has also ignored the fact that there cannot be more than 5% increase in the value of shares in a day as per circuit breaker rule.
In view of what has been discussed above, we are of the considered view that AO has botched up the enquiry to complete the assessment hurriedly by basing the assessment order on report of the Investigation Wing despite the fact that direct evidence was available in this case. So, in these circumstances, we are of the considered view that the case is required to be set aside to the AO to decide afresh by providing an opportunity of being heard to the assessee in the light of the observations made herein above. So, appeal filed by the assessee is remanded back to the AO and accordingly allowed for statistical purposes. Order pronounced in open court on this 30th day of August, 2018. Sd/- sd/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 30th day of August, 2018/TS