SHRI MANOJ KUMAR DUGAR ,KOLKATA vs. ITO, WARD - 35(4), , KOLKATA

- These two assessees have filed their instant respective appeal(s) for assessment years 2015-15 & 2014-15 against the Commissioner of Income Tax (Appeals)-10 Kolkata’s separate order(s) dated 19.07.2018 and & 2019/Kol/2018 A.Ys 15-16 & 14-15 M/s Mahendra Kr. Jhawar Sh. Manoj Kr. Dugar vs. ITO Wd-35(4), Kol. Page 2 24.08.2018 passed in case No.1018/CIT(A)-10/W-35(4)/2015-16/2017-18/Kol & 357/CIT(A)-10/W-35(4)/2014-15/2016-17/Kol, involving proceedings u/s. 143(3) of the Income Tax Act, 1961; in short ‘the Act’.

We have heard these two appeal(s) together since involving identical question of correctness of this assessee’s claim having derived long / short term capital gains treated as unexplained cash credits in assessment and lower appellate proceedings. We thus treat former appeal ITA No.1834/Kol/2018 to be the lead case.

The assessee’s sole substantive ground pleaded in the instant appeal is that both the lower authorities erred in law as well as on facts in treating its LTCG of ₹5,52,796/- on sale of shares held in M/s Kailash Auto Finance Ltd. to be unexplained cash credits u/s 68 of the Act.

I have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the learned counsel for the assessee, similar issues involving identical facts had come up for consideration before the Division Bench of this Tribunal in the case of Manish Kumar Baid and Mahendra Kumar Baid and vide its order dated 18.08.2017 passed in & 1237/K/2017, the Tribunal deleted the similar additions made by the A.O. u/s 68 for the following reasons given in paragraph no. 6 of its order: “6. We have heard both the rival submissions and perused the materials available on record. We find lot of force in the arguments of the Id AR that the Id AO was not justified in rejecting the claim of the assessee on the basis of theory of surrounding circumstances, human conduct, and preponderance of probability without bringing on record any legal evidence against the assessee. We rely on the judgement of Special Bench of Mumbai Tribunal in the case of GTC Industries Ltd. (supra) for this proposition. The various facets of the arguments of the Id AR supra, with regard to impleading the assessee for drawing adverse inferences which remain unproved based on the evidences available on record, are not reiterated for the sake of brevity. The principles laid down in various case laws relied upon by the Id AR are also not reiterated for the sake of brevity. We find that the amalgamation of CPAL with KAFL has been approved by the order of Hon 'ble High Court. The Id AO ought not to have questioned the validity of the amalgamation scheme approved by the Hon'ble High Court in May 2013 merely based on a statement given by a third party which has not been subject to cross - examination. Moreover, it is also pertinent to note that the assessee and / or the stock broker Ashita Stock Broking Ltd name is neither mentioned in the said statement as a person who had allegedly dealt with suspicious transactions nor they had been the beneficiaries of the transactions of shares of KAFL. Hence we hold that there is absolutely no adverse material to & 2019/Kol/2018 A.Ys 15-16 & 14-15 M/s Mahendra Kr. Jhawar Sh. Manoj Kr. Dugar vs. ITO Wd-35(4), Kol. Page 4 implicate the assessee to the entire gamut of unwarranted allegations levelled by the Id AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the Id DR could not controvert the arguments of the Id AR with contrary material evidences on record and merely relied on the orders of the lower authorities apart from placing the copy of SEBI's interim order supra. We find that the SEBI's orders relied on by the Id AO and referred to him as direct evidence against the assessee did not contain the name of the assessee and/or the name of Ashika Stock Braking Ltd. through whom the assessee sold the shares of KAFL as a beneficiary to the alleged accommodation entries provided by the related entities / promoters / brokers / entry operators. In the instant case, the shares of CPAL were purchased by the assessee way back on 20.12.2011 and pursuant to merger of CPAL with KAFL, the assessee was allotted equal number of shares in KAFL, which was sold by the assessee by exiting at the most opportune moment by making good profits in ruder to have a good return on his investment. We find that the assessee and / or the broker Ashita Stock Broking Ltd. was not the primary allottees of shares either in CPAL or in KAFL as could be evident from the SEBl's order. We find that the SEBI order did mention the list of 246 beneficiaries of persons trading in shares of KAFL, wherein, the assessee and / or Ashita Stock Broking Ltd's name is not reflected at all. Hence the allegation that the assessee and / or Ashita Stock Broking Ltd getting involved in price rigging of KAFL shares fails. We also find that even the SEBI's order heavily relied upon by the Id AO clearly states that the company KAFL had performed very well during the year under appeal and the P/E ratio had increased substantially. Thus we hold that the said orders of SEBI is no evidence against the assessee, much less to speak of direct evidence. The enquiry by the Investigation Wing and/or the statements of several persons recorded by the Investigation Wing in connection with the alleged bogus transactions in the shares of KAFL also did not implicate the assessee and/or his broker. It is also a matter of record that the assessee furnished all evidences in the form of bills, contract notes, demat statements and the bank accounts to prove the genuineness of the transactions relating to purchase and sale of shares resulting in LTCG. These evidences were neither found by the Id AO to be false or fabricated. The facts of the case and the evidences in support of the assessee's case clearly support the claim of the assessee that the transactions of the assessee were bona fide and genuine and therefore the Id AO was not justified in rejecting the assessee's claim of exemption under section 10(38) of the Act. We also find that the various cases laws of Hon'ble jurisdictional High Court relied upon by the Id. AR and findings given thereon would apply to the facts of the instant case. The Id. DR was not able to furnish any contrary cases to this effect. Hence we hold that the Id. AO was not justified in assessing the sale proceeds of shares of KAFL as undisclosed income of the assessee u/s 68 of the Act. We accordingly hold that the reframed question no. 1 raised hereinabove is deleted in the negative is decided in the negative and in favour of the assessee."

The Tribunal also allowed the consequential relief to the assessee by deleting the additions made by the A.D. u/s 69C holding that the transactions giving rise to long term capital gain being genuine, there was no question of paying any commission for obtaining the alleged accommodation entries. Since the issues involved in the present cases as well as the material facts relevant thereto are similar to the cases of