DHOLADHAR INVESTMENTS PVT. LTD.,,H.P. vs. ACIT, NEW DELHI

To understand the facts and implication thereof, we are taking the appeal for the A.Y. 1998-99 first and the finding given therein will apply in the A.Y. 1999-2000 also.

The brief facts and background of the case are that, during the course of some investigation carried by DDIT (Inv.) in case of a broker, M/s. R.K. Aggrawal & Company it was gathered that the assessee company was one of the beneficiaries of bogus claim of long term capital gain on sale/purchase of shares. During the course of investigation, statement of Shri Satish Goel, proprietor M/s. R.K. Aggrawal & Company was recorded, wherein he has stated that transaction through his bank account no. 3097 with Corporation Bank, Karol Bagh, New Delhi, was merely a paper transactions and he use to take cash and issue bills, in lieu thereof, he use to give cheques/drafts of the same amounts. For such an accommodation entry, he was charging commission @ 0.25 to 0.50 % of the total transaction. On the basis of such information, the assessee’s case was reopened u/s 147 by issuance of notice u/s 148 and reassessment was framed, wherein the proceeds from sale of share of Rs. 4,99,325/- was added and taxed u/s 68 as ‘income from other sources’, along with some minor addition of commission amount that might have been paid to the broker on such entry. Such an addition aggregating to Rs. 5,01,821/- made on the quantum side stands confirmed from the stage of the Tribunal also. The relevant observation and finding of Tribunal in this regard is reproduced hereunder:- Page 2 of 14

During the course of the penalty proceedings, the assessee besides various explanations, had strongly urged and submitted that, no opportunity to cross examine Shri Satish Goel, was ever given to the assessee on the basis of which said addition has been made. Admittedly, despite requests made during the course of quantum and penalty proceedings no opportunity to cross examine of the said person was allowed. The Ld. Assessing Officer has rejected the assessee’s contention on the ground that, firstly, the addition made on account of sale of bogus shares has been upheld from the stage of Tribunal; and secondly, he had made all the efforts to trace Shri Satish Goel but of no avail and if assessee wanted to cross examine then assessee should have produced the said broker on its own because it was assessee’s broker. Accordingly, he has levied the penalty of Rs. 1,75,637/- on addition of Rs.5,01,821/-

Before the Ld. CIT (A), the assessee’s explanation, besides raising legal issue of failure to record “satisfaction” by the AO, had been as under:-

Before us the Learned Counsel, Dr. Rakesh Gupta submitted that here in this case, right from the stage reopening the assessment till the completion of assessment, the revenue has heavily relied upon the information received from the Investigation wing and uncorroborated statement of the broker. At no stage the assessee was provide with such information or was allowed cross examination of the witness, especially when there was no specific mention about the assessee or about transaction of sale in purchase of shares undertaken by the assessee in his statement. On the other hand assessee had disclosed all the particulars of share transaction in its return of income and had shown it as business income and in support he drew our attention to the details of the sales and purchase of shares transaction through this broker and submitted that all these transactions have been duly backed by proper sale bills, purchase bills, contract notes, etc. In fact the assessee had Page 6 of 14 undertaken the transaction in three scrips namely, L&T, SBI and ACC. Out of the said three transactions only two transactions of sale of shares of L&T and SBI has been held to be bogus and no adverse inference has been drawn on the sale of shares of ACC under taken through the same broker. In support of his contention and evidences filed during the course of the quantum as well as penalty proceedings, he further drew our attention to the documents and evidences placed at pages 9 to 27 of the paper book. Apart from that, he submitted that the assessee has disclosed the sale of shares as its ‘business income’ and not as long term capital gain as stated by Investigation wing. This fact is evident from the profit and loss account and also the relevant schedules annexed with the profit and loss account placed at pages 3 to 7 of the paper book. Thus, he submitted that when all the documents relating to purchase and sales of shares have been furnished and the profit from sale of shares has been shown as ‘business income’, then where is the question of levying the penalty u/s 271(1)(c). Simply the addition has been made under the head “income from other sources”, it does not necessarily lead to conclusion that penalty for furnishing of inaccurate particulars of income or concealment of income has to be levied. He submitted that penalty proceedings is separate and distinct from assessment proceedings and therefore, all the probable factors in favour of the assessee should be taken into consideration because, whatever material has been relied upon by the department for treating the sale of shares as “income from other sources”, instead of “business income” is without providing opportunity to the assessee to rebut the material or allowing the cross examination of the witness. Lastly, regarding the observations of Ld. AO and Ld. CIT (A) that assessee should have produced the broker; he submitted Page 7 of 14 that he was Department’s witness and if department is relying upon the statement of the broker against the assessee, then principles of natural justice provide that the onus is on the Department to produce its witness for cross- examination. Hence on this ground alone the penalty should be deleted.

On the other hand the ld. DR strongly relied upon the order of the Assessing Officer and Learned CIT (Appeals) and submitted that when the assessee’s similar plea has been rejected in the quantum proceedings right up to the stage of Tribunal, therefore, such a plea cannot be accepted for the purpose of penalty proceedings also. Thus, he submitted that the order of the Learned CIT (Appeals) confirming the Penalty should be confirmed.

We have heard the rival submissions and perused the relevant finding given in the impugned order as well as the material referred to before us. From the records it is seen that the assessee company has purchased certain shares from M/s. R.K. Aggarwal & Company proprietorship concern of Shri Satish Goel, mainly in three scrips viz., L&T; SBI; and ACC during the relevant assessment year 1998- 99. The details of scrips purchased and sold through R.K. Aggarwal & Company are reproduced here under:- Com No. of Date of Purchase Date of Sale value Profit/ loss Net pany shares purchase value (Rs.) sale (Rs.) (Rs.) gain/loss L&T 1500 5.12.97 266901.75 9.3.98 424350.90 157449.15 2600 5.12.97 463929.70 9.3.98 543376.15 79446.45 236895.60 SBI 2300 5.12.97 478587.45 9.3.98 537165.00 58577.55 2200 5.12.97 416163.00 9.3.98 620015.60 203852.60 262430.15 ACC 200 27.2.98 237849.90 16.3.98 301082.90 63233.00 200 27.2.98 236647.80 16.3.98 298287.10 61639.30 124872.30 In support of aforesaid purchase and sales of shares, our attention had been drawn to various purchases and sales bills issued for these scrips by M/s. R.K. Aggarwal & Company along with the details of scrips and distinctive numbers. In the profit and loss account the assessee has declared profit from sale of such shares and it has been treated as ‘business income’ rather than any ‘long term capital gain’. After having disclosed the said transaction in the return of income, the assessee’s case was reopened u/s 148 in the wake of information received from investigation wing that, M/s. R.K. Agarwal & Company, through proprietor, Shri Satish Goel, was found to be involved in giving accommodation entries and assessee was also one of the beneficiaries of bogus claim of ‘long term capital gain’. No where there is any whisper or reference in the quantum proceedings or material on record that in his statement, Satish Goel has specifically stated that he has undertaken bogus transaction in the case of assessee or had stated anything specific about the transaction in these scrips. In his statement, Shri Satish Goel has stated that the transactions rooted through his particular bank account were only the paper transaction and he used to issue bills and cheques in lieu of cash for which he was charging the commission ranging 0.25% to 0.50%. Based on these information and statement, addition on sale of shares of Rs. 4,99,325/- has been made as unexplained the cash credits. This addition has been confirmed on the quantum side up to the stage of the Tribunal mainly on the ground that assessee was one of the beneficiaries of Page 9 of 14 such accommodation and M/s. R.K. Aggarwal & Company was involved in issuing bogus transactions. The penalty too has been confirmed based on these findings arrived in the quantum proceedings. Even before the Learned CIT (Appeals) the assessee had made detailed submissions as to why the penalty should not be levied on merits as well as legal grounds, however the Ld. CIT (Appeals) has too gone on the findings and conclusions drawn in the quantum proceedings.

It is a trite law that finding given in the quantum proceedings may have persuasive and probative value but such findings and material alone and may not justify the imposition of penalty in a case, because the considerations that arise in penalty proceedings are different from those in assessment proceedings. The regular assessment order is not the final word in penalty proceedings upon the pleas which can be taken at the penalty stage and howsoever relevant and good the findings in the quantum proceedings may be, but they are not conclusive so far as the penalty proceedings are concerned. In adjudging as to whether the assessee is guilty of concealment or of furnishing of inaccurate particulars thereof, the matter has to be examined afresh and one cannot be guided solely by the findings given on the quantum side. The penalty proceedings being separate and distinct of assessment proceedings, the assessee is always at liberty to demonstrate either from the same set of material placed on record or bring any fresh evidence to substantiate that he is not guilty of furnishing of any inaccurate particulars of income or concealment of income. Here in this case, the assessee at the time of filing of return of income had disclosed the income from sale of shares as ‘business income’ chargeable to tax and has duly Page 10 of 14 disclosed all the material facts in the form of whatever evidences and material available with it. Later on, when adverse information was received from the Investigation wing based on statement of Shri Satish Goel that assessee was beneficiary of bogus transaction, then it was an incumbent upon the Revenue to ensure that all the such material and information should have been made available to the assessee so as to controvert the same and if the assessee had made request for cross examination of the said witness of the department, then the same should have been allowed as matter of principle of natural justice. More particularly here in this case, when nothing is borne out from the record that the broker, Shri Satish Goel has either mentioned specifically about the assessee or any adverse material has been stated by him that the transaction of shares undertaken by the assessee through him is sham or bogus. The said person may have been involved in bogus and sham transaction, however if the assessee has produced all the relevant material belonging to the same broker and out of the transactions undertaken for three scrips, one has been accepted by the department then no adverse inference can be drawn for other two scrips sans any specific material found or stated by the same broker. Presumption in such circumstances goes in favour of the assessee and so also the probable factors. Here as stated above, it is not the case that assessee has claimed any exemption of long term capital gain on sale of shares as alleged in the information received, albeit assessee has shown it as taxable income under the head “business income”. The revenue only wants to tax as “income from other sources”. Such taxability under different head cannot be reckoned as fit case for levy of penalty.

Further, we do not find any substance in the observation and finding of the authorities below that, Satish Goel was assessee’s broker; therefore, onus was upon the assessee to produce him for the cross examination. This is absolutely against the tenets of law, because, when the Revenue is heavily relying upon the statement of a witness conducted by them, on the basis of which it has taxed the assessee and also initiated penal provisions, then the onus to produce the witness lies heavily upon the Revenue. This onus cannot be relegated or shifted to the assessee, more so, in the cases where reopening has been done u/s 147 based on certain statement or information collected/conducted given through any witness by the Revenue, then it is the Revenue who has demonstrate and prove that the such information or statement of the witness is correct and constitutes a relevant material against assessee, especially when assessee points out any deficiency or rebuts the statement/material. In absence of any cross examination provided to the assessee despite several requests even in the penalty proceedings, it would be very difficult to hold that such material alone is sufficient to charge the assessee being guilty of furnishing of inaccurate particulars of income or concealing any particulars of income. Under these circumstances, we hold that in absence of providing cross examination of the witness as requested by the assessee not only during the course of the assessment proceedings but also during the course of penalty proceedings, no adverse inference can be drawn especially for the purpose of levying of penalty u/s 271(1)(c). Accordingly, the penalty levied by the Assessing Officer and as confirmed by the Learned CIT (Appeals) is deleted.

It is an admitted fact that in the A.Y. 1999-2000 also, similar penalty has been levied on sale of shares and again no cross examination of the witness has been allowed by the revenue to the assessee, therefore, our finding given above, will apply mutatis mutandis in this year also. Thus, the penalty levied in this year also is deleted.

In the result, both the appeals of the assessee are allowed.