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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Shri Manjunatha, G. & Shri K. Narasimha Chary
S.A. No.1/Hyd/2024 (िनधा�रण वष�/Assessment Year: 2014-15) Ishoo Narang Vs. Dy. CIT Hyderabad Circle 2(1) PAN:AAUPN9082B Hyderabad (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri P Murali Mohan Rao, CA राज� व �ारा/Revenue by:: Smt. TH Vijaya Lakshmi, CIT (DR) सुनवाई की तारीख/Date of hearing: 19/08/2024 घोषणा की तारीख/Pronouncement: 25/09/2024 आदेश/ORDER Per Manjunatha, G. A.M This appeal filed by the assessee is directed against the order dated 15/07/2022 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2014-15.
The assessee has raised the following grounds: “
1. The Ld. CIT(A) erred in dismissing the appeal.
2. The Ld.CIT(A) erred in holding that al the mandatory preconditions before reopening of assessment u/s 147 of the Act were duly complied and met with by the A.O.
3. The Ld.CIT(A) erred in confirming the addition of Rs.6,45,76,466/ made u/s 68 of the Act.
4. The Ld.CIT(A) has erred in holding that it is just a sham transaction to convert undisclosed income into disclosed income by evading tax under garb of LTCG in connivance with Entry providers.
5. The Ld.CIT(A) has erred in holding that the share transactions leading to LTCG by appellant are sham transactions entered into for the purpose of evading tax. 6. The Ld.CIT(A) has erred in holding that the assessee has indulged in a dubious share transaction meant to account for the undisclosed income in the garb of LTCG. 7. The Ld.CIT(A) has erred in holding that the entire amount of the so called receipt on sale of shares has been treated correctly as unexplained credit u/s 68 of the Act. 8. The Ld.CIT(A) has erred in holding that it is clear that the assessee has manipulated the sale of shares within a short span of time in collusion with the brokers in order to earn tax free exempt long term Capital Gains. 9. The Ld.CIT(A) has erred in holding that the motive of the appellant is not to derive income but to earn a profit, that too, by an arrangement and it is a manipulated transaction in collusion with the brokers to paint credit worthiness to the transaction and claim exemption u/s 10(38). 10. The Ld.CIT(A) has erred in holding that the impugned share transactions are premediated and pre structured ones. 11. The Ld.CIT(A) has erred in holding that the impugned share transactions are artificially structured transactions which were entered into with sole purpose of evading tax. 12. The Ld.CIT(A) has erred in holding that the appellant has indulged in dubious share transaction meant to account for the undisclosed income in the garb of Capital Gains. 13. The Ld.CIT(A) has erred in upholding the action of AO in disallowing the LTCG claimed of Rs.6,40,51,466/- as exempt u/s 10(38).
14. The Ld.CIT(A) erred in confirming the addition of Rs.6.,45.764/ made towards unexplained expenditure on account of commission @1% of sale price of shares presumed to have been paid to the so called entry provider.
15. The Ld.CIT(A) has erred in holding that the appellant failed to discharge the burden of proof and the AO on the other hand has proved that the claim of appellant was incorrect.
16. The Ld.CIT(A) ought to have appreciated that the statements obtained from the appellant on 15.09.2015 & 18.09.2015 were coercively obtained by the DDIT(Inv.) Hyderabad. 17. The Ld..CIT(A) has erred in holding that the retraction affidavit filed by the appellant on 30.09.2015 is only an afterthought to cover up his tracks. 18. The Ld.CIT(A) has erred in holding that the action of the AO in rejecting the retraction filed by appellant is upheld and confirmed. 19. The appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
3. The brief facts of the case are that the assessee is an individual and Director of M/s. Kyori Oremin and Kyori Infrastructure, filed his return of income for the A.Y 2014-15 on 25.07.2014 admitting income of Rs.94,22,920/-. A survey u/s 133A of the I.T. Act, 1961 was conducted at the business premises of the appellant and other group companies on 15/09/2015. During the course of survey proceedings, it was found that during the financial year 2011-12, the assessee has invested in equity shares of M/s. Turbo Tech and M/s. Sharp Trading Company for Rs.1,00,000 and Rs.4,25,000 respectively.
Page 3 of 26 Further, during the financial year 2013-14 relevant to A.Y 2014- 15, the shares of M/s. Turbo Tech were sold for an amount of Rs.2,30,85,623/- and shares of M/s. Sharp Trading Company for Rs.4,14,90,843/- respectively. Thus, during the financial year relevant to A.Y 2014-15 the assessee has earned Long-Term Capital Gain of Rs.6,40,51,466/-on sale of equity shares of 2 companies and claimed exempt u/s 10(38) of the I.T. Act, 1961. During the course of survey, a statement on oath u/s 131 of the I.T. Act, 1961 was recorded from the appellant and called upon to explain the Long-Term Capital Gain derived from the sale of shares. In response, the appellant stated that the Long-Term Capital Gain derived from sale of above 2 companies shares is his own unaccounted income which was routed through entry of Long-Term Capital Gain provided by entry operators in association with stock brokers and thus, agreed to disclose additional income of Rs.6,40,51,466/- for the A.Y 2014-15.
4. The case has been subsequently, reopened u/s 147 of the I.T. Act, 1961 for the reasons recorded as per which income chargeable to tax had escaped the assessment and accordingly, notice u/s 148 dated 23.3.2018 was issued and duly served on the assessee. The assessee neither filed return of income in response to notice u/s 148 nor furnished any reply. Further, the notice u/s 142(1) dated 31.07.2018 was issued and called upon the assessee to explain with relevant evidences Long-Term Capital Gain declared from sale of shares, more particularly in light of Page 4 of 26 statement recorded during the course of survey. The assessee did not furnish any reply, therefore, the Assessing Officer by taking note of relevant facts including statement on oath recorded from the assessee, findings of the reports submitted by the Investigation Wing, Kolkata I T Department has analyzed the share price of the above two companies in the stock market and observed that the assessee in collusion with stock brokers has involved in the systematic activity of generating Long-Term Capital Gain to derive the benefit of exemption u/s 10(38) of the I.T. Act, 1961. Therefore, made addition towards entire sale consideration received from sale of shares of the above 2 companies amounting to Rs.6,45,76,466/- as unexplained cash credit of the assessee u/s 68 of the I.T. Act, 1961. The relevant findings of the Assessing Officer are as under: “11. In view of the discussion made above and considering the facts and circumstances of the case, the following facts become manifestly clear: i) That some unscrupulous operators in the capital market were running a scheme of providing entries of Long-Term Capital Gain for a commission. ii) The financial result of the Penny Stocks used for the purpose clearly indicates that its quoted price at the peak was the result of rigging. iii) That such schemes are prevalent for converting black money into white is common knowledge, independently confirmed by SEBI. iv) The assessee is one such beneficiary who has taken entry of LTCG amounting to Rs. Rs.6,45,76,466. v) Also, similar entries have been taken by one of the directors of M/s. Kyori Oremin Ltd total amounting to Rs.2.3 crores. vi) As the trading in these shares is at a pre- determined time between pre-determined brokers
Page 5 of 26 at a pre-determined price; there is virtually no scope of any genuine trader in share to buy or sell these shares. vii) Thus, whoever has benefitted from transaction in these shares have transacted in accordance with the scheme and has admittedly converted his unaccounted cash equal to the sale proceeds of shares in to white in the guise of exemption under section l0(38) of the Income Tax Act, 1961. viii) With so much of evidence against the assessee and admission by him on oath Ws.131, the onus was on the assessee to prove that his transactions were genuine and that he had not availed benefit of the aforementioned scheme to convert black money into white. ix) In "Sumati Dayal vs. Commissioner of Income tax, Hon'ble Supreme Court" observed as under:- "It is no doubt true that in all cases in which a receipt is sought to be laxed as income, the burden lies on the Department to prove that il is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. (See Parimisetti Seetharamanma (supra) at P. 5361. But, in view Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assesee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer. not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that il was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably" Unquote. Bul in this case the assessee did not respond to the notices issued during the course of assessment proceedings even after providing sufficient opportunity by the following the principle of natural Justice.
Page 6 of 26 x) The Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai vs. M/s Dilip Kumar & company and others (Civil Appeal No.3327/2007)" has categorically ruled that exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue.
In view of the above facts, the assessee has not discharged his onus. Thus, it is established that the assessee has brought its unexplained income into books through accommodation entries, therefore amount of 6,45,76,466 shown as sale consideration is treated as unexplained income of assessee u/s 68 of income tax act.”
Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT (A). Before the learned CIT (A), the assessee challenged reopening of the assessment u/s 147 of the Act, on the ground that the reopening of the assessment is merely on the basis of change of opinion without there being any fresh tangible material which suggests escapement of income. The appellant has also challenged the additions made by the Assessing Officer towards the consideration received from sale of shares in light of certain judicial precedents and argued that the addition made only on the basis of statement recorded from the assessee in pursuant to survey conducted u/s 133A of the Act, without there being any material to suggest Long-Term Capital Gain derived from sale of shares is bogus in nature cannot be sustained.
The learned CIT (A) after considering the relevant facts including the survey conducted u/s 133A of the I.T. Act, 1961 rejected the grounds taken by the assessee challenging the reopening of the assessment u/s 147 of the I.T. Act, 1961 on the ground that there is enough material which come to the possession of the Assessing Officer subsequent to completion of the assessment which suggests escapement of income on account of under assessment of Long-Term Capital Gain derived from sale of shares. Therefore, the reasons recorded by the Assessing Officer for reopening of the assessment is in accordance with law and thus, there is no merit on the grounds taken by the assessee challenging the validity of reopening of the assessment. Accordingly rejected the ground taken by the assessee.
So far as the additions made by the Assessing Officer towards consideration received from sale of shares u/s 68 of the I.T. Act, 1961, the learned CIT (A) observed that the appellant has traded in 2 scrips and received payment of Rs.6,45,76,466/- which was claimed as exempt u/s 10(38) of the I.T. Act, 1961. The gains made by the appellant are altogether beyond human probability going by the period of holding of above 2 shares and the price paid for purchase of shares. The Assessing Officer has brought out clear fact that, the jump in the share price of the above two companies is to the tune of 9700% in case of M/s. Sharp Trading Company and 23000% in the case of M/s. Turbo
Page 8 of 26 Tech Engineering. If we go by the financials of the above companies and sudden jump in share price, it is quite contrary to the human probability. Therefore, from the above, it is undisputedly clear that the appellant is deriving bogus Long- Term Capital Gain from above two shares in collusion with the entry providers which is evident from the reports submitted by the Investigation Wing, Kolkata I.T. Department where the modes operandi of entry providers has been explained. Therefore, he opined that there is no error in the addition made by the Assessing Officer towards bogus Long-Term Capital Gain u/s 68 of the I.T. Act, 1961 and thus, rejected the argument of the assessee and sustained the additions made towards bogus Long- Term Capital Gain. The relevant findings of the learned CIT (A) are as under:
“7.14 The action of AO in making additions u/s 68 and 69C of the Act and disallowing the claim of LTCG being exempt u/s 10(38) is fully justified in view of the following facts – a) Appellant had no justification/ rationale in trading in shares. In the trading of share of M/s Turbo Tech Engg. and M/s Sharp Trading company, the Appellant made unusual astronomical profit which is highly unusual. Profits earned are to tune of 97 times and 230 times the initial investments made. b) Net worth of M/s Turbo Tech Engg. and M/s Sharp Trading company is negligible as per the financials but share price was rigged to an astronomical level. c) Statements were recorded during 133A proceedings and u/s 131 of Entry operators, share brokers and beneficiaries by Investigation Wing who admitted that they were providing accommodation entries to various
Page 9 of 26 persons like Appellant in the penny stocks of M/s Turbo Tech Engg. and M/s Sharp Trading company. d) Transactions undertaken are not bonafide. Shares of M/s Turbo Tech Engg. and M/s Sharp Trading company are devoid of any commercial value. structured ones. e) Transactions are premeditated and pre Appellant failed to discharge the onus cast on him to prove the unusual rise in price of share of M/s Turbo Tech Engg. and M/s Sharp Trading company and is linked to market factors and commercial principles. f) These artificially structured transactions were entered into with sole purpose of evading tax. g) In statement recorded during survey u/s 133A on 15.09.2015 the 9) Appellant admitted additional income of Rs. 6,40,51,466/- for AY-2014 15. He admitted that purpose of this transaction was to convert his unaccounted cash to accounted income in form of LTCG which was claimed exempt u/s 10(38). It was stated that Appellant acted on advice of his ex-CFO Sh. Chanchal Rajora who pre planned the whole transaction with M/s Ekta brokers, Mumbai. This statement was again confirmed by Appellant in statement u/s 131 on 18.09.2015. Appellant even admitted that STCL of Rs.2,78,16,000/- shown in AY-2015-16 is also not genuine and this entry of STCL is taken to set off LTCG earned on sale of property in Vizianagaram. h) Another Director in M/s Kyori Oremin namely Sh. SS Rudraraju had also indulged in bogus share transactions in shares of M/s Turbo Tech Engg. and shown bogus LTCG of Rs. 2,29,74,224/-. i) Appellant admitted that commission @ 1% was paid to earn such bogus accommodation entries of LTCG during statement recorded. j) Sh. Sanjay Vora, Regional Director, East Zone of M/s Anand Rathi Shares and Stock brokers in his statement recorded u/s 131 on 08.04.2015 confirmed the trading in bogus penny stock of M/s Turbo Tech Engg. and providing accommodation entries to beneficiaries.
Page 10 of 26 k) One of the operators/Exit providers namely Sh. Praveen Agarwal in his statement recorded u/s 131 on 10.02.2015 stated that companies which purchased these penny stocks from beneficiaries are shell paper Companies and are controlled by him for providing bogus LTCG entries. 7.15 a) In the GOA no. 14,15,16 the Appellant contended as under: * AO erred in ignoring the affidavit of retraction of statements dated 30.09.2015. * AO ought to appreciate that when statements were recorded the Appellant was medically unfit. * Appellants statements were coercively obtained by DDIT(Inv.),Hyderabad on 15.09.2015 and 18.09.2015. b) Appellant filed affidavit of retraction of statements recorded on 15.09.2015 and 18.09.2015 before DDIT(Inv.), Hyderabad on 30.09.2015 and same is reproduced in para 10 of assessment order. c) Statement of Appellant was recorded during 133A proceedings on 15.09.2015 and appellant reconfirmed the contents of this statement in the statement recorded u/s 131 on 18.09.2015. Nowhere in both these statements the Appellant contended that these statements are recorded under threats or coercion by the officers. Appellant had ample opportunity to put forth those facts. On the other hand, the Appellant reconfirmed the contents of his statements recorded on 15.09.2015 in statement recorded on 18.09.2015. Both these statements were recorded in English and Appellant is fully conversant in English. Before signing these two statements the Appellant read and re read the contents of these statements and thereafter when appellant agreed with the statement recorded did he put up his signature on both these statements. In both statements the Appellant confirmed that these statements are given by him without any force, threat or coercion. d) The above facts show that retraction affidavit filed by Appellant on 30.09.2015 i.e. after a gap of 12 to 15 days is only an afterthought to cover up his tracks. No evidence (documentary or circumstantial) was filed to support the averments in the affidavit filed dated 30.09.2015. Appellant adopted a complete 'non-
Page 11 of 26 compliant' attitude thereafter and did not respond to statutory notices issued u/s 148 or u/s 142(1) nor did he respond to summons issued u/s 131 of the Act. Had the contents of Appellants affidavit were true the Appellant needed to put forward his case before the AO but he chose not to do so for reasons best known to him. e) As evident from paras 5 and 5.1 of assessment order it is clear that reasonable opportunity of being heard was provided to appellant but the appellant chose not to avail the said opportunities for reasons best known to him. f) The Hon'ble Apex court in KTMS Mohd. in 197 ITR 196(1992) on this issue of retraction of statement held as under: "Retracted statement has to be seen with great circumspection. The statement, if obtained by any inducement, threat, coercion or by any improper means, must be rejected. At the same time, it is to be noted that, merely because a statement is retracted, it cannot be recorded as in-voluntary or unlawfully obtained. It is only for the maker of the statement who alleges inducement, threat, promise etc. to establish that such improper means have been adopted." The Hon'ble High court of Kerala in P.S. Barkathali Vs Directorate of Enforcement AIT 1981 Ker. 81 held as under: "Even though the statement was subsequently retracted, the significance of admission in the first place cannot be under mined. It is well established that mere bald retraction cannot take away the importance and evidentiary value of the original confession, specially in view of the fact that in this case, the deponent of the statement had provided the minute details relating to the transactions. It appears that the retraction statement was made purely to avoid clutches of law which had caught up with him and laid bare his nefarious activities. g) In view of the above discussion and respectfully following the above judgments it is hereby held as under:
* Retracted statement shall not carry evidentiary value unless it is paid Taxes of Details 9 shown by independent evidence that original statement was obtained under coercion or influence etc. or otherwise proved as erroneous by deponent. In the present case the Appellant failed to prove the same with independent evidence. * Retraction in present case is crude attempt and afterthought on part of appellant to escape from clutches of law. Hence, the action of AO in rejecting the retraction filed by appellant is upheld and confirmed. 7.16. ln view of the above mentioned facts, the material brought on record by the A0, and the decision of CIT vs Durga Prasad More (1971) 82 ITR 540 and the case of Sumati Dayal vs. CIT (supra) 214 ITR 801 (SC), the test of human probabilities needs to be applied and true nature of the transaction has to be ascertained in light of the surrounding circumstances. Considering the facts and circumstances of the case, I find that the appellant has indulged in dubious share transaction meant to account for the undisclosed income in the garb of Capital Gain. In view thereof additions of Rs.6,45,76,466/- and Rs.6,45,764/- made by the AO u/s 68 and 69C of the I. T. Act are hereby upheld. The action of AO in disallowance the LTCG claimed of Rs.6,40,51,466/- as exempt u/s 10(38) is upheld. 7.17 Appellant has contended that AO did not produce the witnesses whose statements were recorded and used against the Appellant. The contention of the Appellant is not acceptable in view of following judgments: i. The Hon'ble ITAT, Mumbai in the case of GTC Industries Ltd. vs ACIT, ITAT, Mumbai, [1998] 65 ITD 380 (BOM) held that : "Where statements of witnesses were only secondary and of subordinate material used to buttress main matter connected with amount of additions, it had to be held that there was no denial of principles of natural justice if witnesses were not allowed to be cross- examined by assessee”
7.18 In view of the above facts and discussion and respectfully following the judgments outlined above, the Grounds of Appeal No. 9 to 19 are of ls dismissed.”
The learned Counsel for the assessee submitted that the learned CIT (A) is erred in upholding the reopening of the assessment u/s 147 of the Act, without appreciating the fact that there is no live nexus between the reasons recorded for reopening of the assessment and escapement of income which is precondition for reopening of the assessment. The learned Counsel for the assessee further submitted that the learned CIT (A) is erred in confirming the addition made towards Long-Term Capital Gain derived from sale of shares u/s 68 of the I.T. Act, 1961, without appreciating the fact that there is no reference of name of the appellant either in the investigation report submitted by the I.T. Department, nor any discussion made by the Assessing Officer in the assessment order in light of said report. The learned Counsel for the assessee further submitted that the Assessing Officer has made addition solely on the basis of statement recorded u/s 131 of the I.T. Act, 1961, during the course of survey, even though the Assessing Officer does not have any material to show that the Long-Term Capital Gain derived by the appellant from purchase and sale of above two shares is bogus in nature. In this regard he relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. S Kadar Khan & Sons (2012) 254 CTR 228 (S) and also the decision of the Hon'ble Telangana and Andhra Pradesh High Court in the case of Gajjam Chinna Yellappa and Ors. vs. ITO [(2015) 370 ITR 671 (AP)]. The learned
Page 14 of 26 Counsel for the assessee further submitted that the Assessing Officer made addition towards Long-Term Capital Gain only on the basis of general observation made by the I.T Department on the modes operandi of entry providers in Kolkata, but neither brought out any facts to link the appellant to said modes operandi nor proved capital gain derived by the appellant from sale of above two company shares are in collusion with the entry providers. In absence of any finding as to the involvement of the appellant in the alleged scam, it cannot be said that the appellant is a part of that scam and the Long-Term Capital Gain derived by the appellant is bogus in nature. In this regard, he relied upon the decision of the Hon'ble Supreme Court in the case of PCIT vs. Parasben Kasturchand Kochar (2021) 282 Taxman 301 (SC).
The learned DR, on the other hand, supporting the orders of the authorities below submitted that, the survey conducted in the case of the assessee revealed the role of the appellant in deriving bogus Long-Term Capital Gain from penny stock. Further, the appellant has categorically admitted in his statement recorded u/s 131 of the I.T. Act, 1961 that the Long- Term Capital Gain derived from the above two shares is unaccounted income routed through bogus Long-Term Capital Gain in collusion with entry providers. Therefore, the argument of the assessee that there is no material available with the Assessing Officer to allege that the Long-Term Capital Gain derived from said shares is bogus in nature is devoid of any merit. The learned
Page 15 of 26 CIT (A) after considering the relevant facts has rightly sustained the addition made by the Assessing Officer and their order should be upheld.
10. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. We have also carefully considered the relevant case laws referred to by the Assessing Officer and the learned CIT (A) in support of their findings and various case law relied upon by the learned Counsel for the assessee to support his argument. As regard the first legal ground taken by the assessee on reopening of the assessment u/s 147 of the I.T. Act, 1961, we find that the assessment has been reopened in consequent to the findings recorded during the course of survey conducted u/s 133A of the Act, where a statement on oath u/s 131 was recorded from the appellant in light of purchase and sale of shares of M/s Turbo Tech Engineering and M/s. Sharp Trading Company and ascertained that the appellant has claimed exemption u/s 10(38) of the I.T. Act, 1961 towards Long-Term Capital Gain. Based on the said information, the Assessing Officer recorded reasons for reopening of the assessment and observed that there is an escapement of income from tax on account of under assessment of Long-Term Capital Gain derived from purchase and sale of shares. From the above, it is undisputedly clear that there is fresh tangible material in the form of material, found during the course of survey which is subsequent to completion of assessment for the Page 16 of 26 impugned A.Ys and therefore, the argument of the learned Counsel for the assessee that the reopening of the assessment was not based on any fresh tangible material but merely on change of opinion is devoid of any merit and unsustainable. Further, the Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd. vs Income-Tax Officer And Ors 236 ITR 34, (1999) had an occasion to consider the validity of reopening of the assessment and held that in determining whether commencement of re-assessement proceedings was valid, it has only to be seen whether there was any prima facie material on the basis of which the Department reopened the case. Sufficiency or correctness of the material is not need to be considered at this stage. From the reasons recorded for reopening of the assessment, we are of the considered opinion that there is a prima facie material on the basis of which the Assessing Officer formed reasonable belief of escapement of income and thus, the reopening of the assessment u/s 147 of the Act is on sound footing and valid. Accordingly, we reject the grounds taken by the assessee.
11. Having said so, let us come back to the issue on hand. Admittedly, the appellant has purchased 42,500 equity shares of Sharp Trading Company on 29.3.2012 for a consideration of Rs.4,25,000/-. The appellant had also purchased 50,000 equity shares of Turbo Tech Engineering on 26/12/2011 for a consideration of Rs.1,00,000/-. The assessee has sold the shares of Sharp Trading Company for a consideration of Page 17 of 26 Rs.4,14,90,8432/-. Similarly, the shares of Turbo Tech Engineering were sold for a consideration of Rs.2,30,85,623/-. Thus, the appellant has derived Long-Term Capital Gain of Rs.6,40,51,466/- and claimed exemption u/s 10(38) of the I.T. Act, 1961, because the holding period of above shares are more than 12 months and becomes Long-Term Capital Gain which is exempt as per the provisions of section 10(38) of the I.T. Act, 1961. There is no finding either from survey team or from the Assessing Officer with regard to the number of shares sold by the appellant in respect of both the companies. Although, the appellant claims that it has sold part of equity shares and remaining shares are still held by the appellant, but no evidence has been filed. Be that as it may, the facts remains that the purchase of above shares two years back is through proper banking channels and Demat Account. Further, sale of above shares is also through proper banking channels and through Demat Account. The appellant has sold the shares through stock brokers in Demat format and received consideration in cheque. In fact, there is no dispute on these two facts, either from the Assessing Officer or from the learned CIT (A). The only dispute is with regard to the nature of transaction carried out by the appellant in light of statement recorded u/s131 of the I.T. Act, 1961 during the course of survey conducted in the business premises of the assessee on 15/09/2015.
12. During the course of survey, a statement u/s 131 was recorded from the assessee where he has stated that the Long- Term Capital Gain represents his unaccounted income routed through purchase and sale of shares of above two companies to his books of account. The appellant has also admitted for disclosure of additional income for the A.Y 2014-15 which is evident from the statement recorded during the course of survey. Admittedly, the appellant has filed a letter along with affidavit dated 30.09.2015 i.e. within 15 days from the date of recording statement u/s 131 of the I.T. Act, 1961 during the course of survey and stated that the statement was recorded in a state of confusion mind and whatever stated in the statement is incorrect and also capital gain derived from sale of shares is genuine which is supported by necessary evidences. Accordingly, the appellant has not admitted any income in re-assessement proceedings.
The sole basis for the Assessing Officer to make addition towards Long-Term Capital Gain u/s 68 of the I.T. Act, 1961 is survey conducted u/s 133A of the I.T. Act, 1961 and statement recorded from the assessee u/s 131 of the Act. Although the Assessing Officer rests his observation on the basis of statement recorded u/s 131, but in principle said statement is no longer in existence because the appellant has withdrawn the above statement by a sworn affidavit dated 30.09.2015. Be that as it may, if we go by the statement recorded u/s 131 of the I.T. Act, 1961, the Assessing Officer has recorded the confession of the Page 19 of 26 assessee with regard to the bogus nature of capital gain, but there is no reference to any material either in the form of report from Investigation Wing or any other material which suggests the role of the appellant in the alleged scam of bogus nature of capital gain provided by entry providers in Kolkata. Further, although the Assessing Officer refers to Investigation Report in Para 3 of his assessment order, but said reference is only in 3 lines without any details as to what is the findings of the Investigation Wing with regard to the modes operandi of entry providers and the role of appellant. In our considered view, there may be an alleged scam of providing entry in the form of Long-Term Capital Gain or unsecured loan, but unless the Assessing Officer links the appellant activities to said alleged scam, it cannot be alleged that the appellant is also part of alleged scam of bogus Long-Term Capital Gain provided by entry operators and the appellant has derived benefit by claiming exemption towards Long-Term Capital Gain u/s 10(38) of the I.T. Act, 1961. In our considered view, if we go by the observation of the Assessing Officer in the assessment order, it is general in nature without there being any specific observation with regard to the role of the assessee in respect of above two shares. Further, although the Assessing Officer refers to the financials of the above two companies and sudden jump in share price during short period, but that alone itself is not a ground to allege that the assessee is also a part of such alleged scam and Long-Term Capital Gain derived from the appellant from purchase and sale of above shares is bogus in nature. Take
Page 20 of 26 an example, there may be a group of people who are in collusion with each other may have traded a particular share to jack the share price artificially in the stock market, but a common investor in stock market by watching the moment of share price of particular share may invest accidently and derives some profit or loss. Therefore, merely for the reasons that there is a sudden jump in share price, it cannot be alleged that the assessee is also a part of that group of people who are involved in providing bogus entries for deriving Long-Term Capital Gain. In the present case, the Assessing Officer neither brought out any material which suggests the role of the appellant in the alleged scam of bogus Long-Term Capital Gain nor any reference in the investigation report before coming to the conclusion that the Long-Term Capital Gain derived by the assessee is bogus in nature.
At this stage it is relevant to consider the decision of the Hon'ble Supreme Court in the case of CIT vs. S Kadar Khan & Sons (Supra), where it has been clearly held that the Assessing Officer does not have the power to examine any person on oath during survey u/s 133A of the I.T. Act, 1961. Further, the statement recorded u/s 131 during the course of survey has no evidentiary value and any admission made during such statement cannot be made the basis of addition. Similar view has been taken by the Hon'ble Telangana & Andhra Pradesh High Court in the case of Gajjam Chinna Yellappa vs. Income Tax Officer (Supra), where it has been held that where assessment order has been Page 21 of 26 based on sole basis of statement recorded during the course of survey and after retraction of statement, the Assessing Officer did not produce any other material to support under assessment of sale consideration of land, assessment order was to be set aside. A similar view has been taken by the Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd vs. State of Kerala (1973) 91 ITR 18 (S.C). The sum and substance ratios laid down by various Courts is that addition cannot be made on the basis of statement recorded u/s 131 during the course of survey u/s 133A of the I.T. Act, 1961, but it should be supported by corroborative evidences and in absence of any evidence, no addition can be made on the basis of statement alone. In the present case, going by the reasons given by the Assessing Officer and the learned CIT (A), the additions towards the consideration received for sale of shares u/s 68 of the I.T. Act, 1961, in our considered view, said addition is made solely on the basis of statement recorded from the assessee but not based on any material. Therefore, the addition made by the Assessing Officer cannot be sustained.
Coming back to the case law on the issue of additions made towards Long-Term Capital Gain u/s 68 of the I.T. Act, 1961. The Hon'ble Supreme Court in the case of PCIT vs. Parasben Kasturchand Kochar (Supra) had considered an identical issue of addition made towards Long-Term Capital Gain derived from sale of shares and claimed exempt u/s 10(38) of the I.T. Act, 1961 and after considering the relevant facts, held that Page 22 of 26 where the assessee individual engaged in trading of shares had discharged his onus of establishing Long-Term Capital Gain arising out of sale of different shares as fair and transparent by submitting record of purchase and sales bills, demat statement etc., and thus not being earned from bogus company was eligible for exemption u/s 10(38) of the Act. The relevant observation of the Hon'ble Supreme Court is as under: “2. We take notice of the fact that the issue in the present appeal is whether the assessee earned long term capital gain through transactions with bogus companies. In this regard, the finding of fact recorded by the Tribunal in paras 9, 10 and 11 reads thus:- “9. In our considered opinion, in such case assessee cannot be held that he earned Long Term Capital gain through bogus company when he has discharged his onus by placing all the relevant details and some of the shares also remained in the account of the appellant after earning of the long term capital gain.
Learned A.R. contention is that no statement of the Investigation Wing was given to the assessee which has any reference against the assessee.
In support of its contention, learned A.R. also cited an order of Coordinate Bench in in the matter of Mohan Polyfab Pvt. Ltd. Vs. ITO wherein ITAT has held that A.O. should have granted an opportunity to cross examine the person on whose statement notice was issued to the assessee for bogus long term capital gain. But in this case, neither statement was supplying to the assessee nor cross examination was allowed by the learned A.O. Therefore, in our considered opinion, assessee has discharged his onus and no addition can be sustained in the hands of the assessee.”
Thus, the Tribunal has recorded the finding of fact that the assessee discharged his onus of establishing that the transactions were fair and transparent and further, all the relevant details with regard to such transactions were furnished before the Income Tax authorities and the Tribunal
Page 23 of 26 also took notice of the fact that some of the shares also remained in the account of the appellant.
We take notice of the fact that the assessee has a Demat Account maintained with the ICICI Securities Ltd. and has also furnished the details of such bank transactions with regard to the purchase of the shares. In the last, the Tribunal took notice of the fact that the statements recorded by the investigation wing of the Revenue with regard to the Tax entry provided were informed to the assessee despite giving him opportunity to meet such an allegation. In the overall view of the matter, we believe that the proposed question cannot be termed as a substantial question of law for the purpose of maintaining the appeal under Section 260-A of the Act, 1961.”
Similar view has been taken by the Hon'ble Supreme Court in the case of CIT (Central) vs. Sunita Dhadda in Special Leave Petition (Civil) Nos.9432/2018 dated 28/03/2018 wherein the Hon'ble Supreme Court has upheld the order of the Hon'ble Rajasthan High Court.
Coming back to the case law relied upon by the learned DR. The learned DR relied upon the decision of the ITAT Hyderabad Benches in the case of Anirudh Venkata Ragi vs Income Tax Officer in dated 21/11/2023 and in the case of Shri Govind Kumar Agarwal vs. Income Tax Officer in & Others dated 21/11/2023. We find that, although the Coordinate Bench has taken contrary view on this issue and held that the Long-Term Capital Gain derived from sale of shares of company is bogus in nature, but fact remains that the Hon'ble Supreme Court has considered very similar issue in light of purchase and sale of shares of companies
Page 24 of 26 and held that once necessary evidence has been filed to prove purchase and sale of shares including Demat statement etc., then the Long-Term Capital Gain derived from sale of shares was to be allowed u/s 10(38) of the I.T. Act, 1961. Therefore, we are of the considered view that once the issue has been decided by the Hon'ble Supreme Court, in our considered view, the other judgments relied upon by the learned DR including the decision of the Coordinate Benches of Hyderabad ITAT has no binding precedent and thus are not considered.
In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that the learned CIT (A) is erred in sustaining the addition made by the Assessing Officer towards Long-Term Capital Gain derived from sale of shares and claiming exemption u/s 10(38) of the I.T. Act, 1961 as unexplained credit u/s 68 of the I.T. Act, 1961. Thus, we set aside the order of the learned CIT (A) and direct the Assessing Officer to delete the additions made towards consideration received for sale of shares u/s 68 of the I.T. Act, 1961.
In the result, appeal filed by the assessee is allowed.
S.A. Nos.1/Hyd./20924
Since we have disposed of appeal filed by the assessee, the present Stay Application filed by the assessee seeking stay of Page 25 of 26 outstanding demand becomes infructuous and the same is dismissed as not maintainable.