INCOME TAX OFFICER WARD-1(3),, RAIPUR vs. SMT. RACHNA DEVI SADHWANI L/H OF LATE SHRI KALYAN DAS SADHWANI, RAIPUR

The solitary issue involved in the present appeal is the rejection of claim of long term capital gain [for short “LTCG”] arisen to the respondent assessee from a transfer stock/shares of listed company, on the cradle of departmental information gathered in relation to search operation u/s 132 carried out on the third party.

Before advancing the matter on facts for adjudication, it is essential to reproduce grounds assailed by the Revenue upon the approval u/s 253(2) vide order dt 27/01/2012 as under; “1. Whether in law and on facts & circumstance of the case, the CIT(A) has erred in deleting the addition of ₹ 10,45,804/- made by the A.O. u/s 68 of the I.T. Act, 19661 by rejecting the Long Term Capital Gain claim of the assessee”

Now its turn to state the facts of the case succinctly as; 4.1 The respondent assessee (deceased) was an individual and for AY 2003-2004 filed his personal Income Tax Return [for short “ITR/ROI”) u/s 139(1) on 31/03/2004 with a returned income of ₹64,556/- comprising of income from house property and income from other sources in the form of interest etc., and the long term capital gain [for short “LTCG”] arisen to him on transfer of listed shares/security with a with a claim of exemption u/s 54F. The said return was accepted u/s 143(1) of the Act. Subsequently the Ld AO reopened the case on the basis of the certain information received from ITO Ward 1(2), Kota that, during the course of search action u/s 132 carried on the directors of the company M/s S. J. Capital Ltd. through which the shares were bought & sold and drafts consideration were received by the respondent assessee and he had admitted that, such drafts issued to the respondent were accommodation entries, holding to which the Ld AO

In this backdrop, we now first proceed with an assessment order; 5.1 On 30/03/2001 the assessee had purchased 10,000 shares of M/s Tech DNA Solutions Ltd., a listed company on Recognized Stock Exchanges, at the rate ₹6.10 inclusive of brokerage @ ₹0.10 per share through registered share broker namely M/s S. J. Capital Limited wherein the account of the broker was settled by payment in cash and the delivery of the shares was taken in physical form and same were sold on 23/01/2003 at the net rate of ₹104.80 per share, after deduction of brokerage @ ₹0.20 per share, net under a written contract notes issued by the broker for the transaction so executed and the net sales consideration of ₹10,45,804/- (after bank/draft charges) were credited to the bank account of the respondent. This transaction resulted into LTCG of ₹9,81,744/- against which the exemption u/s 54F was claimed in the ITR.

On an appeal by the assessee, the Ld CIT(A) while adjudicating the matter in favour of the respondent has made categorical findings/observation with respect to brushing aside the evidential material produce, failure on the part of the Ld AO to establish any nexus between the statement of search party and the LTCG transaction which is clearly discernible from the relevant Para 4 of the said appellate order; “4. The A.O. proceeded to complete the assessment u/s 147 by rejecting the documentary evidence in support of the shares purchases and sales and the explanations of the appellant. The LTCG claim was rejected and the income was assessed under section 68. The Assessing Officer has referred to Annexure ‘S’ in his order which are copies of statement and affidavit of one Mr Mahesh Garg recorded at New Delhi by investigation Wing during the year 2004. In his statement and affidavit, Mr. Mahesh Garg has admitted that he is an entry operator and had explained his modus operandi and also named certain parties to whom he has provided accommodation entries. However, he has not mentioned the names of either the appellant or M/s S. J. Capital Ltd. the share broker. The Assessing Officer has not established any nexus between the aforesaid statement and the LTCG transaction of the appellant which is the subject matter of the assessment.”

The Ld CIT(A), in the absence of any adverse finding as regards to receipt of sales proceeds of listed shares through bank drafts, any fault with the legal evidences produced during the course of assessment proceedings, failure to conduct independent enquiries and solely relying on search material etc., disapproved the action of Ld AO in holding the transaction as bogus/sham and consequent addition u/s 68, ergo granted the relief to the respondent.

Against the grant of relief to the assessee by Ld CIT(A), the Revenue is in appeal before Tribunal with the grounds of appeal set at Para 3 hereinbefore.

We have heard the rival contention of both the parties; perused material placed on record and duly considered the facts of the case in the light of legal ITAT-Raipur Page 5 of 8

On a careful perusal of copy of statement and affidavit of search party namely Mr Mahesh Garg in which certain parties have been named to whom he had provided accommodation entries, we concur with the observation of Ld CIT (A) that, neither the name of respondent assessee nor of the share broker company was referred in such statement/affidavit. Thus except for some vague information, the Ld AO did not had any findings or material on record to conclude that the funds available with the share broker for issue of bank drafts were attributable to the respondent assessee.

The appellant had produced legal evidences in support of his claim of LTCG earned or derived, which were not denied by the Ld AO, however was suspicious about the LTCG transaction on the basis of information received from the ITO Ward 1(2), Kota. It transpired from the assessment order that, he did not bring on record any legal proof in support of his action. There may be staggering spike in the stock/share price and other anecdotal factors may be enough to showcase the circumstances that might create a suspicion during the course of assessment ITAT-Raipur Page 6 of 8

There is no dispute that the statements which were relied by the Ld AO were not at all recorded in the course of assessment proceedings before him, but they were pre-existing statements recorded by the Investigation Wing, however the same solely cannot form the basis for making an addition in the absence of proper enquiry and examination. In our considered opinion, Ld AO neither brought on record any deprecative proofs against the evidences produced by the assessee nor confronted to the respondent the every basis relied upon for cross examination, nor conducted any independent enquiries, therefore following the ratio laid down by the Hon’ble Delhi High Court in the case of PCIT Vs Smt Krishan Devi (ITA No 130/2020) and conjunctly upon the judgement of Hon’ble Supreme Court in the case of Andaman Timber Industries 281 CTR 214 (SC), we do not find any merits in the assessment order.

Considering the entire conspectus of case, we find no virtues in the assessment order; consequently there remained no iota of doubt in upholding the order of Ld CIT(A) with no infirmity.

Resultantly, the appeal of the revenue is dismissed, with no order as to cost. Order pronounced on this Thursday 3rd day of February, 2022. Sd/- Sd/- (RAVISH SOOD) (JAMLAPPA D. BATTULL) JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर/ RAIPUR ; िदनांक / Dated :3rd February, 2022