TMI Blog2018 (9) TMI 1745X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who are allegedly connected in rigging of the prices of shares. The entire addition has been made on probabilities, human behaviour, the alleged unnatural fluctuation in prices of the shares etc., but not based on any evidence connecting the assessee with such allegations. The addition have thus been made on conjectures and surmises. The Hon’ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959 (5) TMI 12 - SUPREME COURT] held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. - Decided in favour of assessee - ITA No. 65/Kol/2018 And ITA No. 66/Kol/2018 - - - Dated:- 14-9-2018 - Sri J. Sudhakar Reddy, Accountant Member And Smt. Madhumita Roy, Judicial Member For The assessee : Shri S.M. Surana, Advocate, appeared For The Revenue : Shri Goulen Hangshing, CIT, D/R. ORDER Per J. Sudhakar Reddy, AM :- Both these appeals are filed by the assessee directed against separate orders of the Learned Commissioner of Income Tax (Appeals)-21, Kolkata, (hereinafter the Ld. CIT(A) ), dt. 02/07/2018, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring loss of ₹ 49,97,948/-. During the course of search and seizure operation different incriminating facts was found and the total modus operandi of the assessee company was revealed. The fact was confronted with the assessee and the statement was recorded u/s 132(4) of Sri Akhilesh Kr Jain, key person and Director as duly mentioned in the showcause to the assessee company. On the basis of those facts and documents and post search investigation a show cause was made on 20/09/2017 as under where the assessee was asked to show-cause why the loss claimed by the assessee on such transfer of penny stock namely M/s Blue Circle will not be treated as a bogus loss on colorable transaction. From the copies of the contract notes it was clear that the transactions are not normal. The show cause was as under. In the said show-cause by mistake Section 68 was mentioned. Later during the hearing before the undersigned the fact was discussed and it was told that section 68 was mentioned by mistake and why the claim of loss will not be treated as bogus loss on colorable transaction and will not be allowed to set off with the interest income as mentioned in the subject of the show-cause. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same quantity of shares of the same scrip even when the figure is 49835 shares and the order time and trade time are identical up-to seconds and trade numbers are serially marked. It proves that the sale offer and the purchase offer in this case are made with identical quantity and rate and immediately the trade is completed at the same time in seconds. It is possible only in the case of pre-arranged transactions. 13. Regarding the sale contract notes the assessee has sold those 2 Lakh shares on 01/03/2013 @ ₹ 16.55 16.05. In the contract notes dated 05/03/2013 it is seen that the order time is from 13:39:52 to 15:08:27 in all the 14 transactions done by this contract note, the trade time is from 14:02:55 to 15:08:40. This is to mention here that the broker is M/s Aum Capital Markets Pvt Ltd which is run by key person Shri Dinesh KumarJain who is the elder brother of Shri Akhilesh Kumar Jain key person of the assessee company. Here the sales are made when the price of the shares are dropped by the entry operators, the share are purchased by the companies as elaborately mentioned in the show-cause notice above. 2.2 Similarly for the Assessment Year 2014-15, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) gave his findings, which are based on what he calls rules of suspicious transactions . He states that all these papers were mere documents and not evidence and that the elaborate paper work precisely strengthens his belief that, the matter relating to bogus benefit of the Long Term Capital Loss, has clearly been schemed, pre-planned and executed with malafide intelligence and precision. He relied on the judgment of the Hon ble Supreme Court in the case of CIT Vs. P. MOHANAKALA in [2007] 291 ITR 278 (SC), CIT v. Durga Prasad More 1971 82 ITR 540, and many other judgments. He also relied on the judgment of the Hon ble Bombay High Court in the case of Sanjay Bimalchand Jain v. Principal Commissioner of Incometax- 1, Nagpur [2018] 89 taxmann.com 196 (Bombay) and upheld the findings of the Assessing Officer. 3. Aggrieved, the assessee is in appeal before us challenging the disallowance of trading loss claimed by it on purchase and sale of shares. 4. The ld. Counsel for the assessee, Mr. S.M. Surana, submitted that a) The disallowance in question has been made in an assessment made u/s 153A r.w.s. 143(3) of the Act and that such a disallowance is not based on any incrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Carbo Industrial Holding Ltd. [2000] 244 ITR 422 (Calcutta) and other decisions, which we would be referring during the course of our findings. 5. The ld. D/R, submitted that the specific seized material, based on which the Assessing Officer had made the disallowance in question, has not been specified by the Assessing Officer but on a reading of the assessment order, it transpires that there is some seized material which the Assessing Officer has failed to highlight in his order. He relied on the order of the Assessing Officer as well as the ld. CIT(A) and submitted that the transactions are suspicious, fictitious, organized, pre-conceived and have been stage managed by the assessee to generate loss. Hence he submitted that the Assessing Officer was right in disallowing the claim based on human probabilities and substantial evidence. He prayed that the order of the Assessing Officer as confirmed by the ld. CIT(A) be upheld or in alternative the matter may be sent back to the Assessing Officer to pin point the incriminating material found during the course of search based on which the addition is made. On a specific query from the Bench, he could not controvert the submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from stockbroker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the Tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transactions of share are genuine. Therefore, we do not find that there is any reason to hold that there is any substantial question of law involved in this matter. Hence, the appeal being ITA No.620 of 2008 is dismissed. Similarly, in the case of CIT vs. Carbo Industrial Holding Ltd. [2000] 244 ITR 422 (Calcutta), the Hon ble Jurisdictional High Court, held as follows:- 9. We also notice a share transaction of the shares of Escorts Ltd. where the assessee claimed ₹ 60,490 loss. The relevant date of contract is 15-12-1983. The assessee received 4,600 shares on 11-1-1984, and it sold these shares on 18-1-1984 and the assessee received the payment against that sale on 24-1-1984. Therefore, seei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CG etc. But it has to be established in each case, by the party alleging so, that this assessee in quesiton was part of this scam. The chain of events and the live link of the assesee s action giving her involvement in the scam should be established. The allegation imply that cash was paid by the assessee and in return the assessee received LTCG, which is income exempt from income tax, by way of cheque through Banking channels. This allegation that cash had changed hands, has to be proved with evidence, by the revenue. Evidence gathered by the Director Investigation s office by way of statements recorded etc. has to also be brought on record in each case, when such a statement, evidence etc. is relied upon by the revenue to make any additions. Opportunity of cross examination has to be provided to the assesee, if the AO relies on any statements or third party as evidence to make an addition. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified by evidence under the pretentious garb of preponderance of human probabilities and theory of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to bogus capital gains transactions. However we do not find that, the assessing officer as well as the Ld. CIT(A), have brought out any part of the investigation wing report in which the assessee has been investigated and /or found to be a part of any arrangement for the purpose of generating bogus long term capital gains. Nothing has been brought on record to show that the persons investigated , including entry operators or stock brokers, have named that the assessee was in collusion with them. In absence of such finding how is it possible to link their wrong doings with the assessee. In fact the investigation wing is a separate department which has not been assigned assessment work and has been delegated the work of only making investigation. The Act has vested widest powers on this wing. It is the duty of the investigation wing to conduct proper and detailed inquiry in any matter where there is allegation of tax evasion and after making proper inquiry and collecting proper evidences the matter should be sent to the assessment wing to assess the income as per law. We find no such action executed by investigation wing against the assessee. In absence of any finding s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure conjecture or surmise on the part of the Income-tax Officer. As regards the disclosed volume of business in the year under consideration in the head office and in branches the Income-tax Officer indulged in speculation when he talked of the possibility of the appellant earning a considerable sum as against which it showed a net loss of about ₹ 45,000. The Income-tax Officer indicated the probable source or sources from which the appellant could have earned a large amount in the sum of ₹ 2,91,000 but the conclusion which he arrived at in regard to the appellant having earned this large amount during the year and which according to him represented the secreted profits of the appellant in its business was the result of pure conjectures and surmises on his part and had no foundation in fact and was not proved against the appellant on the record of the proceedings. If the conclusion of the Income-tax Officer was thus either perverse or vitiated by suspicions, conjectures or surmises, the finding of the Tribunal was equally perverse or vitiated if the Tribunal took count of all these probabilities and without any rhyme or reason and merely by a rule of thumb, as it were, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a witness. In the said case, the Assessee had specifically asked to be allowed to cross-examine the representatives of the firms concern, to establish that the goods in question had been accounted for in their books of accounts, and that excise duty had been paid. The Court held that such a request could not be turned down, as the denial of the right to cross-examine, would amount to a denial of the right to be heard i.e. audi alteram partem. 28. The meaning of providing a reasonable opportunity to show cause against an action proposed to be taken by the government, is that the government servant is afforded a reasonable opportunity to defend himself against the charges, on the basis of which an inquiry is held. The government servant should be given an opportunity to deny his guilt and establish his innocence. He can do so only when he is told what the charges against him are. He can therefore, do so by cross-examining the witnesses produced against him. The object of supplying statements is that, the government servant will be able to refer to the previous statements of the witnesses proposed to be examined against him. Unless the said statements are provided to the gove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the Assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the Appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the Appellant wanted to cross-examine those dealers and what extraction the Appellant wanted from them. 6. As mentioned above, the Appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veracity of the transactions, the Tribunal has come to its conclusion on analysis of relevant materials. That being the position, Tribunal having analyzed the set of facts in coming to its finding, we do not think there is any scope of interference with the order of the Tribunal in exercise of our jurisdiction under Section 260A of the Income Tax Act, 1961. No substantial question of law is involved in this appeal. The appeal and the stay petition, accordingly, shall stand dismissed. b) The JAIPUR ITAT in the case of VIVEK AGARWAL [ITA No. 292/JP/2017] order dated 06.04.2018 held as under vide Page 9 Para 3: We hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account. c) The Hon ble Punjab and Haryana High Court in the case of PREM PAL GANDHI [ITA- 95-2017 (O M)] dated 18.01.2018 at vide Page 3 Para 4 held as under: .. The Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the purchase and sale of shares resulting in long term capital gain. These evidences were neither found by the AO nor by the ld. CIT (A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee that income from LTCG is exempted u/s 10(38) of the Act. Further in Page 15 Para 8.5 of the judgment, it held: We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered by us to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT (A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT (A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed income of the assessee u/s 68 of the Act. We, therefore, direct the AO to delete the addition. e) The BEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We therefore hold that there is absolutely no adverse material to implicate the assessee to the entire gamut of unwarranted allegations leveled by the ld AO against the assessee, which in our considered opinion, has no legs to stand in the eyes of law. We find that the ld DR could not controvert the arguments of the ld AR with contrary material evidences on record and merely relied on the orders of the ld AO. We find that the allegation that the assessee and / or Brokers getting involved in price rigging of SOICL shares fails. 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 ld 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 bonafide and genuine and therefore the ld AO was not justified in rejecting the assessee s claim of exemption under section 10(38) of the Act. g) The BENCH H OF MUMBA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to be disputed in the present appeal. We do not find that the finding of fact recorded by the Commissioner of Income Tax in appeal, gives give rise to any question(s) of law as sought to be raised in the present appeal. Hence, the present appeal is dismissed. i) The Hon ble Jurisdictional Calcutta High Court in the case of CIT vs. Bhagwati Prasad Agarwal in I.T.A. No. 22/Kol/2009 dated 29.04.2009 at para 2 held as follows: The tribunal found that the chain of transaction entered into by the assessee have been proved, accounted for, documented and supported by evidence. The assessee produced before the Commissioner of Income Tax(Appeal) the contract notes, details of his Demat account and, also, produced documents showing that all payments were received by the assessee through bank. j) The Hon ble Supreme Court in the case of PCIT vs. Teju Rohitkumar Kapadia order dated 04.05.2018 upheld the following proposition of law laid down by the Hon ble Gujrat High Court as under: It can thus be seen that the appellate authority as well as the Tribunal came to concurrent conclusion that the purchases already made by the assessee from Raj Impex were duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paras 10 and 12) (In favour of assessee). 8.2. We find that the Co-ordinate Bench of this tribunal in the case of ACIT vs Kanchan Oil Industries Ltd in ITA No. 725/Kol/2011 dated 9.12.2015 reported in 2016-TIOL- 167-ITAT-KOL had explained the aforesaid provisions as below:- 6.4 In our opinion, the scheme of assessment proceedings should be understood in the following manner pursuant to the search conducted u/s. 132 of the Act :- ( a) Notice u/s. 153A of the Act would be issued on the person on whom the warrant of authorization u/s. 132 of the Act was issued for the six assessment years preceding the year of search and assessments thereon would be completed u/s. 153A of the Act for those six assessment years. ( b) In respect of the year of search, notice u/s. 143(2) of the Act would be issued and assessment thereon would be completed u/s. 143(3) of the Act. ( c) In respect of concluded assessments prior to the year of search, no addition could be made in the relevant assessment year unless any incriminating material is found during the course of search with respect to the relevant assessment year. ( d) Pursuant to the search u/s. 132 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The LD AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . ( iv) Although Section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the LD AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. ( v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of searc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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