TMI Blog2018 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and not on suspicion or preponderance of probabilities. No material was brought on record by the AO to controvert the evidence furnished by the assessee. Under these circumstances, we accept the evidence filed by the assessee and allow the claim that the income in question is a bonafide Long Term Capital Gain arising from the sale of shares and hence exempt from income tax. - Decided in favour of assessee. - ITA No.1263/Kol/2018, ITA No.1270/Kol/2018, ITA No.1267//Kol/2018, ITA No.844//Kol/2018, ITA No.519//Kol/2018, ITA No.1266//Kol/2018, ITA No.1307//Kol/2018, ITA No.518//Kol/2018 And ITA No.1051//Kol/2018 - - - Dated:- 26-9-2018 - SHRI S.S. GODARA, JM ORDER Per S.S.GODARA, JM The instant nine assessees have filed their impugned appeals against CIT(A) s separate orders passed upholding the Assessing Officer s identical action treating their Long term capital gain claimed u/s 10(38) of the Income Tax Act, 1961 (Act) to be bogus, involving proceedings u/s 143(3) of the Act. Relevant details (appeal-wise) are as follows :- CIT(A) Appeal No. Date of order CIT(A)-10, Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r did not agree to assessee s above narrated details. He was of the view that the above alleged abnormality in assesseee deriving profits @6163% and 1201% defied the stock market s established conventions as per human probabilities. He observed in assessment order dated 27.12.2016 that all this suggested a very well planned price rigging of these two scrips. 5. Case file suggests that the Assessing Officer examined both the above two scrips past history, face value of shares, alleged dubious nature of other business, balance sheet and financials including equities and liabilities, dividends declared in the intervening period etc to opine that their astronomical rise in shares had reasons attributable to something suspicious rather than flowing from normal market trends. He analysed share price mentioned of the two scrips from April 2012 to the date of rising their maximum value in the holding period. He was of the opinion that the said share price movement witnessed a pre-arranged trading pattern revealing an artificial price rigging in these two scrips as per relevant details right from the date of acquisition to 31st March, 2015. He therefore treated assessees to have engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigated the matter and suspended trading in certain scripts. It Is very clear that the prices of these scripts fell sharply after the off loading of these scripts by pre-arranged and manipulated transactions. The entire transactions were carried out on the Stock Exchange to give It a color of real transactions. 2. I also find that all the submissions made by the appellant during the course of the appeal point towards the elaborate documentation, meaning thereby that the appellant has produced papers relating to application for the shares, the allotment of the shares, the share certificates, payments by cheque and the necessary papers filed before the Registrar of companies, where the name of the assessee has been reflected as a shareholder. The appellant has also filed proof of amalgamation of the companies wherein the shareholding has changed hands. It is also the contention of the appellant that it has provided copies of the bank statement, bank contract notes and delivery instructions to the broker by way of proof that all these transactions were genuine. However, in my considered view of the matter, it is precisely this elaborate paperwork that strengthens the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were received by the assessee through banking channels laid Importance on the capacity of the donor for making the gift and his identity as well as Importance of relationship between the donor and donee In determination of genuineness of gift held as under: That a mere identification of the donor and showing the movement of the gift amount through banking channels was not sufficient to prove the genuineness of the gift. Since the claim of the gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but a/so his capacity to make a gift and that it had actually been received as a gift from the donor. In my considered view wherever documents are relied upon they should pass the test of normal behavior of the assessee In the course of business viz., human conduct, preponderance of probability and surrounding circumstances. In my considered view, even if documentary evidence is produced, the same must pass the test of human probabilities and surrounding circumstances if they do not, then addition justified. Reliance on such matters is placed on the case of Smt Phoolwati Devi 314 ITR (AT) 1 (Del.) 3. It must also be st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adequately and duly supported by material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderance of probabilities applies. What is stated and the said standard, equally apply to the Tribunal and Indeed this Court. The reasoning and the grounds given In any decision or pronouncement while dealing with the contentions and Issues should reflect application of mind on the relevant aspects. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, It necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing Officer is denied advantage of the contention or factual assertion by the assessee before him. In case an assessee deliberately and intentionally falls to produce evidence before the Assessing Officer with the desire to prevent inquiry or Investigation, an adverse view should be taken . 4. In this connection, I would also wish to refer to the decision of the Hon'ble ITAT Bombay Bench B' (ITA No.614/Bom/87 A.V. 1983-84) In the case of M/s. Mont Blane Properties and Industries Pvt. Ltd., which was upheld by the Hon'ble Supreme Court. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the truth. 6.14. It will also be worthwhile to consider the nature of burden of proof on the AO for proving a fact or circumstance In the Income tax proceedings. The questions raised about the tax liability by the AO are to be answered by the assessee by furnishing reasonable and plausible explanations. If assessee Is not forthcoming with proper or complete facts or his statement or explanation Is contradictory, drawing of suitable Inferences and estimation of facts Is Inevitable. Courts generally will not interfere with such estimate of facts, unless the Inferences or estimates are perverse or capricious. 6.15. The Assessee s technical contentions about admissibility and reliance on material available on the AO s record are In the nature of contentions challenging criminal or civil liabilities In a court of law. We are dealing with a process of adjudication of assesses tax liability i.e. assessment under Income Tax Act rather than conducting criminal or civil court proceedings. As held by the Hon'ble Supreme Court In the case of S.S. Gadgil (supra) no 'lis' is involved in adjudication of tax liability. The Assessee's contention that there was no new m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Kolkata Stock exchange. The said shares were earlier held by M/s Brightsun Merchants (P) Ltd and the assessee had purchased the shares from them. The notice Issued to M/s Brightsun Merchants (P) Ltd was returned unserved by the postal authorities with, the remark unknown . In this regard, the assessee had replied that the name of the company was wrongly mentioned by the AO as M/s Brightsuns (P) Ltd and hence the notice got returned. But there is not comment about the address, meaning thereby, the AO had issued notice to the correct address only and hence the slight variation in the name of the company would not normally make any difference. Hence the fact that the notice was returned back only shows that the seller of the shares could not be identified. All these discussions would show that the purchase transaction could not be cross verified by the assessing officer. 10. One more point to be noted here is that the speculation transactions can be entered only on payment of margin money. But the details of said payment are not available. With regard to the query raised by the AO relating to Margin money, the broker M/s D.K. Khandelwal Co has replied In the context of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on record, surrounding circumstances, human conduct, preponderance of probabilities and nature of Incriminating Information /evidence available on record. 13. In the case of Smt. Jamnadevi Agrawal (supra), the Hon'ble Bombay High Court has upheld the order of Tribunal on the reasoning that no fault can be found with the findings recorded by the Tribunal. A perusal of the above said order would show that the revenue In the above said case had contended that the assessees In the group have' purchased- and sold shares of similar companies through the same broker. Further the purchase prices and sale prices were supported by producing the evidences to show that the said transactions were undertaken at the rates prevailing on the respective dates. Under these set of facts, the High Court held that the findings given by the Tribunal cannot be found fault with and further held that the decision rendered by Hon'ble Supreme Court In the case of Sumati Dayal (supra) was not applicable. In the case of Shrl Mukesh Ratilal Marolla (Supra), the Hon'ble Bombay high Court has observed that the assessee has furnished copies of Share certificates to show that the shares were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal filed by the assessee is dismissed. [ Unquote] 9. Reliance is also placed In the case of Somnath Maini Vs ITO (226) 100 TT] 917 wherein the Hon'ble Chandigarh bench of ITAT held that if facts and circumstances so warrant that It does not accord with the test of human probabilities, transactions have to be held to be non-genuine. [ Quote] 3. The relevant facts briefly stated are that during the course of assessment proceedings, the AO observed that assessee had incurred a long-term capital loss on account of sale of gold jewellery declared under the VDIS, 1997, amounting to ₹ 19,87,705 and also there was a short-term capital gain near to this amount of long-term capital loss amounting to ₹ 20,36,700 resulting into net capital gain of ₹ 48,995. The AO on perusal of record further observed that in the case of a family member of the same assessee Shri D.C. Maini, in the same assessment year, similar exercise has been done by the assessee wherein a long-term capital loss of ₹ 11,59,066 had been Incurred on account of sale of gold jewellery declared under the VDIS and short-term capital gain of ₹ 11,75,100 resulting I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative took us through various pages of the assessment order and the paper book wherein sale bill of the shares with the said M/s S.K. Sharma ' Co. were also filed. The learned Departmental Representative pointed out that shares have been sold at Ludhiana when actually stock exchange was not functional - a fact which is also recorded by the AO. The learned Departmental Representative also pointed out that shares have been sold to M/s S.K. Sharma Co. on 9th Feb., 1998 and 23'd March, 1998, whereas from the statement of account of M/s S.K. Sharma Co., payments have been received by the assessee from 31st March, 1998 to 27th July, 1998, meaning thereby that had the transactions been genuine, payment could have been received In one go by S.K. Sharma Co. The learned Departmental Representative pointed out that any such type of transactions relating to these types of company operating on stock exchanges payments are received in piecemeal whereas in normal market share transactions, contract notes are issued by the broker and payments are received In one go. The learned Departmental Representative also argued that as per the statement of S.K. Sharma Co. recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al share market transactions in which they are ordinarily carried out. Taking all the steps together, final conclusion does not accord with the human probabilities. The Hon'ble Supreme Court in the case of CUT v. Durga Prasad More held as under: It is a story that does not accord with human probabilities. It is strange that High Court found fault with the Tribunal for not swallowing that story. If that story is found to be unbelievable as the Tribunal has found and in our opinion, rightly that the decisions remains that the consideration for the sale proceeded from the assessee and therefore, it must be assumed to be his money. It is surprising that the High Court has found fault with the ITO for not examining the wife and the father-In-law of the assessee for proving the Department's case, 'All that we can say is that the High Court has ignored the facts of life. It is unfortunate that, the High Court has taken a superficial view of the onus that lay on the Department. 7. The learned CIT(A) only got swayed by the Issuance of notice by the AO under Section 131 to both the brokers from whom shares were purchased and sold and came to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice was not at all possible as there was no economic or financial basis to justify the price rise. the assessee had Indulged in a dubious share transaction meant to account for the undisclosed income in the garb of long term capital gain. The gain has accordingly to be assessed as undisclosed credit u/s 68. In view of the above discussion, I find no infirmity in the orders of the Ld. AO, and I confirm the same, holding the claim of LTCG of ₹ 25,21,600/- to be bogus. As a natural corollary, I also hold that the Ld. AO was also correct in adding back an amount of ₹ 60,041/- under Sec 69C of the Income Tax act. The same also stands confirmed. Therefore these grounds are dismissed. 7. I have given my thoughtful consideration to rival contentions. Learned Departmental Representative s sole contention as per the relevant facts and circumstances narrated in the preceding paragraphs is that the assessee has derived his long term capital gain under issue from a dubious route of rigging in value of his shares in the two scrips. He refers to the relevant paper book as well as to this effect filed on record at assessee s behest showing computation of income, fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 12 to 18.) 4. The assessee lodged the said shares with the Depository M/s. Eureka Stock Share Broking Services Ltd. with a Demat request on 11th February, 2012. The said shares were dematerialized on 31st March, 2012 (copy of demat request slip along with the transaction statement is placed in the paper book at page no. 19 to 21). 5. On 24.01.2013, the Hon ble Bombay High Court approved the scheme of amalgamation of Smart Champs IT and Infra Ltd. with Cressanda Solutions Ltd. In accordance with the said scheme of amalgamation, the assessee was allotted 50000 equity shares of M/s. Cressanda Solutions Ltd. The demat shares are reflected in the transaction statement of the period from 1st November 2011 to 31st December, 2013 (A copy of the scheme of amalgamation alongwith copy of order of the Hon ble Bombay High Court and a copy of the letter to this effect submitted by Cressanda Solutions Ltd . to Bombay Stock Exchange is placed in the Paper Book at page no 22 to 43.) 6. The assessee sold 50000 shares costing ₹ 500000/- through her broker SKP Stock Broking Pvt. Ltd which was a SEBI registered broker and earned a Long Term Capital Gain of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation s office by way of statements recorded etc. has to also be brought on recordin 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 human behavior by the department. 14. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. In this case, the AO relies only on a report as the basis for the addition. The evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it put before the assessee. The submission of the assessee that she is just an investor and as she received some tips and she chose to invest based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specifically against the assessee in the investigation wing report, the assessee cannot be held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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, came to the conclusion that the possession of 150 high denomination notes of ₹ 1,000 each wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entatives 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 crossexamine, would amount to a denial of the right to be heard i.e. audi alterampartem. 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 government servant, he will not be able to conduct an effective and useful cross-examination. 29. In Rajiv Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 crossexamination 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 were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 JAIPURITAT in the case of VIVEKAGARWAL[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 PREMPAL GANDHI[ITA-95-2017(O M)] dated18.01.2018 at vide Page 3 Para 4 held as under: .. The Assessing Officer in both the cases added the appreciation to the assessee s income on the suspicion that these were fictitious t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 BENCH D OF KOLKATA ITAT in the case of KIRAN KOTHARI HUF [ITA No. 443/Kol/2017] order dated 15.11.2017 held vide Para 9.3 held as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 amatter 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 MUMBAIITAT in the case of ARVINDKUMAR JAINHUF[ITA No.4682/Mum/2014]order dated 18.09.2017 held as under vide Page 6 Para 8: We found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 Rohit kumar 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 supported by bills and payments were made by Account Payee cheque. Raj Impacts also confirmed the transactions. There was no evidence to show that the amount was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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