TMI Blog2018 (11) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... and allow the claim that the income in question is Long Term Capital Gain from sale of shares and hence exempt from income tax - Decided in favour of assessee - ITA No.976, 1002-1003/Kol/2018, ITA No.1093/Kol/2018, ITA No.1564-1566 & 1593/Kol/2018, ITA No.1571/Kol/2018, ITA No.1579-1582/Kol/2018 And ITA No.1600-1601/Kol/2018 - - - Dated:- 14-11-2018 - Shri S.S, Godara, Judicial Member For The Assessee : None For The Revenue : Shri Rabin Choudhury, Addl. CIT-DR ORDER These 15 assessees(s) have filed their as many as instant appeal(s) for assessment year 2014-15 against the Commissioner of Income-tax (Appeals) separate order(s) upholding the Assessing Officer(s) identical action treating their respective Long Term Capital Gains (LTCG) / Long Term Capital Loss (LTCL) appeal-wise in seriatim to be bogus unexplained cash credits u/s 68, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act . Relevant figures details are as follows: Sl No. ITA No. LTCG LTCL STT Remarks 1 976 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares in various entities to be bogus thereby treating the same as unexplained cash credits u/s 68 of the Act. I thus take first appeal ITA No.976/Kol/2018 namely Smt. Aruna Bansal to be the lead case. 3. I find in this lead case ITA No.976/Kol/2018 that the assessee had declared her LTCG of ₹37,07,717/- derived from transfer of shares held in M/s Kailash Auto Finance Ltd. Learned Departmental Representative invites my attention to a voluminous exercise undertaken by the Assessing Officer involving a long drawn process of stock market prices rigging in collusion with in the various entity operators. He takes me to assessment order indicating the assessee to have allegedly invested her money in M/s Kailash Auto Finance Ltd. not having any sound financial position or business activity so as to justify the LTCG in issue. Case law Sumati Dayal vs. CIT 214 ITR 801 (SC) and CIT vs. Durga Prasad More (1971) 82 ITR (SC) is quoted in support to plead that both the lower authorities have made it clear in their respective order(s) about the assessee having acted in collusion with various entity operators for the purpose of bogus LTCG in issue. 4. I have given my thoughtful co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s split the face value of shares [this is probably done to avoid the eyes of market analysts]. x. The volume of trade jumps manifold immediately when the market prices of shares reach at optimum level so as to result in LTCG assured to the beneficiaries. This maximum is reached around the time when the initial allottees have held the shares for one year or little more and thus, their gain on sale of such shares would be eligible for exemption from Income Tax. xi. An analysis of share buyers of some of LTCG companies was done to see if there were common persons/entities involved in buying the bogus inflated shares. It was noted that there were many common buyers [ which were paper companies]. xii. The prices of the shares fall very sharply after the shares of LTCG beneficiaries have been off loaded through the pre-arranged transactions on the Stock Exchange floor/portal to the Short Term Loss seekers or dummy paper entities. xiii. The shares of these companies are not available for buy/sell to any person outside the syndicate. This is generally ensured by way of synchronized trading by the operators amongst themselves and/or by utilizing the mechanism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. We list some of these decisions:- * Shri Gautam Kumar Pincha vs. ITO, ITA No. 569/Kol/2017, dt. 15/11/2017 * ITO vs. Shri Shaleen khemani, ITA No. 1945/Kol/2014, dt. 18/10/2017 * Mahendra Kumar Baid vs. ACIT, Circle-35; ITA No. 1237/Kol/2017; order dt. 18/08/2017 * Kiran Kothari HUF vs. ITO, ITA No. 443/kol/2017, order dt. 15/11/2017 The Hon ble Jurisdictional High Court on similar facts, had in the following cases, upheld the claim of the assessee:- * CIT vs. Shreyashi Ganguli (ITA No. 196 of 2012) (Cal HC) 2012 (9) TMI 1113 * CIT vs. Rungta Properties Private Limited (ITA No. 105 of 2016) (Cal HC)dt. 08/05/2017 * CIT vs. Bhagwati Prasad Agarwal (2009 TMI-34738 (Cal HC) in ITA No. 22 of 2009 dated 29.04.2009 11. Recently, the Kolkata C Bench of the Tribunal in the case of Navneet Agarwal,-vs- ITO, Ward-35(3), Kolkata; I.T.A. No. 2281/Kol/2017; Assessment Year: 2014-15, while dealing with identical issue of sale of shares of M/s. Cressenda Solutions Pvt. Ltd., decided the issue in favour of the assessee by relying upon a plethora of judgments of various Courts. It held as follows:- 12. The assessing officer as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory 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 these market tips and had taken a calculated risk and had gained in the process and that she is not party to the scam etc., has to be controverted by the revenue with evidence. When a person claims that she has done these transactions in a bona fide and genuine manner and was benefitted, one cannot reject this submission based on surmises and conjectures. As the report of investigation wing suggests, there are more than 60,000 beneficiaries of LTCG. Each case has to be assessed based on legal principles of legal import laid down by the Courts of law. 15. In our view modus operandi, generalisation, preponderance of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any finding specifically against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, in our view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the script for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 17. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon ble Court held: Adverting to the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b, as it were, came to the conclusion that the possession of 150 high denomination notes of ₹ 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of ₹ 1,000 each . The observations of the Hon ble Apex Court are equally applicable to the case of the assessee. In our view the assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the government servant, he will not be able to conduct an effective and useful cross-examination. 29. In Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17-3-2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. 7. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLB CABLES CONDUCTORS [ITA No. 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .. The Assessing Officer in both the cases added the appreciation to the assessee s income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessee s income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. The Court also held the following vide Page 3 Para 5 the following: Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under: .. We find that there is absolutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assessee/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BENCH H OF MUMBAI ITAT in the case of ARVIND KUMAR JAIN HUF [ITA No.4682/Mum/2014] order dated 18.09.2017 held as under vide Page 6 Para 8: We found that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority Page 19 that transactions in M/s Ramkrishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 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 recycled back to the assessee. Particularly, when it was found that the assessee the trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises. 20. Applying the proposition of law laid down in the above judgments to the facts of this case we are bound to consider and rely on the evidence produced by the assessee in support of its claim and base our decision on such evidence 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 Long Term Capital Gain from sale of shares and hence exempt from income tax. 12. Consistent with the view taken therein, as the facts and circumstances of this case are same as the facts and circumstances of the cases of Navneet Agarwal (supra), we delete the addition ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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