TMI Blog2018 (10) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... ater on. The pen drive of Sh. Ankur Agarwal corroborated/substantiated, the share transactions carried out by the assessee which were duly found recorded in the regular books of the assessee and the said pen drive did not contain anything incriminating against the assessee. Therefore, merely on the basis of the statement of Sh. Ankur Agarwal, the addition made u/s 153A of the Act was also not justified, particularly when Sh. Ankur Agarwal retracted his statement later on. In the instant case, the AO also failed to establish any link/nexus of the alleged cash trail. In the present case, as the enhancement was based on the order of the Settlement Commission dated 27.05.2015 received much after issuance of notice u/s 153A of the Act after the search dated 13.06.2014. The same could not be categorized as incriminating material found during the course of search. Therefore, the ld. CIT(A) had taken a contrary stand in the case of the assessee i.e. Sh. Neeraj Singal vis-à-vis the BSL by enhancing the income on the same count, in the absence of incriminating material. It is also relevant to point out that the enhancement on account of alleged sale of scrap in the hands of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion u/s 153A of the Act is vitiated since no incriminating material pertaining to A/Y 2010-11 had been found during the course of search. (2) That the order dated 29-12-2017 passed u/s 250 of the Act by the Ld. Commissioner of Income-tax (Appeals) 23, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld Assessing Officer in making an addition of ₹ 20,05,651/- on account of Long Term Capital Gains which was exempt u/s 10(38) of the Act by treating it as an allegedly unexplained cash credit u/s 68 of the Act and unjustifiably and independently holding that the purported transactions of acquisition and sale of shares of certain companies which have resulted in the impugned long-term capital gain are, allegedly, sham. (3) That the order dated 29-12-2017 passed u/s 250 of the Act by the Ld. Commissioner of Income-tax (Appeals) 23, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Ld Assessing Officer in making addition of ₹ 1,20,339/- on account of alleged unaccounted Commission expenses @ 6% on the Long Term Capital Gains on sheer presumptive basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by relying on statements of various persons and data without affording the Appellant any opportunity to cross examine such persons, thus, making the assessment bad in law by considering the same as a general ground, not requiring any separate adjudication. 4. The assessee also moved an application dated 14.07.2018 for admission of the following additional grounds: 1. That the Ld. C.I.T.(A) acted beyond jurisdiction in enhancing income of Sri Neeraj Singal u/s 251(1)(a) of the Income-tax Act, 1961 (the 'Act') by assessing new sources of income beyond the record (i.e. the return of income and assessment order) and outside the subject matter of assessments appealed against. 2. That without prejudice to the above, the Ld. CIT(A) exceeded the jurisdiction conferred u/s 153A of the Act by enhancing income of Sri Neeraj Singal for the unabated Assessment Year 2010-11 without any incriminating materials pertaining to the impugned issues [viz. (i) alleged unaccounted sale of clandestinely diverted raw materials (zinc) and (ii) alleged cash generated on account of alleged bogus transportation expenses claimed in the books of BSL] being found in course of search u/s 132(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consider the question of law arising from facts which are on record in the assessment proceedings, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. 9. So, respectfully following the ratio laid down by the Hon ble Apex Court in the aforesaid referred to case, the legal grounds raised by the assessee are admitted. 10. Vide these legal ground, the assessee challenged jurisdiction of the ld. CIT(A) in enhancing the income of the assessee assessed u/s 153A of the Income Tax Act, 1961 (hereinafter referred to as the Act) for unabated assessment order, in the absence of any incriminating material pertaining to the issues found during the course of search. Similar issue has been raised by the assessee vide Ground No. 1. 11. The facts related to this case in brief are that a search and seizure proceedings u/s 132 of the Act were conducted in the case of M/s Bhushan Steel Ltd. (BSL) Group, its group concerns and residential/factory premises of partners, directors and proprietors of the group on 13.06.2014. Subsequently, notice u/s 153A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash. iii) Long Term Capital Gain on shares : It is defined by the value of such shares, which are shares of a stock exchange listed company, held by assesses for more than a year. Needless to add, it is exempt from tax under section 10(38) of the Act. iv) Penny Stock : is a stock that trades at a relatively low price and market capitalization. These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure. II. Penny stock companies: Broadly speaking there are two types of Penny stock companies: i) An old already listed company, the entire shareholding of which is bought by the syndicate to provide LTCG entries. These are generally dormant company with no business and with accumulated losses. ii) A new company which is floated just for the purpose of giving LTCG entries. Such new companies are often floated after the initial booking is complete and the capital base is decided keeping in mind the entries to be provided. III. Persons involved: There are three categories of individuals who are involved in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. The brokers often compromise on KYC norms of the clients to help the Syndicate Members. As per the guidelines of SEBI and the stock exchanges, the brokers are supposed to comply with stringent KYC norms before registering any entity as their client. They are supposed to perform detailed background checks of their clients. However, it is seen that these share brokers have done trading for various paper/bogus companies. These paper/bogus entities have no business or establishment. This clearly implies that the share brokers are hands in glove with the paper/bogus companies in the whole scheme. The share brokers receive cash commission for allowing these paper entities to trade through their terminal. In fact it has been learnt that these brokers perform the trading themselves on behalf of the paper/bogus entities. iii) The Entry Operators : They are individuals who control a large number of paper/shell companies which are used for routing cash for the transactions as well as buying and selling shares during the process of price rigging. They work for commission to be paid by the Syndicate Members. To cut cost sometimes in smaller operations, the same group performs mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. The period of holding may be a little more to match the amount of booking with the final rate. The beneficiary is contacted either by the Syndicate member or the Broker (Middle man) through whom the initial booking was done. The beneficiary provides the required amount of cash which is route through some of the paper companies of the entry operator and is finally parked in one company which will buy the share from the beneficiary. The paper company issues cheque to the beneficiary. 13. The AO asked the assessee to furnish the details of Long Term Capital Gains which was summarized as under: SI. No. Name of the Script Companies Amount of capital gain as per information with this office (In Us.) (A.Ys.) 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 1 Prraneta Industries Ltd. 783851 -- -- -- -- -- 2 G-Tech Info. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -- -- -- 81417840 15 Rajlaxmi Industries Limited -- -- -- -- -- 234870686 Total 2005651 368643005 176861949 148949226 930514648 325237610 14. The AO pointed out that during the course of search, statement of Sh. Manish Arora was recorded who is an employee of Sh. Raj Kumar Kedia. In his statement, he had admitted that seized documents so found pertained to the records of cash received from various beneficiaries to whom bogus Long Term Capital Gains (LTCG) was arranged by Sh. Raj Kumar Kedia. The relevant portion of the said statement has been incorporated by the AO in para 4.2.5 of the assessment order, for the cost of repetition, the same is not reproduced herein. The AO on the basis of the statement of Sh. Manish Arora held that Sh. Raj Kumar Kedia is an accommodation entry provider who took cash from various persons in orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under: 7. First Financial Services Ltd: I have arranged investment in the shares in this company on behalf of some of the beneficiaries who wanted to reap LTCG in future out of the funds received from them for the purpose. This company is controlled and managed by Mr. Anil Aggarwal (Mobile number 9820066768) having office in Malad, Mumbai He is an entry operator functioning from Mumbai. 8. Anukaran Commercial Enterprises Ltd. : I have arranged investment in the shares in this company on behalf of some of the beneficiaries who wanted to reap LTCG in future out of the funds received from them for the purpose. This company is controlled and managed by Sh. Suresh Jajodia. He is an entry operator and having his office and residence in Andheari and having its Mobile number 9987411344.) Q. 13. I am giving you last opportunity to tell in detail about the nature of business activities carried out by you or your family member's along with the sources of your income? Ans. Sir, I have told about my business activities and the sources of income of me and my family members in my reply to question no 4. In my reply to question no4, I forgot to mention at that time about my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q.No. 27: I am showing you statement of Shri Manish Arora S/o Shri Ram Lal Arora R/o A-125, FF, Shardapuri Ramesh Nagar, New Delhi-110015 recorded on oath under section 132(4) of the I.T. Act, 1961 during the search proceedings at D-45, back side ground floor, Saraswati Garden, New Delhi-110015. During his statement, he has stated that he is your employee since last 20 years and getting salary of ₹ 25,000/- p.m. and brokerage and commission of ₹ 25,000/- p.m. in cash. Please go through the complete statement of Sh. Manish Arora and tell since when he is your employee, how much salary he gets and what is his designation and work profile in your business. Ans. (After 40 mnts) Yes Sir, I have gone through the complete statement given by Sh. Manish Arora. He is my employee since last 20 years and maintains books of accounts related to my business activities since beginning. He is maintaining the record, books of accounts, cash receipt and payment details of my business of providing accommodation entries since last 7 years. I used to pay him salary by cheque till March, 2013 but, he is getting salary of ₹ 25,000/- p.m. and brokerage and commission of ₹ 25.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to BSL group in the records of accommodation entries provided by and found from back office premises of Sh. Raj Kumar Kedia. In his statement, Sh. Mainish Arora decoded ledgers. Some part of which is reproduced by the AO at page nos. 16 17 of the assessment order was as under: NP - This account refers to account of Bhushan Steel group. Here NP acronym refers to Nehru Place where corporate office of Bhushan Steel group was situated. Ankur Agarwal - This account refers to Sh. Ankur Agarwal, an employee of Bhushan Steel group. Here an opening balance of liability of ₹ 7.70 lakhs of Sh. Ankur Agarwal is there as on 01.04.2013. Cash payment to him under the name Thakur is also mentioned. NP Ankur - This account has already been converted in NP account explained earlier. This account is merely an adjustment account and ultimately this account is vanished after adjustments with NP account. Nitin Johari - This account refers to account of Sh. Nitin Johari who is an employee (CFO) of Bhushan Steel group. He has made some payment on 26.05.2014 to Shrim Investment Solutions Private Limited of Sh. R. K. Kedia, the purpose and accounting of which shall be furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed trading of shares of those non-descript listed companies. It has further been observed that during the course of search on Sh. Raj Kumar Kedia group of cases, the statements of director of the penny stock companies were also recorded, those statements are incorporated at page nos. 19 to 26 of the assessment order, for the cost of repetition, the same are not reproduced herein. The AO further observed that during many searches conducted by the Directorates of Income Tax (Inv.) of Mumbai and Kolkata, it had been established and brought on record that Sh. Jagdish Purohit was an accommodation entry provider and was involved in providing different types of accommodation entries including those of bogus Long Term Capital Gain to various beneficiaries in lieu of some commission in cash. Relevant portion of his statements has been reproduced by the AO at page nos. 26 to 29 of the assessment order, for the cost of repetition, the same is not reproduced herein. The AO also observed that Sh. Suresh Jojodia was an operator of M/s Anukaran Commercial Enterprises Ltd. and his statement was recorded on 10.06.2015 during the course of survey on M/s Anukaran Commercial Enterprises Ltd. The relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, 5, 7, 9, 11, 13 15 to 18 E-19 22 E-20 4, 6, 8, 10, 12, 14, 16 to 18 31 E-21 186 to 169 E-23 24 NP Ledger E-29 31, 33, 46, 47, 48, 53, 54 55 E-31 98 107 A-35 1 to 15 A-l 85, 86 88 A-2 6, 7, 45, 46, 47, 50, 51 52 A-8 24 A-9 15 2. Flat No. 60, Pink partments, Sector 18-B, Dwarka, New Delhi Party: CBR 4 A-1 Excel sheet (ABCD.xls) (Jobb.xls) (Comm.xls) and other folders This pen drive contains details of LTCG book by Shri Brij Bhushan Singal, Shri Neeraj Singal, Smt. Ritu Singal Smt. Uma Singal from penny stock companies M/s Rander Corporation Limited, M/s Anukaran Commercial Pvt. Ltd. and many other companies. Name of brokers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his statement and the other names such as Baba Boothnath, Krishna Securities Anand Rathi etc. were the name of the brokers entry providers who were involved in the business of accommodation entry of Long Term Capital Gains from Sh. Raj Kumar Kedia and other entry operators. The AO also mentioned that during the course of assessment proceedings, a summon u/s 131 of the Act was issued to Sh. Ankur Aggarwal to appear on 22.12.2016. However, Sh. Ankur Aggarwal filed his retraction on 20.12.2016 from his statement recorded in the course of search and did not appear on the date given u/s 131 of the Act. The AO also observed that the assessee was asked to produce Sh. Ankur Aggarwal but he could not produce and had not given any logical reason from retracting his statement recorded during the course of search. The AO referred to the following case laws: Roshan Beevi Vs Joint Secretary to the Govt. of Tamil Nadu, Public Deptt. Etc. (1983) LW (Crl. 289 K.T.M.S. Mohammad Vs VOI (1992) 65 Taxman 130 (SC) Narayan Bhagwant Roa Gosavi Balajiwale Vs Gopal Vinayak Gosavi AIR (1960) SC 100 Ramji Dayawal Sons P. Ltd. Vs Invest Import AIR (1981) SC 2085 Pullangode Rubber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the beneficiaries apart from some commission in cash. The AO reproduced the statement of the exit provider Sh. Devesh Upadhyay recorded on 30.12.2014 at page nos. 48 to 52 of the assessment order, for the cost of repetition, the same is not reproduced herein. The AO observed that one Sh. Bikash Sureka, 7, Lyons range Kolkata had been involved in trading in shares of many of those scripts and a survey u/s 133A of the Act was conducted at the residence of Sh. Bikash Sureka. During the course of survey, it came to the notice that the premises was within the complex of Kolkata Stock Exchange and was being run by Sh. Bikash Sureka, who was controlling some of the companies by introducing his employees as dummy directors in those companies and the work of those companies was nothing but to provide accommodation entries of various types including accommodation entries of bogus Long Term Capital Gain which had been revealed by Sh. Raj Kumar Kedia also in his statement. Therefore, all the facts were in line with the investigations done by SEBI and Investigation Wing of Income Tax Department, thereby confirming that pre-arranged trading in many listed scripts had taken place and bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were recorded, in their statements some of them had accepted that they were involved in this scam and the others accepted that they had allowed their trade terminals to be used by the entry operators for providing bogus Long Term Capital Gain , accommodation entries in the non-listed paper scripts. The AO mentioned the name of following companies: i. M/s Calcutta Stock Exchange Ltd. ii. M/s Gateway Financial Services Ltd. iii. M/s SMC Global Securities Ltd. iv. M/s Anand Rathi Share Stock Brokers Ltd. v. M/s Comfort Securities Ltd. vi. M/s Korp Securities Ltd. vii. M/s Religare Securities Ltd. viii. M/s Destiny Securities Ltd. ix. M/s Eureka Stock Share Broking Services Ltd. x. M/s Baba Boothnath Trade Commerce Pvt. Ltd. xi. M/s Fort Share Broking Pvt. Ltd. xii. M/s RNA Capital Markets Ltd. 21. The AO pointed out that when confronted with the evidences gathered by the department, the beneficiaries of Long Term Capital Gain provided by Sh. Raj Kumar Kedia and other entry operators disclosed surrendered additional income. Some of them who earned through Sh. Raj Kumar Kedia were following: i. Smt.Kanika Agarwal Wife of Sh. Charchit A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in consonance with the fundamental of those companies, most of them had resorted to preferential allotment for increasing paid up capital. The AO also pointed out that the SEBI in its order had specifically mentioned the names of the members of Singal Family and observed that those persons had been beneficiaries of dubious trading in shares of those scrips such that after preferential allotment of shares of those companies to them, the Singal Family members had been provided profitable exit once the prices of those shares rose suspiciously beyond a threshold. The AO observed that in the order of M/s First Financial Services Ltd., it was highlighted by SEBI that after preferential allotment, the Singal Family Members indirectly received the funds back from M/s First Financial Services Ltd. in the name of investment by M/s First Financial Services Ltd. or otherwise, which prima facie indicated that money received through preferential allotment was again routed to the same source i.e. Singal Family and that the SEBI also observed that those members of Singal Family had been preferential allottees in such type of companies which had a history similar to that of M/s First financial Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either directly or indirectly, in any manner, till further directions. And this list included the name of Sh. Brij Bhusan Singal, Sh. Neeraj Singal and Smt. Uma Singal which clearly proved that family members of M/s Bhushan Steel Group had taken accommodation entries of Long Term Capital Gain from penny stock companies. The AO accordingly issued a show cause notice dated 30.09.2016, on the bogus Long Term Capital Gain accommodation entries received from various penny stock companies with the help of accommodation entry provider Sh. Raj Kumar Kedia and served upon the assessee. In response, the assessee vide his reply dated 14.12.2016 submitted to the AO as under: The transactions in the shares of the impugned companies entered into by the Assessee duly conform to the said conditions in as much as while they have been entered with the F/Y 2010-11 i.e. much after 1st October, 2004 (the date on which the provisions came into force) they were also chargeable to Securities Transaction Tax(STT) which facts also stands duly documented and is not disputed and accordingly the long term capital gains arising to the Assessee will not form a part of the total income in his case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preciation, whether long term/short term in the price of the underlying shares. The Assessee did not have any kind or degree of relationship/ or control with/over the said companies, save as that of a passive investor, and neither was he involved in the management thereof at any point of time what to talk of its capital market operations or influencing to any degree or extent its stock market prices. The transactions were entered into as a stock market investor on the basis of information available, the Assessee's perception and anticipation as to future price movements, performance of the Company etc. and as soon as in his opinion they reached a particular level, considered as optimal, the same were divested. The Assessee's objective was to keep a track of the prices of the securities only, which consideration formed the sole pivot for all his actions related thereto. Reliance has been sought to be placed on the phenomenal rises in the prices of the shares compared to their small gross revenue and net profit which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all companies on the stock exchange would make it clear that in no case have the prices been determined solely or even majorly/predominantly by their sales/revenue/profits. To sum up the genuineness of the transactions and its being compliant with all the applicable regulatory provisions can be summed up as follows:- (i) The transactions have been entered into F/Y 2010-11 and are accordingly covered by the provisions of Section 10(38); (ii) The transactions have been subjected to STT; (iii) The purchase and sales of shares stand duly reflected in the statutory records of relevant companies and also in the DEMAT account of the Assesses. (iv) Purchase/preferential allotment of the shares and their sale has been done in accordance with the prescribed and applicable regulatory procedures and laws. (v) The Assesses neither had any control over the manner in which the affairs of the said companies were conducted or any relationship with the management. In view of the above scenario, the charge that the impugned long term capital gains arising on the sales of the various companies are bogus is denied, both factually and legally. As already stated above the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In this regard it is important to mention that assessee was allotted preferential Board of directors of the companies and the preferential allottees have to attend the meeting and the issue of preferential allotment itself prove that assessee is having direct connection with the companies. Hence, assessee claim that he did not have any degree of relationship with these companies is incorrect. iii. Further, assessee has submitted that phenomenal rise in the shares prices is due to market forces and dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters industrial situation etc. all of which act in tandem and correlation to determine the movement of prices and stated that same was 'regulated by Securities and Stock Board of India. In this regard, detailed financial analysis of all the companies has been done in chapter financial analysis of penny stock companies. From the financials of these companies it is clear that any genuine investor will never invest in these companies. Further, the phenomenal price rise is also not market guided, and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock exchange which further proves that assessee was involved in this scam of bogus LTCG. Hence assessee's claim that he does not have any role direct, indirect or even notional is unacceptable. Further many of the entry operator and exit provider have accepted their role in rigging of price through circular trading. From the order of SEBI and statements of entry operators it is clear that assessee is beneficiary of manipulated LTCG through stock exchange with the help of Shri Raj Kumar Kedia and other entry operators. 4.10.2. The nexus between different entry providers operating from various locations has been adequately established. It is not necessary that only one entry provider works on share for jacking up the price of share. Evidence found, suggests that different entry operators worked in tandem in trading of shares of penny stock companies for jacking up the price and for final purchase. 4.10.3 It is unusual in share trading business that majority of trades are executed within minutes of placing the order, unless and until the acts of seller and buyer are artificially synchronized. The fact that trades were executed within minutes, verified from the trade data r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eny commenting on the entries mentioned in these documents. These documents conclusively prove that all these entry providers and beneficiaries were working hand in glove for benefit of each other. 25. The AO, on the contention of the assessee for the cross examination of persons whose statements were relied by the department, observed that an opportunity to cross examine Sh. Raj Kumar Kedia and Sh. Manish Arora was provided to the assessee and in this regard summons u/s 131 of the Act were issued to both those persons to appear in the office of the AO. However, they did not appear which proved that there was a clear nexus between beneficiaries and the entry operators. The AO observed that the summons u/s 131 of the Act were issued to the following 15 persons: SI. No. Name of the person Date of issue of Summons 1 Shri Natwar Lal Daga 19.12.2016 2 Shri Vishu Jain 19.12.2016 3 Sanjay Kumar 19.12.2016 4 Sanjoy Dey 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Kedia during the post search proceedings but he had straightaway refused. The AO reproduced relevant part of statement of the assessee recorded on 24.04.2015 which read as under: 25. In view of your consistent denial of the observations that you and your family members have taken accommodation entries such as that of bogus LTCG through Shri R K Kedia or otherwise on one hand, and numerous incriminating evidences in the form of statements of various persons and documents found and seized / impounded from various premises during the course of search and post search enquiries and observations made by the revenue and intimated to you that you and your family members have been involved in prearranged trading in shares of many listed scrips controlled by various entry operators, in order to reap bogus LTCG in your and your family members' names, on the other hand, you are hereby been given an opportunity to cross examine Shri Raj Kumar Kedia and I or Shri Manish Arora and I or Shri Ankur Agarwal in this regard to establish / strengthen your stand. Kindly state a convenient date to you for the same so that due procedural and quasi-judicial arrangements may be made and avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom whom the evidence was gathered. In fact, he need not even disclose the names of the parties because in that event confidentiality of the names of the parties would not be maintained. The reliance was placed on the following case laws: Moti Lal Padampat Udyog Ltd. Vs CIT 160 Taxman 233 (All.) Satellite Engineering Ltd. Vs Union of India Ors. (1983) ELT 2177 (Bom) DCW Ltd. Vs Collector of Central Excise 27. The AO held that the rules of natural justice are not rigid rules, they are flexible and their application depends upon the setting and background of statutory provision, nature of the right which may be effected and the consequences which may entail its application depending upon the facts and circumstances of each case. It was stressed that natural justice is mistress and not the master of justice and that it is used to support the cause of justice, it can never be used to defeat the cause of justice. The reliance was placed on the judgment of the Hon ble Delhi High Court in the case of CIT Vs M/s Nova Promoters Finlease (P) Ltd. 342 ITR 169 (Del.). 28. The AO was of the view that the cross examination was not relevant and not necessary for the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the old records so as to leave no trace/trail in case of stern action by the department. As a result, evidence indicating sham transaction by all the investors were not founded by the department, but the pattern of investment, the modus operandi adopted is largely same for 100% of investors. The rate of return, the pattern of movement of funds for layering, non existence of genuine business activities of such investors etc. safely lead to conclusion that LTCG received from these penny stock companies is bogus and taxable. The reliance was also placed on the judgment of the Hon ble Supreme Court in the case of Sumati Dayal Vs CIT (1995) 125 CTR (SC) 124. 30. The AO observed that in the assessee s case, it had been established that the assessee indulged in sham transactions to receive back his unaccounted money in the garb of exempt Long Term Capital Gain. Therefore, the total Long Term Capital Gain of the assessee against those bogus/sham transactions had to be treated as unexplained income of the assessee alongwith the unaccounted commission expenditure @ 6% of the total Long Term Capital Gain for arranging those entries. The AO determined the total bogus Long Term Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial had been found during the course of search with respect to those years. It was further submitted that as per the provisions contained u/s 153A of the Act, where an assessment order had already been passed for a year within the relevant six assessment years, the AO is duty bound to reopen those proceedings and reassess the total income by taking note of the undisclosed income, if any, unearthed during the search. It was further stated that the legislative intent behind incorporating the said provisions into statute book was to establish a live link / undeniable nexus between some incriminating material / document etc. found /unearthed / discovered in the course of search u/s 132 of the Act and undisclosed income arising therefrom. It was contended that the provisions of law, as enshrined in Section 153A of the Act and as interpreted by various Courts including the Jurisdictional High Court, from time to time, in a number of cases, clearly laid down that only those assessment proceedings which were pending before an Assessing Officer on the date of initiation of the search shall be abated and merged into assessment proceedings initiated u/s 153A of the Act and that undoubtedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions as discussed in the body of the assessment order including results of search/survey actions carried out on various alleged entry operators, the statements of the different persons recorded, hard as well as soft data found therein, the seemingly irrational decision to invest in the shares of an alleged paper company, the somewhat unusual movement in the stock market prices of alleged penny stocks, the results of investigations/enquiries carried out by the Investigation Wing of the Income-tax Department across the country, the orders passed by various other statutory bodies including the Securities and Exchange Board of India, the statements of the so called Dummy Directors of the alleged Penny Stock Companies, the nature of transactions in the books of various companies, the disclosures made by various parties having similar transactions etc. in addition to alleged incriminating documents and findings based on the search u/s 132 of the Act on the BSL group. It was further submitted that the said findings had also been sought to be supported by legal principles such as preponderance of probabilities and the denial of the right to cross-examination of the persons whose statements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction having been entered into on or after 1st October, 2004 and Securities Transactions Tax having been duly paid thereon, were cumulatively satisfied. It was contended that in the assessee s case, the transactions giving rise to LTCG entered by the assessee duly complied with the said conditions specified u/s 10(38) of the Act in as much as while they had been entered in the financial year 2009-10 i.e. much after 1st October, 2004 (the date on which the provisions came into force) they were also chargeable to Securities Transaction Tax which fact also stood duly documented and was not disputed. Therefore, the LTCG earned by the assessee will not be a part of his total income as covered by the provisions of Section 10(38) of the Act and that the provisions of Section 10(38) of the Act also need to be viewed in conjunction with the manner of securities market in particular stock exchanges and that the entire dealing in securities takes place electronically whereby there is no physical contact/communication and all the transactions get consummated through online matching of the bids and offers of the respective parties viz. buyers or sellers. It was further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the transaction concluded through regular banking channels, the said facts though not relevant from the point of view of determining the taxability or otherwise were decisive determinants as genuineness and validity of the transactions and their being in compliance with all the relevant statutory provisions, rules, procedures and practices. 35. It was submitted before the ld. CIT(A) that neither the assessee nor any of his family members or any entity belonging to the BSL group paid any cash either to Sh. Raj Kumar Kedia and his associates and that the assessee neither knew any person by the name of Sh. Manish Arora nor did he had any dealing with him. As such no adverse inference on the basis of their statement was warranted with regard to the hard/soft data seized from Sh. Raj Kumar Kedia/Sh. Manish Arora. It was stated that the assessee was neither aware nor could be expected to be aware of how any third party came into possession of some information and even otherwise no credence would be placed on the statements made by Sh. Raj Kumar Kedia as would be evident from a review of the post-search investigation/assessment proceedings wherein he had been taking contradictory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that a statement recorded u/s 132(4) of the Act while passing the evidentiary value is not conclusive proof and can always be retracted. The reliance was placed on the following case laws: Nagubai Ammal Vs Shama Rao (1956) AIR 593 (SC) Pullangode Rubber Produce Co. Ltd. Vs State of Kerala and Another (1973) 91 ITR 18 (SC) Abdul Qayume Vs CIT (1990) 50 Taxmann 171 (All.) ACIT Vs Jorawar Singh M. Rathod (2005) 148 Taxman 35 (Ahd.) Surinder Pal Verma Vs ACIT (2004) 89 ITD 129 (Chd.) 37. As regards to the alleged statement of Sh. Raj Kumar Kedia that the cash was provided by Sh. Pankaj Tewari on behaf of Bhushan Steel Ltd. Group, it was stated that no cash was paid to Sh. Raj Kumar Kedia or any of his employees and no so called accommodation entries were received from/through him by the assessee or any of his representatives. Therefore, no credence could be given to the statements of Sh. Raj Kumar Kedia particularly in view of the uncontroverted and undeniable facts that the shares of a listed company were sold through BOLT platform of the Bombay Stock Exchange and all the payments against sale were received through account payee cheques from the stock bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tries in the books of a third party is not legally and judicially acceptable in the light of the judgments cited. 39. It was emphasized before the ld. CIT(A) that the investment in the shares of the various companies was made on the basis of their expected growth potential, the information in respect of which the assessee came to be known through various sources and simply because the share price of a small company had appreciated substantially and the assessee had earned substantial capital gains there from did not call for the entire transaction to be viewed prejudicially with a jaundiced eye/prejudicial mind. It was stated that earning of substantial gains, translating into an astronomical rate of return could be the result of various factors including the investors foresight, ability to exploit any bits and pieces of information that may come to ruin or even sheer fortitude none of which called for a negation of the entire transaction so as to strike at the roots of the authenticity, nature and character. It was stated that movement in the price of any shares was the result of the complex interplay of diverse, even competing, factors of which sales/cross revenue was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction, where the other part had not been disputed, even microscopically, could only be a questionable quality. 40. As regards to the reliance placed by the AO on the statement of the Directors of the Penny Stock Companies, it was stated that the assessed did not know any of those persons and was not aware as to the reasons and circumstances under which those statements were given by them and that the assessee was neither aware of nor in any way concerned/connected with the activities and composition of Board of Directors of the said companies. Moreover, the shares were sold on the online BOLT platform of BSE whereby the assessee was not and could not be aware of the ultimate buyer of shares, simply because of the fact that some shares had been purchased by companies, allegedly controlled/managed by various parties/entities could not lead to any kind of adverse conclusions let alone collusion of arrangement between them and the assessee. It was stated that the assessee was neither aware nor could be expected to be aware of any transactions between Sh. Raj Kumar Kedia and other entities/parties transacting inter-se independently on a principal to principal basis and over whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rigging since he was neither connected with the alleged unusual price movement of shares nor there was any concrete evidence of his complicity in this regard and moreover, there was no allegation of any wrong doing with regard to the assessee what to talk of any conclusive evidence in this regard. It was further submitted that the AO erroneously stated that various evidences were gathered during the course of search and seizure/survey proceedings by the Investigation Wing of the Department which could allegedly prove that the transactions for LTCG were not genuine whereas the fact of the notice was that no such evidence/material was found which could implicate/involve or in any manner prejudice the assessee whether conjecturally or conclusively and even name of the assessee did not appear in any manner in the records of the said proceedings, the statements recorded therein or any data/accounts/documents found therein. Therefore, the legal validity of the reliance on such statements being in violation of the principle of natural justice was itself disputed and that the shares of the companies from whom LTCG were earned to the assessee by way of preferential allotment which did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of NP ) with the help of various other members of the cartel spread throughout the country, it was stated that the AO by relying upon the disclosures made by certain other parties/individuals tarred the assessee with the same brush by simply replicating the same arguments without making any attempt to consider or making allowance for the diverse facts, differing circumstances. It was also stated that the AO had ignored the fact that the situation, circumstances and facts of each persons/group were differently governed by a disparate factors, the same could not have been extrapolated, even as circumstantial evidence, to the case of the assessee and that simply because some entities/individuals who had entered into similar transactions to that of any other assurance had adopted a particular path/treatment in their Income-tax proceedings did not call for their automatically being extrapolated to other assessees and that it was perhaps only on points of law in a nuanced and subtle matter, the situation of different assessee s could not be replicated and if made was neither justified nor sustainable. It was also stated that the case of the department was based to a large extent on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was against the principles of natural justice and accordingly bad in law. 44. It was contended that the AO greatly relied on the principle of preponderance of probabilities for arriving at his ultimate conclusion which was an enabling theory of providing and accepting proof and basing the verdict on their preponderance i.e. importance/predominance. However, in a case where the direct evidence was either of questionable quality or which had been effectively countered and negated since no prima facie evidence was available the revert to secondary evidence on the basis of preponderance of probabilities was not warranted. It was further contended that in the case of the assessee, the documents/arguments and evidences put up by the department had been effectively negated in as much as: (a) No reliance can be placed on the statements of Sh. R K Kedia/Manish Arora in the light of their frequent shifting stands casting a definite doubt on the reliance that can be placed thereon; (b) The statement of Sh. Ankur Aggarwal has been retracted by him and there are no valid reasons to disregard the said retraction; (c) Mere entries in the books of accounts or records of a third par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the functioning of capital markets and not with the Income-tax Act and as such have no relevance while interpreting the taxability or otherwise of any sum or interpreting the results of any particular transaction under the Income Tax Act. Therefore, an attempt to disregard the provisions of Section 10(38) of the Act by treating the Long Term Capital Gain as alleged unaccounted sources had been decisively negated by various judicial pronouncements across the country. The reliance was placed on the following case laws: Chainroop Bhora and Others Vs DCIT, Kolkata in ITA Nos. 24 to 27/Kol/2013 (Kol) Ashok Kumar Gupta and Others Vs DCIT, Kolkata in ITA Nos. 501 502/Kol/2013 (Kol) Arvind Asmal Mehta Vs ITO, Mumbai in ITA No. 2799/Mum/2015 (Mum) Vasantraj Birawat Vs ACIT, Mumbai (2015) 61 Taxmann.com 295 (Mum.) Kamal Kishore Aggarwal Sons (HUF) Vs ACIT, CC-11 in ITA No. 6248/Del/2011 (Del.) Shri Kamlesh Mundra Vs ITO, Ward 19(2)(3), Mumbai in ITA N. 6248/Mum/2012 (Mum.) DCIT Vs Asha V Mehta in ITA No. 6405 6998/Mum/2012 (Mum.) CIT Vs Udit Narain Agarwal in ITA No. 560 of 2009, order dated 12, 2012 CIT Vs Smt. Sumitra Devi (2014) 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing bogus bills of diamond jewellery to the various beneficiaries; During the course of search no stock of jewellery was found at the premises of Sh. Rajender Jain; Shri Rajender Jain in his statement accepted that he is in the business of providing accommodation entry of bogus bills of diamond jewellery and also explained the modus operandi of bogus billing; On the basis of above assessee s claim that his purchase is genuine is not acceptable; The assessee has purchased these diamond jewelery from his unaccounted source of income from grey market and obtained bills from M/s Kriya Impex Pvt. Ltd. (company controlled by Rajender Jain Group) and had received back the equal amount of cash; The purchase amount of ₹ 33,32,905/- is an accommodation entry and same is added back to the income of the assessed. 50. It was submitted that the assessee furnished the copy of bill as well as bank statement reflecting payment of the said amount to the said party and duly disclosed the said jewellery in the return of net wealth filed for the assessment year 2010-11 onwards which had been duly assessed as such. Therefore, the question of the said transaction being an accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e normally procuring the required quantities of the zinc from the Tarapore (Maharashtra) Depot of the supplier and/or Chittorgarh/Udaipur in Rajasthan. However, in respect of the invoices, where the assessee had availed fraudulent CENVAT credit, the zinc was purchased from Haridwar plant of the supplier and the assessee had intentionally arranged. The ld. CIT(A) further observed that during the course of search at the residence of Sh. Sushil Kumar proprietor of M/s Ram Overseas, Delhi and the Central Excise officers recovered incriminating documents and also cash amounting to ₹ 1,59,60,000/- was seized and that during the course of search at the godown of said company stock of 694 pcs of zinc ingot weighing 17183.4 kgs and valued at ₹ 23,54,131/- was seized and the concerned persons could not produce any document related to the same. He also observed that during the search at the premises of transporter M/s Mewar Transport Co. (Regd.), Sh. Salim Khan (supervisor) informed the officers that most of the zinc loaded from the Haridwar Depot of the supplier for the assessee, was used to be unloaded at Delhi, Agra and Aligarh etc. as per the direction of Mr. Rajesh Sainani, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was diverted by the assessee to the open market and that the persons belonging to the group to which the assessee belonged were called upon to show-cause as to why penalty under Rule 26 of the Rules should not be imposed on them. He also pointed out that the assessee moved to Custom and Excise Settlement Commission vide application filed on 06.05.2014 and in the settlement application a Central Excise duty liability of ₹ 11,91,72,494/- out of the total duty demand and an amount of ₹ 2,84,82,857/- towards interest liability was accepted and that the assessee and Sh. Piyush Kumar, Advocate of M/s BSL, admitted entire duty liability. The ld. CIT(A) observed that during the course of search on BSL group of cases on 13.06.2014, at 608, Regent Chambers, Nariman Point, Mumbai, a diary was recovered from the possession of sh. Chandrakant Mahdev Jadhav, Commercial Manager of M/s Bhushan Steel Ltd. He was confronted with the contents of the diary and in his statement, he deposed under oath that he received cash payments for sale of scrap at the Khapoli plant of M/s Bhushan Steel Ltd. and such cash receipts were not accounted in the books of accounts of M/s Bhushan Steel Ltd. an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed the enhancement and the assessee furnished the reply vide letter dated 21.12.2017 as under: This is with reference to the discussions held on the last date of hearing asking the Appellant to show cause as to why enhancement of income of equal amount be not made in the hands of Sh Neeraj Singal/Sh Brij Bhushan Singal in the light of the facts as discussed. In this connection, the following submissions are made for and on behalf of the Appellant: - (1)(a) While it is a fact that the Appellant is a Managing Director of M/s Bhushan Steels Limited (BSL) and accordingly responsible for managing its affairs, the fact remains that BSL being a separate legal entity was operating independently with a clear demarcation drawn between his personal affairs and activities of BSL. (b) In this scenario and narration of facts, any act, if at all done or conducted in his capacity as the Managing Director of BSL would stand divorced from and have to be considered as such and not intermingled, with what to talk of extrapolation, to his personal affairs. (c) It may also be submitted that while the conclusions drawn and additions made with respect to the issues which form the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not represent the correct state of affairs is also further corroborated by the fact that two other employees at the Khopoli Plant of the Company viz, Shri SudamaPrasad and Shri Padam Kumar Aggarwal have denied the contents of the statement of ShChander Kant Jadhav and in fact have even contradicted the same on the same date. It may also be submitted here that Shri Chander Kant Jadhav has also reiterated the retraction in a statement recorded before Ld Assessing Officer on December 22, 2016. (f) In this scenario wherein, there are conflicting and contradicting statements of various parties it is clear that the statement of Sh Chander Kant Jadhav, having been made under a state of extreme mental and heightened tension, did not reflect the true and correct state of affairs and accordingly no adverse inference can be drawn therefrom. Furthermore, the Appellant Company has also not been provided an opportunity to cross examine the persons whose statements form the basis for the conclusion drawn and consequent addition made by the Ld. Assessing Officer. (g) As regards the proposed enhancement on the basis of the alleged sale of Zinc purchased from M/s Hindustan Zinc Ltd in cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission was motivated only by a desire to obviate litigation which would have been time consuming and expensive and conserve energy and resources for the operations of the Appellant Company to ensure its sustained growth and progress. (2) There is not an iota of evidence to even remotely suggest that the money, if any, allegedly received from the sale of scrap/zinc went into the personal coffers of the Appellant. Moreover no such evidence of any nature, even superficial, to suggest that such money(s) were diverted to the personal hands of the Appellant has even been unearthed during the course of search. (3) As desired, copies of documents evidencing purchase of share on which LTCG has been claimed are being enclosed herewith. As regard the rationale for the purchases of shares, the same was based on the expectation of capital, appreciation as per the information available at that point of time. 53. The ld. CIT(A), however, held that the assessee was asked to furnish copies of the material seized by the Central Excise Authorities which had been referred in the statement of Sh. Pankaj Tiwari dated 20.03.2013. However, in spite of follow up the same had not been furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been purchased for consumption in the manufacturing process), was consistently going on for a period of about five O years. This deliberate and planned exercise was for the personal benefit of Sh. Neeraj Singal, VC MD of the appellant. The statement of Sh. Pankaj Tiwari was corroborated by the material recovered from his residence as well as statements and other evidence collected from other places by the Excise Authorities. iii) The Excise Authorities also found shortage of 41.367 MT in stock of zinc available at Khapoli Factory of the appellant which could never be explained by the appellant either before the AO or before the undersigned. iv) During the search seizure operation by the Income Tax on 13.06.2014 at premises of the appellant at Regent Chambers, Nariman Point, Mumbai a diary written by Sh. Chandrakant Mahadev Jadhav, Commercial Manager, of the appellant was found and seized. On confrontation, Sh. Jadhav deposed that he was selling the scrap generated in the Khapoli Factory of the appellant, in cash and passing on the cash to Sh. Neeraj Singal, VC MD of the appellant. These transactions were outside the books of accounts of the appellant. v) During ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 69.00 crs B) Sh. B.B. Singal ₹ 31.00 crs C) Smt. Ritu Singal ₹ 16.00 crs 55. The ld. CIT(A) also did not accept the following arguments of the assessee: 1. Books of accounts are audited. 2. No discrepancies were noticed in books of accounts by the Assessing Officer while making assessment. 3. The discrepancy is minor. 4. The focus of Customs Central Excise Settlement Commission was on legal issues. 5. GP/NP on M/s Tata Steel Ltd. cannot be compared because Tata Steel Ltd. is having integrated operations starting from mining. 56. The ld. CIT(A) observed that the AO had certainly made additions, however, he certainly erred and did not correctly apply law on the facts and in the circumstances of the case which clearly suggested that the integrity of books of accounts or results reflected by the books of account could not be upheld. The ld. CIT(A) reproduced the details of sales with Excise Duty, percentage of GP/NP ratio for the various years at page nos. 267 268 as under: S. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations starting from mining. Comments: i) No doubt, as such no two cases would be identical. There is bound to be some difference. Idea is to have best available method to estimate the profit. Undisputedly, the M/s Tata Steel Ltd. is in the same business (of steel). The year wise chart of the GP/NP of M/s Tata Steel Ltd. as compared to that of appellant is tabulated as under: AY M/s Tata Steel Ltd. Company's GP ratio (%) M/s Tata Steel Ltd. Company's NP ratio (%) Appellant's N.P. 2009-10 34.14 26.22 11.31 2010-11 33.78 24.09 20.41 2011-12 35.02 27.35 19.65 2012-13 31.83 23.52 13.73 2013-14 27.34 19.03 11.30 2014-15 28.71 20.61 0.99 2015-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings. In case, this information was received at a time when proceedings under section 153A were not there, AO was obliged to examine it from the angle of reopening the assessment under section 147/148 and in case the AO was satisfied that conditions mentioned under section 147/148 were fulfilled, a notice under section 148 would have been issued. Since, it has been held above that the proceedings under section 153A was not legal because qua this assessment year, there was no incriminating material unearthed during the search conducted on 13.06.2014 under section 132 of the I.T, Act, 1961, therefore, the A.O. is directed under section 150(1) to examine the case under section 147/148, independently and in case the conditions under relevant sections are found to be satisfied, the proceedings may be initiated notwithstanding anything contained in section 149 subject to provisions of section 150(2). 10.3.3 As discussed above and in subsequent paragraphs, proceeds of clandestine diversion and sale in cash of raw material shown to have been purchased for consumption in the manufacturing process, and cash generated out of payments for (bogus) transportation of this material which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the assessee did not produce Sh. Ankur Aggarwal. Therefore, the retraction made by Sh. Ankur Aggarwal was not bonafide. The reliance was placed on the following case laws: Pr. CIT(C)-2, New Delhi Vs Avinash Kumar Setia (2017) 81 Taxmann.com 476 (Del.) Gurdev Agro Engineers, Bhawanigarh Vs CIT, Patiala (2016- TIOL-2689-HC-P H-IT) CIT, Kozhikode Vs O. Abdul Razak (2012) 20 Taxmann.com 48 (Ker.) 62. The ld. CIT(A) also observed that an irrefutable link had been established between the assessee and his family members on one hand and Sh. Raj Kumar Kedia and his activities of providing accommodation entries on the other hand and that the assessee was provided opportunity to cross-examine Sh. Raj Kumar Kedia, Sh. Manish Arora and Sh. Ankur Aggarwal, however, he declined such opportunity. He also observed that since the statements were recorded by the officers of the Income Tax Department during the course of their duties where there was no contemplation of providing cross-examination. Therefore, those statements have to be taken on the face value and it was not the case that the assessee requested the AO to summon those persons and the AO refused. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bhushan Steel Ltd.) and payment of the cash generated due to such clandestine and organized process to Sh. Neeraj Singal has been proved, especially by way of statement of Sh. Pankaj Tiwari before Excise Authorities. The order of the Settlement Commission is at Annexure-1 to this order and the statement of Sh. Pankaj Tiwari made before Excise Authorities is at Annexure-2 to this order. ii) Generation of cash through unaccounted sale of scrap and payment of the same as per instruction of Sh. Neeraj Singal has been proved, specially by way of statement of Sh. Chandrakant Ma hade v Jadhav. iii) Evidence of cash generation and application was found during earlier search (dated 03.03.2010) in form of incriminating documents leading to surrender of heavy amount as undisclosed income by the appellant and members of his family. iv) Evidence of claim of expenses by way of payment to the companies not found at their registered address during the earlier search (dated 03.03.2010). v) Statement of Sh. Ankur Aggarwal clearly admits fact of payment of cash, transactions being stage managed, involvement of Sh. R. K. Kedia and receiving of bogus LTCG inform of accommodation entries and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controlling shares of the penny stock companies in which LTCG has been reaped. xvi) Identical incriminating material recovered during the search at the residence of Sh. Ankur Aggarwal (employee of Bhushan Steel Ltd.) and premises of Sh. R. K. Kedia (admitted entry operator). xvii) Incriminating statement of one of the exit (accommodation entry) provider. xviii) Evidence of Cash Trail leading to funds in the account of accommodation (entry) providers. xix) Investigation by SEBI implicating appellant and his family members regarding malpractices in trading of the shares of the same non-descript companies where the appellant and his family member have reaped LTCG. xx) Admission/disclosure by third party beneficiaries of accommodation entries from Sh. R. K. Kedia. xxi) Evidence of application of unaccounted cash in form of payment of salary (outside the books of accounts) found during current search (dated 13.06.2014). 65. The reliance was placed on the following case laws: Sanjay Bimalchand Jain L/H of Smt. Shantidevi Bimalchand Jain Vs Pr. CIT-I, Nagpur in ITA No. 61/Nag/2013, order dated 10.04.2017 CIT Vs Durga Prasad More (1971) 82 ITR 540 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply, therefore, the addition to the extent of ₹ 3,32,906/- (being 10% profit) is confirmed and rest of the addition is deleted. Thus, the ground (No. 5) is partly allowed. 53.5 In view of the above, a finding of facts has been returned(independently) by this office that the transactions under consideration were stage managed and accommodation entries, obtained by payment of unaccounted cash of equal amount plus commission. 68. As regards to the enhancement of the income, the ld. CIT(A) observed as under: i) clandestine diversion and sale in cash of raw material shown to have been purchased for consumption in the manufacturing process and cash generated pout of payments for (bogus) transportation of this material which was consistently going on for a period of about five years as a deliberate and planned exercise, and ii) cash sale (outside the books of accounts) of the scrap generated in the Khapoli factory, Sh. Neeraj Singal would have ensured that it was recorded in the books of accounts of M/s Bhushan Steel Ltd. The fact of not recording such entries in books of accounts of BSL, clearly shows that siphoning-off of the cash under consideration was short of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng process) payment of corresponding (bogus) transportation charges and b) sale of scrap is indeed the income of Sh. Neeraj Singal. The activity of such sale is likely to have some profit margin. However, there would be certain expenses, also. Therefore, it is reasonable and fair to assume that the income would be equal to the value of clandestinely diverted raw material, payments for (bogus) 'transportation1 charges up to factory and sale of scrap as reflected by the (coded) entries in the diary of Sh. Jadhav and (as) such entries explained by Sh. Jadhav by way of recording of his statement at the time of the search. Accordingly, following amount is added (by way of enhancement) to the assessed income of Sh. Neeraj Singal. A.Y. Cash generated out of sale of clandestinely diverted zinc (Rs. in crs.) Cash generated out of expenses for (bogus) transportation to factory (for clandestinely diverted zinc) (Rs. in crs.) Cash; generated out of sate of scrap Total (Rs. in crs.) 2009-10 13.59 0.41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has admitted that M/s Prraneta Industries Ltd. is under control and management of Sh. Sirish Chandrakant Shah and he is in the (same) business of providing accommodation entries. Sh. R.K. Kedia further stated that booking for bogus pre-arranged LTCG, via transactions in shares of this company, was done through Sh. R.K. Kedia. 57.3.4 Vide Question no. 41 of statement of Sh. Neeraj Singal, recorded during the search, the officer recording the statement specifically stated that he had learnt that transactions with M/s Prraneta Industries Ltd. were managed through the help of Sh. R. K. Kedia (ref. para 52.2.1, above). Moreover, vide Question no. 32 of statement of Sh. Brij Bhushan Singal, recorded during the search, the officer recording the statement specifically asked Sh. Brij Bhushan Singal as to whether he had heard or transacted in the past six years in certain scrips mentioned therein. Name of M/s Prraneta Industries Ltd. was specifically mentioned in the said question (ref. para 52.2.2, above). The above stated two references clearly show that the search team was having information about manipulation in the shares of M/s Prraneta Industries Ltd. and the search operation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate that purchase is not genuine. 57.5.2 The question is whether the material gathered during the search which beyond doubt shows manipulations and coloured transactions, in general, and specifically in penny stocks has implications for the above stated scrips (M/s. G-tech Info Ltd. and M/s. Prraneta Industries Ltd.) ?The answer to question is in affirmative in the light of ratio of Hon'ble Delhi High Court laid down while delivering judgment in case of CIT Vs. Chetan Das Lachman Das[2012] 25 taxmann.com 227 (Delhi). The Hon'ble Court ruled that transaction can be presumed for whole period on basis of seized material and seized material can also be relied upon to draw inference-that there can be similar transactions throughout period of six years covered by section. 72. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that a search seizure operation on M/s Bhushan Steel Ltd. (BSL) group of cases including premises of the assessee was carried out on 13.06.2014. However, no incriminating material whatsoever indicating any undisclosed income or assets of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial found in the course of search deserves to be deleted. The reliance was placed on the following case laws: All Cargo Logistics Ltd. Vs DCIT (2012) 18 ITR 106 (SB) CIT(C)-III Vs Kabul Chawla (2015) 61 Taxmann.com 412 (Del.) Jai Steel (India), Jodhpur Vs ACIT (2013) 259 CTR 281 (Raj.) Pr. CIT Ors. Vs Meeta Gutgutia Prop. Ferns N Petals Ors (2017) 395 ITR 526 Pr. CIT Vs Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj.) Pr. CIT-1 Vs Devangi Alias Rupa (2017-TIOL-319-HC-AHM-IT) CIT Vs IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar.) Pr. CIT-2 Vs Salasar Stock Broking Ltd. (2016-TIOL-2099-HCKOL- IT) CIT Vs Gurinder Singh Bawa (2016) 386 ITR 483 (Bom.) CIT Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) Pr. CIT, Delhi-2 Vs Best Infrastructure (India) Pvt. Ltd. Ors. in ITA Nos. 11/2017 to 22/2017 Dharampal Satyapal Ltd. Vs DCIT in ITA Nos. 3310, 3717, 3718, 3719, 3737, 3877 to 3881/Del/2016, order dated 17.05.2018 Pr. CIT Vs Dharampal Premchand Ltd. (2017) 99 CCH 202 73. It was further submitted that the statements recorded u/s 132(4) of the Act do not by themselves constitute incrim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3C of the Act with respect to unabated assessment years. Therefore, the ld. CIT(A) had erroneously worked on the assumption that this pre-condition had been made for the assessees with respect to the respective scrips for which material had allegedly been found in the possession and premises of third parties (and not that of the assessees). It was submitted that the third party statements recorded i.e. Sh. Raj Kumar Kedia and his employee Sh. Manish Arora alleged entry operators/exit providers, Directors of alleged penny stock companies, Sh. Ankur Agarwal, an employee of BSL but those statements did not constitute incriminating material unless they have live nexus with books of account, documents found in the course of search but not produced in the course of original assessment for undisclosed income or property discovered in the course of search in the assessee s case. It was further submitted that the pen-drive seized from Sh. Ankur Agarwal was having nothing incriminating against the assessee and his statement was subsequently retracted. It was further submitted that the revenue wrongly placed reliance on the statements of Directors of penny stock companies viz. M/s Anukaran Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons but none of them responded to the summons and since the onus of ensuring the presence of the deponents for cross-examination was on the AO who failed to discharge such onus. Therefore, as per the clear dictum of the Hon ble Jurisdictional High Court, such statements ought to be discarded and could not be relied upon for making additions u/s 153A of the Act. It was stated that for the assessment years under consideration i.e. assessment years 2010-11 to 2012-13 in the cases of all the four assessees under consideration, the assessment were not pending as on the date of search and as such there would be no abatement of any proceedings for the said years. In other words, at the time of search i.e. on 13.06.2014, the assessments for the assessment years 2010-11 to 2012-13 in the cases of the assessees were completed/not pending and therefore, the same have to be reckoned as unabated assessment in terms of second proviso to Section 153A of the Act and that the scope of assessment u/s 153A of the Act in case of unabated years would be strictly restricted to incriminating material found during the course of search in the case of the respective assessees. It was further stated that any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for unabated years cannot be reopened on the basis of such materials. As regards to the NP ledger seized from the premises of Sh. Raj Kumar Kedia relied upon by the AO, it was stated that the ledger contained entries for a period of 13 months from 01.04.2013 to 09.06.2014 which did not constitute incriminating material for the unabated assessment years i.e. assessment years 2010-11 to 2012-13. It was reiterated that the assessee had from the very inception consistently denied any relationship/linkage/dealings with Sh. Raj Kumar Kedia or Sh. Manish Arora or any of the alleged entry operators/exit providers or directors of penny stock companies. It was further submitted that the pen-drive seized from the premises of Sh. Ankur Agarwal did not contain anything incriminating against the assessees, it merely recorded the regular transactions in purchase and sale of shares of the assessees for a period of 2.5 months from 01.04.2014 to 12.06.2014 but there was no entry therein pertaining to any unaccounted receipt or payment of cash or commission against the transactions in shares carried out by the assessee. Therefore, the entries in the said pen-drive could not have been used to draw a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific provisions of law proceeded to tax the entire LTCG to the income of the assessees for the relevant years relying on various arguments/so-called evidences as discussed in the body of the assessment orders. However, the socalled evidences used by the AO in making the impugned additions were highly unreliable and did not conclusively prove that the LTCG earned by the assesses were not genuine or sham. It was stated that most of the shares of the companies on which LTCG had been earned were allotted to the assessees by way of preferential allotment and that one of the grounds taken by the AO in doubting the transactions carried out by the assessees and alleging personal connection between the assessees and the promoters of the said companies/entry providers was that the shares of the said companies were allotted by way of preferential allotment. It was stated that the issuance of shares on preferential basis was in consonance with applicable SEBI regulations and listing agreement norms and that the shares of the companies were allotted to the assessees by way of preferential allotment did not signify any connection of the assessees with the companies. It was also stated that vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs Collector of Central Excise (2005) 10 SCC 634 Rajiv Arora Vs Union of India and Ors. (AIR 2009 SC 1100) CIT Vs SMC Share Brokers Ltd. (2007) 288 ITR 345 (Del.) Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal.) Prakash Chand Nahta Vs CIT (2008) 301 ITR 134 (MP) Bangodaya Cotton Mills Ltd. Vs CIT (2009) 21 DTR 200 (Cal.) CIT Vs Sanjeev Kumar Jain (2009) 310 ITR 178 (P H) CIT Anr. Vs Land Development Corporation (2009) 316 ITR 328 (Kar.) CIT Vs Rajesh Kumar (2008)_ 306 ITR 27 (Del.) Heirs LRs of Late Laxmanbhai S. Patel Vs CIT (2009) 222 CTR 138 (Guj.) CIT Vs Pradeep Kumar Gupta (2008) 303 ITR 95 (Del.) CIT Vs Dharam Pal Prem Chand Ltd. (2007) 295 ITR 105 (Del.) CIT Vs A.N. Dyaneshwaran (2008) 297 ITR 135 (Mad.) P. S. Abdul Majeed (1994) 209 ITR 821 (Kerala) Prarthana Construction (P) Ltd. (2001) 70 TTJ 122 (Ahd. Trib.) CIT Vs S.M. Aggarwal 292 ITR 43 79. It was reiterated that the AO placed strong reliance on statements of third parties recorded u/s 132(4)/133A of the Act in the course of search and survey action in their cases and the assessee had from the very inception consistently deni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked bogus LTCG or that his own unaccounted money was routed through transactions in shares of said scrips or that he had made any compensatory payments to the buyers of the said scrips. It was further submitted that the statements of the Directors of penny stock companies recorded in the course of survey u/s 133A of the Act did not have any nexus to anything incriminating found in the course of search at the premises of the assessee. Therefore, those statements did not have any evidentiary value and could not on a standalone basis be used to draw adverse inference against the assessee in his assessments u/s 153A of the Act unless corroborated by incriminating material seized in the course of search in assessee s case. It was also pointed out that the AO heavily relied upon the statement of Sh. Ankur Agarwal an employee of BSL, recorded in the course of search at his premises under extreme pressure and undue stress allegedly stating that the assessee had obtained bogus LTCG by pre-arranged trading of certain non-descript listed companies. However, the said statement was retracted by Sh. Ankur Agarwal on 20.12.2016 before the AO. Therefore, such retracted statement could not have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani Gupta ACIT vs. Govindbhai N. Patel CIT Kanpur vs. Shadiram Others Commissioner of Income Tax vs. Bhanwarlal Murwatiya and Ors. CIT vs. Dhrampal Premchand Ltd CIT vs. S.M.Agganval Paramjit Singh vs. 1TO, IT Appeal No. 401 of 2009 CIT-13 Vs. M/s. Ashish International (ITA No. 4299 of 2009; dated, 22.02.2011) Commissioner of Income Tax vs. Anil Khandelwal (21.04.2015 - DELHC) Commissioner vs. Motabhai Iron and Steel Industries (03.09.2014 - GUJHC) CIT vs. S.C. Sethi, D.B.I.T Appeal No. 78 of 2005, 10.03.2006 Vinit Ranawat Vs ACIT (2017) 88 Taxmann.com 428 (Pune Trib.) Ganeshmull Bijay Sing Baid (HUF) Ors. Vs DCIT Ors. (2015) 45 CCH 306 (Kol Trib.) CIT Vs Anil Khandelwal (2015) 93 CCH 42 (Del) Straptex India (P) Ltd. Vs DCIT (2003) 84 ITD 320 (Mum) Pradeep Amrut Lal Runwal Vs Tax Recovery Officer (2014) 47 Taxmann.com 293 (Pune Trib.) ACIT Va Amit D Irshid in ITA No. 988/PN/2011, order dated 22.04.2013 Prarthana Construction (P.) Ltd. Vs DCIT (2001) 118 Taxman 112 (Ahd.) Rama Traders Vs First ITO (1998) 25 ITO 599 (Pat.) ACIT Vs Kishore Lal Balwani Rai (2007) 17 SOT 380 (Chd.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments/pen-drive were seized and not against the Assessees. There is no independent evidence to link the seized documents found in third party premises with any incriminating material found in course of search operations at the premises of the Assessees. Hence, entries in documents seized from third party premises would not be sufficient to prove that the Assessee indulged in such transactions. Statements of third parties (R.K. Kedia, Manish Arora, alleged entry exit providers, directors of companies etc.) recorded u/s 132(4)/133A cannot be used against the Assessees since opportunity of cross examination was not allowed to the Assessees, which makes the order so passed nullity inasmuch as it amounted to violation of principles of natural justice because of which the Assessees were adversely affected. Frequent retraction of statement by Sri R.K. Kedia (retraction followed by re-retraction) undermines the credibility of its genuineness and neutralizes his value as a witness. No reliance can be placed on the testimony of such a person indulging in double speaking and taking contradictory stands. Statement of Sri Ankur Agarwal which was subsequently retracted does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases of the aforesaid four scrips, connection amongst the debarred entities, funds used for manipulation of prices etc. came to a conclusion that no adverse findings against the entities as specified in the said orders were found and accordingly, the interim orders/confirmatory orders against the said entities were revoked. 87. It was stated that the SEBI came to a definite conclusion that the assessees were not involved in the alleged scam with respect to the impugned scrips and gave a clean chit to the assessees by passing final orders in favour of the assessees invoking the interim orders. Our attention was drawn towards table 27 at page nos. 89 to 93 of the assessee s written submissions wherein findings given in the final order of the SEBI are pointed out, for the cost of repetition, the same are not reproduced herein. A reference was also made to the final orders passed by the SEBI in connection with the aforesaid four scrips (copies of which are placed at page nos. 302 to 419). It was contended that the SEBI although found that the prices of the aforesaid scrips were manipulated for providing fictitious LTCG to preferential allottees and promoter related entities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Bombay Stock Exchange and all the payments against the same were received through account payee cheques/RTGS from the stock broker and there was no physical interaction between the parties, as such the identities of the counter party (whether buyer or seller) was not available thereby eliminating the possibility of any collusion between the parties and that the entire sales of shares were effected through web-based platforms of the relevant exchanges in which the seller would in no way sell to a particular entity/individual and vice versa and the transaction carried out by the assessee stood documented, evidenced by contract notes/bills of the relevant brokers issued in the form and manner as prescribed by the regulatory authorities. Therefore, it could not be presumed that there was any transfer of cash between the assessees and the alleged buyers to convert the unaccounted monies of the assessees into LTCG as alleged by the AO. It was also stated that as noted by the SEBI, the assessee being innocent genuine investors, lured into the artifice with the promise of quick returns but his role did not extend to the price manipulation or facilitating such manipulations by means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to results of the proceedings in the latter s case. Therefore, the presumption u/s 292C of the Act in respect of documents seized from the premises of Sh. Raj Kumar Kedia would be operable in the hands of Sh. Raj Kumar Kedia and not against the assessees. 91. As regards to the application of principles of preponderance of probabilities, it was stated that the LTCG earned by the assessee in the respective scrips were declared by the assessees in their returns of income filed for the respective years, the same were analyzed by the department and accepted as such in assessments completed u/s 143(3) of the Act for the assessment years 2010-11 and 2011-12, copies of which are placed at page nos. 59 to 94 of the assessee s compilation. Therefore, the alleged theory of surrounding circumstances, preponderance of probabilities, human conduct, alleged lack of prudent investor behavior in investing in shares of penny stock companies, alleged abnormal profit on such shares etc. were, if at all, equally applicable at the time assessments were originally completed by the AO u/s 143(3) of the Act after application of mind and detailed scrutiny of accounts under identical circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clandestine diversion and sale of raw materials (zinc) shown to have been purchased for consumption in the manufacturing process of M/s Bhushan Steel Ltd. (BSL), (b) alleged claim of corresponding bogus transportation charges and (c) alleged unaccounted sale of scrap generated in the Khapoli Factory of BSL, mainly relying on the order dated 27.05.2015 of the Customs Central Excise Settlement Commission and statements of several persons recorded by the Excise Authorities in the course of search by the DGCEI on 20.02.2013 in the case of BSL group as per the following details: Assessment Year Cash generated out of sale of clandestinely diverted Zinc (Rs. in crores) Cash generated out of expenses for (bogus) transportation to factory (for clandestinely diverted zinc (Rs. in crores) Cash generated out of sale of scrap (Rs. in crores) Total (Rs. in crores) 2010-11 61.23 1.29 - 62.5200 2011-12 86.80 1.73 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30.12.2016 for the assessment years 2010-11 to 2015-16 and the said alleged incomes did not constitute the subject matter of the assessment i.e. the same had neither been offered by the assessee in his return of income nor was their any whisper regarding taxability or otherwise of alleged source of income in the assessment orders passed by the AO u/s 153A of the Act for the years under consideration. Therefore, the ld. CIT(A) had no power to enhance the assessment by assessing new sources of income outside the subject matter of assessment appealed. The reliance was placed on the following case laws: CIT Vs Shapoorji Pallonji (1962) 44 ITR 891 (SC) CIT Vs Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) CIT Vs Union Tyres (1999) 240 ITR 556 (Del.) CIT Vs National Company Ltd. (1993) 199 ITR 445 (Cal) CIT Vs Associated Garment Makers (1992) 197 ITR 350 (Raj.) Sterling Vs ITO (1975) 99 ITR 236 (Kar.) 95. It was further stated that in making the impugned enhancement, the ld. CIT(A) had primarily relied upon the order dated 27.05.2015 of the Customs Central Excise Settlement Commission and the statements of the persons recorded by the Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ushan Steel Ltd. It was further submitted that the ld. CIT(A) also enhanced the income of the assessee on account of alleged unaccounted sale of scrap generated in the manufacturing process of BSL for the assessment years 2014-15 2015-16, despite the fact that identical additions on the said counts for the said years were already made by the AO in the hands of M/s Bhushan Steel Ltd., thereby resulting double addition of the same income in the hands of two different assessees. It was further submitted that even if for the argument s sake, it was to be assumed without conceding that scrap generated in the manufacturing process of BSL was sold outside the books, the proceeds arising therefrom would be the property of M/s Bhushan Steel Ltd. and not that of the assessee. Therefore, the enhancement made by the ld. CIT(A) on account of scrap generated was not justified. 97. As regards to the proposed enhancement on the basis of alleged sale of zinc purchased from M/s Hindustan Zinc in cash and the order of the Settlement Commission (Customs Central Excise), it was stated that the said issue was subject matter of the appellate proceedings in the case of M/s Bhushan Steel Ltd. and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to page nos. 420 to 433 of the assessee s paper book which are the copies of aforesaid bill, bank statement, Wealth Tax Return along with computation, assessment order passed u/s 16(3) of the Wealth Tax Act. It was submitted that since the purchase of impugned diamonds was duly supported by documentary evidences on record and the AO had failed to bring on record any concrete evidence in support of the alleged receipt back of cash from the parties from whom diamonds had been purchased by the assessee or alleged grey market purchases of the impugned diamonds by the assessee as alleged by the AO. Therefore, no addition could have been made merely on the basis of surmises and conjectures and uncorroborated statement of third party. It was contended that the ld. CIT(A) went a step ahead of the AO and passed a rather whimsical order holding that since the impugned diamonds were not found in the course of the Income-tax searches at the assessee s premises on two occasions on 03.03.2010 and 13.06.2014, the AO s reasoning that there was a grey market purchase was negated and accordingly, the said diamonds must have been sold before the first search on 03.03.2010 and reasonable profit to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that in his answer Sh. Manish Arora said that Sh. Pankaj Tiwari an employee of M/s Bhushan Steel Ltd. provided cash and some other persons who generally collected cash from Sh. Shivam for Jagdish Purohit and that other transfers of cash were generally through angadiya. He further stated that vide answer to question no. 3, it was stated that LT entries, OT entries, unsecured loan entries, ST entries etc. given to various beneficiaries were arranged from various entry operators for different beneficiaries after charging fixed percentage of commission and that he helped BSL group company and their promoters. It was further submitted that the statement of the assessee was also recorded on oath on 13.06.2014 u/s 132(4) of the Act wherein in reply to question no. 15, it was stated that on directions of promoters of M/s Bhushan Steel Ltd. and discussion with Sh. Pankaj Agarwal, one time investment was made in the shares of some non-descript listed company and once higher market share price was attained through artificial rigging, the shares of are sold to book huge Long Term Capital Gain which was also exempt from Income-tax u/s 10(38) of the Act and substantial portion of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses provided by BSL. However, most of those notices either returned back or incomplete reply was received and even the investigation carried out by SEBI in few of listed companies on the basis of common trading pattern and identical developments like stock splits, preferential allotments, insignificant economic activity and exorbitantly high stock price clearly established that the assessee manipulated the trading in the scrips and had taken undue benefit out of the same by reaping Long Term Capital Gain by manipulative trading in shares of those scrips. He further submitted that incriminating material seized from Sh. Raj Kumar Kedia and Sh. Ankur Agarwal who were connecting persons, clearly established that the material so seized from those person was related to the assessee as such it was an incriminating material. The reliance was placed on the following case laws: Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs PCIT-1, Nagpur (2018) 89 Taxmann.com 196 (Bom.) Abhimanyu Soin Vs ACIT (2018-TIOL-733-ITAT-CHD) Chandan Gupta Vs CIT (2015) 54 Taxmann.com 10 (P H) Balbir Chand Maini Vs CIT (2012) 340 ITR 161 (P H) Usha Chandresh Shah Vs ITO (2014-TIOL- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that the proceedings initiated u/s 153A of the Act were valid as the same were on the basis of incriminating material found during the course of search. 103. The ld. Counsel for the assessee in his rejoinder distinguished the judgment of the Hon ble Supreme Court strongly relied by the ld. CIT DR in the case of CIT Vs S. Ajit Kumar (supra) and submitted that the said judgment was rendered on a completely disparate and incongruent set of facts vis- -vis the case at hand in the context of the erstwhile scheme under Chapter XIVB of the Act which had been non-operative qua search and requisition after 31.05.2003. Accordingly, the said judgment was inapplicable to the search assessment made in the case of the assessee here in Section 153A of the Act pursuant to the search and seizure operation conducted in his case on 13.06.2014 u/s 132(1) of the Act. It was further submitted that the assessment pursuant to search operation u/s 132(1) of the Act in the case of the assessee are thus, governed by the provisions of Sections 153A, 153B and 153C of the Act which were inserted in the Income-tax Act, 1961 by the Finance Act, 2003 w.e.f. 01.06.2003 and have replaced the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaining to the years under consideration found during the course of search. 105. In the instant case, it is an admitted fact that the search and seizure operation u/s 132(1) of the Act was conducted at the premises of the assessee on 13.06.2014 and thereafter notice u/s 153A of the Act dated 08.09.2014 was issued to the assessee for furnishing the return of income. In response to the said notice, the assessee filed its return of income on 12.07.2016 declaring the same income which was furnished in the original return of income filed on 31.07.2010. The provision contained in Section 153A of the Act read as under: 153A-Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be chargeable at the rate or rates as applicable to such assessment year. 106. From the second proviso to the aforesaid Section, it is clear that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in Sub-Section (1) of Section 153A of the Act, is pending on the date of initiation of search u/s 132 of the Act or making of requisition u/s 132A of the Act as the case may be shall abate. In other words, the only assessment which are pending shall abate but those assessments which had already been completed before the search proceedings cannot be reassessed under this Section. In the present case, the search took place on 13.06.2014 and the assessment for the assessment years 2010-11 and 2011-12 were completed prior to the said date i.e. 13.06.2014 u/s 143(3) of the Act, therefore, those were not abated. The assessee filed the return of income for the assessment years 2010-11, 2011-12 and 2012-13 on 31.07.2010, 30.07.2011 and 31.07.2012 respectively while the search took place on 13.06.2014 and the assessments u/s 143(3) of the Act were framed on 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer of the assessee under section 153C of the Act. Assessment orders under section 143(3) read with section 153C were passed for the assessment years 2004-05 to 2008-09. In respect of the assessment year 2004-05, the Tribunal noted that as on the date the search was conducted i.e., on June 17, 2008, no assessment proceeding was pending and as no undisclosed income was detected, the assessment made under section 153A read with section 153C of the Act the Tribunal quashed the assessment. For the assessment year 2005-06, though no order under section 143(3) had been passed, an intimation under section 143(1) had been issued. The Tribunal held that for the purpose of section 153A read with section 153C of the Act, an intimation under section 143(1) was also an order of assessment. It upheld the validity of the assessment for the assessment year 2005-06. It has further been held as under: That one of the conditions precedent for invoking a block assessment pursuant to a search in respect of a third party under section 158BD of the Act, i.e., recording satisfaction that undisclosed income belongs to the third party, which was detected pursuant to a search had not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment years under consideration. In the instant case, the AO relied upon the statement of Sh. Raj Kumar Kedia his employee Sh. Manish Arora, Sh. Ankur Agarwal, an employee of BSL and Sh. Chandrakant Mahadev Jadhav. However, Sh. Raj Kumar Kedia retracted his statement on 14.10.2014 (copy of which is placed at page nos. 446 to 451 of the assessee s compilation). Thereafter, he filed letter dated 31.03.3015 withdrawing his retraction, copy of which is placed at page nos. 452 to 455 of the assessee s compilation. Therefore, he was changing his stand as such his statement cannot be considered to be reliable. Similarly, Sh. Ankur Agarwal also retracted his statement vide letter dated 20.12.2016 which is placed at page no. 190 of the assessee s compilation. Similar was the position with regard to the statement of Sh. Chandrakant Mahadev Jadhav recorded on 13.06.2014, the said statement was also retracted vide letter dated 24.11.2016. Now question arises as to whether the addition can be made u/s 153A of the Act in the absence of any incriminating material emanating from search u/s 132(1) of the Act, only on the basis of the statement recorded u/s 132(4) of the Act, particularly, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to the Assessees. Mr. Tarun Goyal was also not offered for the cross-examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross-examination by the Assessees, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the Assessees clearly stated that they did not know, could not have been shifted to the Assessees. The onus was on the Revenue to ensure his presence. Apart from the fact that Mr. Tarun Goyal has retracted his statement, the fact that he was not produced for crossexamination is sufficient to discard his statement. 38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose 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 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 17.03.2005 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. 8. 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. 110. A simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were found and not against any other person. 113. In the present case, the opportunity to the assessee to cross-examine the person whose statements were relied upon by the AO was required to be given, on the date fixed by the AO, the assessee presented himself through his Authorized Representative but the concerned person did not turn up, so it cannot be said that the opportunity to cross-examination was provided to the assessee, although the statements of third parties were used against the assessee. In the instant case, it is an admitted fact that the persons whose statements were recorded at the time of search, later on retracted from their statements and one person, namely, Sh. Raj Kumar Kedia first retracted on 14.10.2014 and thereafter withdrew the retraction vide letter dated 31.03.2015. Therefore, no reliance can be placed on the testimony of the said person who was indulging in double speaking and taking contrary stands. 114. On a similar issue, the Hon ble Calcutta High Court in the case of CIT Vs Eastern Commercial Enterprises (1994) 210 ITR 103 (supra) held as under: 4. We have considered the contesting contentions of the parties. It is true that Shri Suk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light. 2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Board has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence. 3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the I.T. Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/ coercion .'' 117. From the aforesaid Circulars, it is clear that the assessments made pursuant to search operation are required to be based on incriminating materials discovered as a result of search operation in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of each of the six assessment years 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 Assessing Officer 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 the seized material, (v) In the 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 153A is relatable to abated proceedings (i.e., those pending on the date of search) and the word reassess to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incriminating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the order of the learned Commissioner of Income-tax (Appeals) and dismiss the appeal of the Revenue. The Revenue urges that the non obstante clause in section 153A together with section 158BD removes the barrier vis-a-vis restriction upon search assessments being confined to undisclosed income . In other words, it is stated that none of the provisions confine the enquiry of the Assessing Officer to evaluating incriminating materials. This aspect, in the opinion of the court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the preexisting provisions, which applied for the previous years and had a differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of subsection (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous year in which the search is conducted or requisition is made, any addition or disallowance can be made only on the basis of material collected during the search or requisition. 24. In the present case, since no incriminating material was found, therefore, the addition made by the AO u/s 153A of the Act was not justified. 25. On an identical issue, the Hon ble Jurisdictional High Court in the case of CIT Vs Kabul Chawla (2016) 380 ITR 573 (supra) held as under: The legal position that emerges on a perusal of section 153A and section 132 of the Income-tax Act, 1961, is as under : (i) Once a search takes place under section 132 of the Act, notice under section 153A(ll will have to be mandatorily issued to the person in respect of whom search was conducted requiring him to file returns for six assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew has been taken by the Hon ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns N Petals (2017) 395 ITR 526 (supra) wherein it has been held as under: Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating material qua that assessment year which would justify such an addition. 27. Similarly, their Lordships of the Hon ble Jurisdictional High Court in the case of Pr. CIT Vs Ram Avtar Verma (2017) 395 ITR 252 (supra) observed as under: The Commissioner of Income-tax (Appeals), after considering the record, was of the opinion that the additions could not be justified, and accordingly granted relief, holding that no incriminating material was recovered during the search. The Revenue's appeal was rejected. The Income-tax Appellate Tribunal held as follows: 10. As per the paper book filed by the learned authorized representative showing the Panchnama from where learned Departmental representative could not point out any material found during the course of search which could give even remote possibilities of altering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed. 120. Similarly, the ITAT Delhi Bench E , New Delhi in the case of ACIT, Central Circle-8, New Delhi Vs Meroform India Pvt. Ltd. in ITA Nos. 4630 to 4635/Del/2014 for the assessment years 2006-07 to 2011-12 (supra) vide order dated 31.07.2018 held in paras 14 15 as under: 14. We have heard the rival submissions and also perused the relevant material referred to before us and the decisions relied upon by the parties. As discussed above, it is an undisputed fact that for the assessment years 2006-07, 2007-08 and 2008-09 the return of income was filed u/s 139(1) and order u/s 143(3) was passed much before the date of search, except for the assessment year 2007-08, wherein no notice u/s 143(2) was issued within the stipulated time period. Accordingly, on the date of search, i.e., 19.10.2010 the assessments for these assessment years have attained finality and hence has to be reckoned as unaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 15. The ratio laid down in the aforesaid judgment has been further reiterated on the Hon ble Delhi High Court in the case of Pr.CIT vs. (supra) vs Meeta Gutgutia and catena of other cases as referred above. In so far as judgments relied upon by the Ld. CIT DR, same may not have binding precedence for the reason that; firstly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO also failed to establish any link/nexus of the alleged cash trail. We, therefore, by considering the totality of the facts and the various judicial pronouncement discussed in the former part of this order are of the view that the additions made by the AO and sustained by the ld. CIT(A) u/s 153A of the Act in the absence of any incriminating material found during the course of search u/s 132(1) of the Act in respect of unabated assessment years i.e. the assessment years 2010-11 to 2012-13 were not justified. Accordingly, the same are deleted. 122. A similar view has been taken by the Hon ble Jurisdictional High Court in the case of CIT Vs Rajesh Kumar (2008) 306 ITR 27 (Del.) (supra) wherein it has been held as under: That the material collected by the Department behind the back of the assessee was used against him without disclosing the material or giving an opportunity to cross-examine the person whose statement had been used by the Department against the interest of the assessee. There was violation of the principles of natural justice. 123. Similarly, the Hon ble Delhi High Court in the case of CIT Vs Dharam Pal Prem Chand Ltd. (2007) 295 ITR 106 (supra) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2015 received much after issuance of notice u/s 153A of the Act after the search dated 13.06.2014. The same could not be categorized as incriminating material found during the course of search. Therefore, the ld. CIT(A) had taken a contrary stand in the case of the assessee i.e. Sh. Neeraj Singal vis- -vis the BSL by enhancing the income on the same count, in the absence of incriminating material. It is also relevant to point out that the enhancement on account of alleged sale of scrap in the hands of the assessee was made by the ld. CIT(A) on the basis of statement of one Sh. Chandrakant Mahadev Jadhav, employee of BSL recorded u/s 131 of the Act on 13.06.2014 and hand written nothing in his personal diary. However, the said person retracted from his original statement on 30.11.2016. Therefore, the ld. CIT(A) was not justified in enhancing the income on the basis of the said statement. 126. On a similar issue, the Hon ble Apex Court in the case of CIT, Bombay Vs Shapoorji Pallonji Mistry (1962) 44 ITR 891 held as under: In an appeal filed by the assessee the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject-matter of original assessment. 129. A similar view has been taken by the Hon ble Calcutta High Court in the case of CIT Vs National Company Ltd. (1993) 199 ITR 445 wherein it has been held as under: Before the Supreme Court, the question was whether, in an appeal filed by an assessee, the Appellate Assistant Commissioner can find a new source of income not considered by the Income-tax Officer and assess it under his powers granted by section 31 of the Indian Income-tax Act, 1922. There the Supreme Court, after considering several decisions, held that, in enhancing the assessment for any year, the Appellate Assistant Commissioner cannot travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income not disclosed in either. The Supreme Court also observed that there are other provisions like sections 34 and 33B which enable escaped income from new sources to be brought to tax after following the special procedure. The powers of the Appellate Assistant Commissioner extends to matters considered by the Income-tax Officer, and if a new source is to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on facts. The ld. CIT DR also relied on the decision of the Hon ble Jurisdictional High Court in the case of Smt. Dayawanti Vs CIT wherein it has been held by the Hon ble High Court that the statements recorded during search operation could be relied upon to make addition to the assessee s income u/s 153A of the Act proceedings. However, the said case is also not applicable to the assessee s case since the stay had been granted by the Hon ble Supreme Court in (C) Appeal No. 20559/2017 against the said decision of the Hon ble Delhi High Court. The ld. Counsel for the assessee distinguished the decisions relied by the ld. CIT DR, in his rejoinder through written submissions furnished on 02.08.2018 running into page nos. 1 to 31 which are placed on record. 133. The facts of the cases of other assessees are similar to the facts involved in the case of the present assessee i.e. Sh. Neeraj Singal, therefore, our findings given in respect of the appeals in ITA Nos. 1485 to 1487/Del/2018 shall apply to the other appeals of different assessees with the same force. Since, we have decided the legal issues in favour of the assessees, therefore, no findings are given on the other issues ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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