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TMI Blog2018 (10) TMI 1635X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the assessee Sh. Neeraj Singal. Following grounds have been raised in this appeal: "(1) That the order dated 29-12-2017 passed u/s 250 of the Income-tax Act, 1961 (hereinafter called "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 passing the order u/s 153A of the Act without appreciating the fact that the order passed by Assessing Officer is without jurisdiction and bad in law as the jurisdiction 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 Rs. 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 transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting in alleged under reporting (because of alleged siphoning off) of profits of the Bhushan Steel Limited and alleged non-declaration of true and accurate state of affairs before the Income-tax Department. (7) 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 Assessing Officer in framing the assessment by ignoring the basic principles of natural justice 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 assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner (Appeals) is too narrow a view to take of the powers of the Tribunal." It has been further held as under: "Undoubtedly, the Tribunal has the discretion to allow or not to allow a new ground to be raised. But where the Tribunal is only required to 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 assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d mostly in lieu of cash of equal amount and commission charged over and above at certain fixed percentage for providing such accommodation entry. These accommodation entries are taken by various beneficiaries for introducing their unaccounted cash into their books of accounts without paying the due taxes. ii) Entry operator: It is the person who is in the business of giving accommodation entries in lieu of cash/cheque of equal amount after charging certain percentage of commission in cash. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a later stage. The promoters/directors of the companies work hand in glove with the operator to implement this scheme of availing bogus LTCG. ii) The Brokers: They are registered brokers through whom shares are traded both online and off-line. They are fully aware of the nature of transactions and get paid a commission over and above their normal brokerage. Some of the big broking houses are also indulging in such transactions mostly through subbrokers. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt the effect of Corporate Action of NSDL/CDSL thereby releasing old shares and getting the spitted shares in Demat Account. After split of shares the price of shares on the exchange goes down automatically in proportion with the ratio of split and one doesn't see anything adverse happening in the scrip. iv) Final sale by the beneficiary: This is done after the beneficiary has already held the share for one year. 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 Prr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. 6. Pine Animation Ltd. 7. Global Infratech& Finance Ltd. 8. First Financial Services Ltd. 9. Splash Media Infra Ltd. 10. Anukaran Commercial Enterprises Ltd. 11. DB (International) Stock Brokers 12. Ms Unisys Software & Holding Industries Ltd. 13. Blue Circle Services Limited. 14. M/s Action Financial Services 15. Fact Enterprises Ltd. 16. Grandma Trading Agencies Ltd. 17. Parikh Herbal Ltd. 18. Premier Capital Services 19. Rutron International Ltd. 20. Shalimar 21. Avance Technologies Ltd. 22. Karma Industries Ltd. 23. Partani Appliances Ltd. 24. LN Industries Ltd. 25. M/s Shree Shaleen Textiles Limited 26. Ws Radford Global Limited 27. JMD Telefilms Industries limited 28. Dhanleela Investments & Trading Company Limited 29. SRK Industries Ltd. 30. DhenuBuildcon Infra Limited. 31. Indo Pacific Software Ltd. 32. Surabhi Chemicals & Investments Ltd. 33. Sharp Trade Financial Ltd. 34. Naveau Multimedia Ltd. Please tell who is controlling these companies and above their business profile and nature of activities carried out by these companies one by one? Please also furnish the address of these companies from where these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd d) Akash Jain for Ajit Industries e) Harinder Singh for Master Trust Group some persons who generally collected cash were: a) Shivam for Jagdish Purohit b) Other transfers of cash were generally through angadiya Q. 18 Who were the main persons in the groups of major beneficiaries who requested you for accommodation entries in shape of LTCG, OT, etc Ans. The persons from whom I got request for accommodation entries in shape of LTCG, OT, etc in major groups were Shri Brij Bhushan Singal and Sh. Neeraj Singal for Bhushan Steel Ltd., Shri Sanjay Singal for Bhushan Power & Steel Ltd., Shri Akash Jain for Ajit Industries Ltd., Rajender Singhaniaji of Ludhiana for Master Trust and Shri Mahendra Dhanuka in Dhanuka Agritech Ltd. Q. 23 Please give the list of beneficiaries of various accommodation entries which have been given through your paper concerns or which have been arranged by you from other entry operators from 2003 to till date. I am again reminding you that this statement is being taken on oath u/s 132(4) of the IT Act, 1961. Ans. I have given LT entries, OT entries, Unsecured loan entries.ST entries etc. to various beneficiaries. These accommodation entries h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirm that these annexures are related to your business and transactions entered on these documents pertains to your business of providing accommodation entries. (One hour break given forgoing through the documents). Ans. (After one hour)- Sir, I have already told you that books of accounts and other details of my business of providing accommodation entries are maintained by Mr. Manish Arora at my instructions. These details of financial transactions cash receipt and payment details and other books of accounts are maintained in soft copy in external hard discs and pen drives. As per my instructions he keeps these hard discs and pen drives at my back office, i.e. back side of D-45, Ground Floor, Saraswati Garden, New Delhi. I have gone through all the documents from the Sl. 1 to 26, Sl. No. 31 to 35 and Sl. 37 to 38 of the said annexure, and Icon firm that financial transactions entered and recorded are related to my business of providing accommodation entries. Some of the documents are written in handwriting of Sh. Manish Arora and have details related to day today receipts and payments including cash of my business of providing accommodation entries." 15. The AO on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 RTGS payment of Rs. 8 lakhs has been received from Smt. Seema Tiwari by Shrim Software Private Limited, the accounting and purpose of the same shall be furnished within two days. * Pankaj Agarwal - This account refers to Sh. Pankaj Agarwal, an employee of Bhushan Steel group. The entries related to this account are known to Shri R.K.Kedia only since I used to punch entries in this account on the instructions of Sh. R. K. Kedia only. However as per my knowledge, this account refers to some loan from Sh. Pankaj Aggarwal or Bhushan Steel group since in F. Y. 2013-2014 in this ledger, there are cash payments to and from him and interest to be paid for cash loan is regularly being credited to him. However complete details of this person can be obtained from Sh. R. K. Kedia only." 16. The AO observed that the decoding of ledger by Sh. Manish Arora revealed that the accommodation entries were taken by the Signal family and Pankaj Tewari who was an employee of Bhushan Steel Ltd. and who was delivering cash to Sh. Raj Kumar Kedia and the assessee was beneficiary of such entries. The AO further observed that the statement of the assessee was recorded on oath on 13.06.2014 u/s 132(4) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a number of incriminating evidences, loose documents/PAN drives/HDDs were found and seized, which strengthened the allegations that the shares of those listed companies had been used for pre-arranged trading in order to provide bogus Long Term Capital Gain to various beneficiaries including family members of promoters of M/s BSL group. The detail of alleged incriminating material seized from the premises of Sh. Raj Kumar Kedia and from premises of Sh. Ankur Aggarwal was as under: s.No. Premise/ Party Annexure Page No. Description of document seized 1. D-45, Saraswati Garden, New Delhi, Party : MNS E-l 4, 5 & 7 These seized documents contains the investment details of family members of BSL Group in various penny stock companies, cash payment to Shri Raj Kumar Kedia and transaction of their bogus LTCG earned with the help of Shri Raj Kumar Kedia. E-2 2, 4, & 9 to 11 E-4 19 to 21 E-5 205 E-6 6 to 8, 27 to 31 & 33 to 48 E-11 3 E-12 6, 9, 22 & 23 E-13 3, 4, 6, 11, 13 to 16 & 31 E-14 33, 35, 47, 49, 54, 55 & 56 E-18 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge nos. 35 to 39 of the assessment order, for the cost of repetition, the same is not reproduced herein. The AO observed that the above two sheets namely Jobb.xls & Comm.xls were also extracted from the pendrive A-1 seized from the residential premises of Sh. Ankur Aggarwal. In the above sheets, names of the persons/entities such as R.K. Kedia HUF, Bakul Bhai, Krishan Khadarai, Sirish & Jagdish Purohit were mentioned. Those persons were, accommodation entry providers as stated by Sh. Raj Kumar Kedia in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide bogus Long Term Capital Gain and profitable exit to initial preferential allottees of penny stock scrips. The AO mentioned that statements of some of the directors and controllers of some of such dummy buyer companies were also recorded in which they deposed under oath that their companies did not have any actual business and bank accounts thereof were used to provide accommodation entries of various types to various beneficiaries including that of bogus "Long Term Capital Gain" by purchasing shares of listed companies at elevated price in lieu of equivalent cash amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Kedia, had purchased shares from family members of promoters of BSL Group to provide them profitable exists. The AO also observed that the various share brokers were the bridges between stock market and investors who had done trading for various paper/bogus companies, which had no business or establishment, which clearly implied that the share brokers were hands in glove with the paper/bogus companies in the whole scheme. He also observed that those brokers were covered under search and survey action by Directorate of Kolkata Investigation, and statements of key persons 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Services Ltd., implying thereby that those Singal Family members had been regularly investing in companies for namesake and the money invested by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. * It should be noted that In the case of the Assessee, the purchase of shares, whether through preferential allotment or by direct purchase from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 the capital market wherein price discovery of the underlying security and its movement are the result of a set of complex, intricate and diverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transactions, being fully compliant with the provisions of the Income-tax Act as the other applicable regulatory provisions, no cause arises to treat the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferential 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 was an artificial demand created by entry operators which is clearly visible from the financial & trading data obtained from BSE and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 received from BSE, corroborates the finding that there was unnatural nexus between the sellers and buyers. 4.10.4 With respect to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies 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 19.12.2016 5 Govind Prasad Aggarwal 19.12.2016 6 Devesh Upadhyay 19.12.2016 7 Amarchand Ratanlal Rander 19.12.2016 8 Shri Jagdish Prasad Purohit 19.12.2016 9 Shri Krishan Kumar Khadaria 19.12.2016 10 Shri Sajjan Kedia 19.12.2016 11 Shri Praveen Kumar Aggarwal 19.12.2016 12 Shri Praveen Agarwal 19.12.2016 13 Shri Suresh Brahmanand Jajodia 19.12.2016 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i 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 availability of you and Shri R K Kedia and / or Shri Manish Arora and / or Shri Ankur Agarwal may be ensured for such cross examination. Ans. I do not want to cross-examine Shri R K Kedia or Shri Manish Arora or Shri Ankur Agarwal since 1 don't find any need for the same. As I have stated in my earlier statements and I just want to say once again that I or my family members have not reaped any bogus LTCG." 26. The AO was of the view that the cross examination was not a right and observed as under: i. It is important to mention here that the evidence in form of electronic data was seized from premises of Shri Raj Kumar Kedia and Shri Ankur Aggarwal. These data though collected independently and from different locations, entries of these data tallied and match with each other. The assessee was confronted with all the data and evidences collected by the department. In response, the assessee did not explain or comment on merits of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustice. 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 finalization of the assessment and observed as under: "4.11.8 From the above discussion it is clear that cross examination is done to support the cause of justice and can never be used to defeat the cause of justice. In the present case evidences gathered prove that the assessee has taken accommodation entries. The statement of the entry providers supports and corroborates the primary evidence. These documentary evidence and the statements were provided to the assessee for its explanation. In response the assessee did not offer any explanation of the merits of the evidence but merely denied any such transactions and knowledge of existence of such evidence. The assessee however sought cross examination of the entry providers whose statements were relied upon by the department. Summons u/s 131 were issued to 15 such persons but none responded. Having confronted with evidences indicating sham transaction, the burden of proof shi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Gain for the year under consideration at Rs. 20,05,651/- and by adding 6% of the said gain towards commission expenses amounting to Rs. 1,20,339/-. Accordingly, the AO made the addition of Rs. 21,25,990/- on account of bogus Long Term Capital Gain. 31. The AO further observed that a search and seizure operation was conducted in the case of Sh. Rajendra Jain Group, Sh. Sanjay Choudhary Group and Sh. Dharmchand Jain Group on 03.10.2013 wherein the investigation conducted had proved that the above mentioned persons were engaged in providing accommodation entries to various beneficiaries and assessee was also one of the beneficiary of such accommodation entry. He also observed that the statements of the key persons of the aforesaid group were recorded on oath wherein they admitted that all the concerns controlled and managed by them were not doing any real trading in diamonds but indulged in paper transactions only. The AO reproduced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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, in such cases, the scope of assessment is wide open and would cover matters reflected in the original return of income and also matters reflected from the seized material in the course of search u/s 132 of the Act. However, importantly and pertinently it should be noted that completed proceedings will not merged with the proceedings initiated u/s 153A of the Act but will survive and their sanctity inviolably to be respected unless indelibly violated by any incriminating material found during the course of search u/s 132 of the Act, to put it differently completed proceedings u/s 143(3) of the Act or even u/s 143(1)(a) of the Act can be interfered with by proceedings u/s 153A of the Act only on the basis of some positively incriminating search material found during the course of search action u/s 132 of the Act. It was further contended that since no incriminating document pertaining to the year under consideration had been found during the course of search, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 had been used to the detriment of the assessee, on the basis of which it had been rather unfairly and unjustly concluded that the Long Term Capital Gain was allegedly bogus. It was stated that the assessee had earned Long Term Capital Gains (LTCG) of Rs. 20,05,651/- on which the Securities Transaction Tax (STT) had been duly paid and the same was exempt u/s 10(38) of the Act since all the conditions specified under said Section for grant of exemption were duly satisfied. However, the AO ignoring the specific provisions of law and relied on various reasons & factors including statements of various persons, analysis of the financial and trade data of the companies etc. but disregarded the documentary evidences/submissions filed/made on behalf of the assessee. It was contended that whatever data had been used by the AO in making the impugned additions did not even remotely suggest that the Long Term Capital Gains earned by the assessee were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 securities traded being invariably held in DEMAT form, were transferred directly from/to the accounts of the relevant parties involved and the accounts were settled inter-se brokers and with their clients in terms of the payout mechanism of the concerned exchange. It was contended that by considering the functioning of the stock exchanges, the manner, mode and procedure for the purchase of shares had not been disputed, the shares sold at the prevailing rates through the Bombay Stock Exchange Online Trading (BOLT) platform of the Bombay Stock Exchange were of a listed company, and all the payments against the same were received through account payee cheques/RTGS from the stock broker, through whom the shares were sold, who, in turn received the payment from the stock exchange as per the specified designated payment mechanism. It was pointed out that under the online web-based trading platforms of the relevant exchanges as per the applicable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stands and in fact, he had repeatedly been taking about turns in as much as while in the statement recorded during the course of search u/s 132 of the Act, he admitted to a certain state of affairs on 13.06.2014 and retraced in the course of post-search investigation proceedings and the said retraction was further retracted by him again during the post-search investigation proceedings on 26.03.2015. Therefore, the shifting stands of Sh. Raj Kumar Kedia at various stages of the proceedings had given the high level of inconsistency displayed by him and no degree of reliance would be placed on any statement which may be attributed to him, in so far as, reliance placed on the statement of Sh. Raj Kumar Kedia/Sh. Manish Arora and the hard/soft data found in their possession during search u/s 132 of the Act. It was stated that all the statements attributed to them were unilateral/one sided and that the contents of statements made by them acting indep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umar 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 broker through whom the shares were sold. It was submitted that in fact, no evidence had been found whatsoever at any stage of the assessment proceedings or even search u/s 132 of the Act proving and even suggesting payment/movement of cash. Therefore, no adverse conclusion would have been there merely on the basis of document seized, evidence collected, statements made or entries found in the books of accounts of any third person over whom an individual or entity may not have any control. Therefore, the entries in the books of accounts of any third person could not have been the basis for arriving at any conclusion with respect to the assessee's case. The reliance was placed on the following case laws: Ø Central Bureau of Investigation Vs V. C. Shukla & Ors. (1998) AIR 1406 (SC) Ø Addl. CIT, Bombay City-I Vs Miss Lata Mangeshkar (1974) 97 ITR 696 (Bom.) Ø SP Goyal Vs DCIT (2002) 82 ITD 85 (Mum. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne 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 one solitary factor and in fact, in the modern day inter connected world, wherein global linkages and factors had acquired prominence, several intricate and even notional factors come into play, an analysis of the security price movements of all companies on the stock exchange would make it clear that in no case have prices been determined solely or even majorly/predominantly by their sales/revenue/profits. It was contended that the efforts of the AO unfairly seek to conjure a negative image with respect to penny stocks, notwithstanding the penny stocks was nowhere defined statutorily but was only a generally accepted term used frequently in the functioning of securities markets putting it at par with oft-used expressions such as bulls and bears. It was contended that in the context of the working of securities markets and in the normally used and terminology of people trading/advising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion 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 assessee did not have any kind of direct or indirect control and was not in a position to assert even moral/suasive pressure. It was contended that the entire purchase was through preferential allotment made by the company, after following the due procedure as laid down by the SEBI and the other applicable statutes including Companies Act. It was also stated that no cash was paid by the assessee to any entities/persons against the sale of shares and there was no concrete evidence supporting the allegation that the Long Term Capital Gain was generated through the shares against the payment of cash. As regards to the inferences sought to drawn by the AO on the basis of the aforesaid statement of the Directors that the companies were paper companies and the Directors were Dummy Directors, the entire turnover of the company was paper turnover and the shares capital of the company was a mere a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts/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 signify any connection of the assessee with the said companies. It was stated that as per provisions of Companies Act, a preferential allottee of the shares is not required to attend any Board meetings and even otherwise in the process of preferential allotment which is invariably spread by the word mouth, the possibility of personal contact between the promoters/management and preferential allottees , is not impossible. It was further stated that the fact that some of the said parties chose not to respond to notices u/s 133(6) or summons u/s 131 of the Act did not prejudice to any degree or in any manner effect the assessee since the issue of complying with any notices by a person/entity/authority was a matter of that person's individual discretion over which any third person cannot be expected to have any control. As regards to the reliance of the AO on the nature of transactions in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the statement of various persons recorded in the course of search/survey/investigation proceedings at various points of time by different wings of the department and in particular reliance had been placed on the following: * Statement of Sh. R K Kedia/Sh. Manish Arora recorded during the course of search u/s 132; * Directors of the alleged Penny Stock Companies viz. Sh. Amarchand Ratanlal Rander (M/s Rander Corporation Ltd.), Sh. Sajjan Kedia (PSIT Infrastruture and Finance Ltd. (Formery Parag Shilpa Investments) and Sh. Kushal Praveen Shah (Anukaran Commercial Enterprises Ltd.); * Sh. Natwarlal Daga, Sh. Jagdish Purohit and Sh. Suresh Jajodia, alleged entry operator by the DIT(Inv.), Mumbai and Kolkata; * Controllers/Directors of the alleged dummy companies and brokers such as Devesh Upadhyay, Bikas Sureka, Anil Khemka, Amit Saraogi, Sunraj Jhunjhunuwala, D.B. & Co., Sajendra Mookin, Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifting 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 party cannot be used against the Appellant in the light of the various judgments including those of the Apex Court cited above. (d) In so far as the investigations carried out on various parties/entities and the statements recorded of various parties are concerned not only does the name of the Appellant not appear therein, an opportunity to cross-examine the said persons was not provided to the Appellant." 45. It was stated that it is a settled law that suspicion, howsoever strong cannot take place of proof and there could be no addition on the basis of mere suspicion and that in the instant case, there was no ground whatsoever to doubt the factual, basic and direct evidence furnished, accordingly the question of relying upon circumstantial evidence and probability theory did not arise. The reliance was placed on the following case laws: Ø Lalchand Bhagat Ambica Ram Vs (1959) 37 ITR 288 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h; Kamal Kishore Aggarwal & Sons (HUF) Vs ACIT, CC-11 in ITA No. 6248/Del/2011 (Del.) Ø Shri Kamlesh Mundra Vs ITO, Ward 19(2)(3), Mumbai in ITA N. 6248/Mum/2012 (Mum.) Ø DCIT Vs Asha V Mehta in ITA No. 6405 & 6998/Mum/2012 (Mum.) Ø CIT Vs Udit Narain Agarwal in ITA No. 560 of 2009, order dated 12, 2012 Ø CIT Vs Smt. Sumitra Devi (2014) 49 Taxmann.com 37 (Raj.) Ø CIT Vs Smt. Pushpa Malpani (2012) 20 Taxmann.com 597 (Raj.) Ø ACIT Vs Smt. Sumitra Gaur (2012) 27 Taxmann.com 107 (Jodh.) Ø ACIT, Mathura Vs Smt. Kela Devi Agarwal in ITA No. 75/Agr/2010 (Agra) Ø DCIT, Mathura Vs Smt. Meenakshi Agarwal in ITA No. 265/Agr/2009 (Agra) Ø Sri Paduchuri Jeevan Vs ITO, Ananthapur in ITA No. 452/Hyd/2015 (Hyd.) Ø ITO, Agra Vs Smt. Pallavi Garg in ITA NO. 192/Agra/2009 and CO No. 34/Agra/2009 (Agra) Ø ITO, Ward-2, Nizamabad Vs Smt. Aarti Mittal (2014) 41 Taxmann.com 118 (Hyd) Ø ACIT, Mathura Vs M/s Ram Chand Keshav Dev (HUF) in ITA No. 233/Agra/2010 Ø Ms. Farrah Market Vs ITO, Mumbai in ITA No.3801/Mum/2011 (Mum.) Ø ITO Vs Indravadan Jain (HUF) in ITA Nos. 4861, 5168/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodation 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 accommodation entry could not and did not arise and that no adverse inference was called for on that count. It was stated that a perusal of the assessment order and history of the assessment proceedings will show that various references had been made and reliance was placed on the statements of various persons recorded during search/survey/investigation by different wings of the Department, however, an opportunity to cross-examine the said persons was not made available to the assessee who was present through his representative on the appointed date to cross-examine the various persons, on which date, however, no such opportunity was provided to the assessee. Therefore, the basic principles of natural justice which involved reasonable application of prescribed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 183.4 kgs and valued at Rs. 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, partner of the said transport company and he also handed over a rubber stamp of the assessee which was used to stamp the challans showing fake receipt of the goods at the assessee's factory located at Khapoli. He also pointed out that search was conducted at the residence of Sh. Pankaj Tiwari, Asstt. Vice President of Bhushan Steel Ltd. and incriminating documents as well as Indian currency valued at Rs. 6.20 lakh was recovered from Sh. Tiwari who could not explain the availability of cash, the same was seized. He also observed that after going through the various evidences recovered by the officers during the course of investigation, Sh. Pankaj Tiwari accepted that the assessee availed input CENVAT credit on zinc ingot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. and that such unaccounted sale of scrap was done at the instructions of Sh. Neeraj Singal i.e. the assessee and that he had handed over Rs. 50 lacs to one Sh. Kedia on 08.02.2014. The ld. CIT(A) pointed out that during the course of earlier search dated 03.03.2010, evidence of cash generation and application were found and the various incriminating material inter-alia included the following: "i) Page no. 6 of Annexure-A3 evidencing payment of cash of Rs. 17,86,57,781/- on 02.05.2009. On questioning Sh. Neeraj Singal, VC & MD of the Bhushan Steel Ltd. replied that it was out of his unaccounted funds which was never declared (earlier) for taxation purposes. He offered the same for taxation in the FY 2009-10 (AY 2010-11). ii) Page no. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the issue of the enhancement notice u/s 251(2) of the Act are themselves being agitated separately, it should be submitted, of course without prejudice, that the decisions were made and instructions, again if any, conveyed in his capacity as the Managing Director of BSL, keeping the interests and operating scenario of the Company in mind and not his personal interests. The intention, if any and the knowledge which the Appellant had, with respect to the impugned activities had no relation to any of his acts done in a personal capacity. Moreover, there is no evidence, direct, indirect, circumstantial or even suggestive to abet a conclusion that the amount, if any generated from the impugned activities went into the personal coffers of the Appellant which conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 and the order of the Settlement Commission (Customs and Central Excise), it is submitted that the said issue is the subject of appellate proceedings and being challenged and argued separately based as they are on conflicting evidences and may we humbly submit, debatable propositions and interpretation of law. Moreover, with reference to the proceedings before the Customs and Central Excise authorities, it is again submitted and reiterated that at no stage was the fact of consumption of zinc or its consumption in the manufacturing activities ever disputed. The decision to approach the Settlement 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 furnished. Therefore, adverse inference was drawn and it was logical to conclude that the said material proved that the clandestinely diverted raw material being sold for the personal benefit of the assessee. He also observed that the assessee categorically admitted 100% of Excise duty liability which mean that the fact of diversion of entire material had been admitted and the argument of the assessee was not only without legs to stand but also in fact, misleading as the sale in cash of raw material shown to have been purchased for consumption in the manufacturing process by the assessee with the help of other associates and that the claim of CENVAT credit was bogus and it was a deliberate and planned exercise. Therefore, the cash generated through this activity in the form of loans an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int, 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 the search & seizure operation by the Income Tax on 13.06.2014 at premises of the appellant at Bhikaji Cama Place, New Delhi, various vouchers evidencing payments of salary in cash, to various employees, were found and seized. These transactions were outside the books of accounts of the appellant. vi) During the search & seizure operation by the Income Tax on 13.06.2014 at residential premises of Sh. Neeraj Singal (VC & MD of the appellant) and his family members it was found that Sh. Singal and his family members were involved in obtaining accommodation entries in form of pre-arranged and bogus transactions showing Long Term Capital Gains in penny stocks and claiming such (bogus) Long Term Capital Gains in penny stocks to be exempt from levy of Income Tax. Apparently, the unaccounte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. AY FY Sales without Excise Duty (Rs. In lacs) GP% NP% 1 2009-10 2008-09 495748 21.02 11.31 2 2010-11 2009-10 564035 24.57 20.41 3 2011-12 2010-11 700046 28.72 19.65 4 2012-13 2011-12 994141 28.08 13.73 5 2013-14 2012-13 1074427 27.02 11.30 6 2014-15 2013-14 967583 22.38 0.99 7 2015-16 2014-15 1064577 18.05 -11.79 57. The ld. CIT(A) also mentioned that the following table shows the position of addition made by the AO in respect of issue of deduction due to purchase of Zinc from M/s HZL, Haridwar and payment to M/s Mewar Transport Co.: A.Y. Addition on account of purchase expenses for clandestinely diverted zinc (Rs. in crs.) Addition on account of Transport Expenses for clandestinely diverted zinc (Rs. in crs.) Total (Rs. in crs.) 2009-10 13.59 0.41 14.00 2010-11 61.23 1.29 62.52 2011-12 86.80 1.73 88.53 2012-13 48.74 0.96 49.70 2013-14 47.96 0.86 48.82 Total 263.57 58. The ld. CIT(A) compared the GP rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued on 04.02.2015. As mentioned in the assessment order (reference para 4.1), the information regarding 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 was consistently going on for a period of about five years as a deliberate and planned exercise, was received through TEP. As also discussed above, the material contained therein is incriminating and creditworthy. This material was used in the assessment proceedings imitated under section 153A only under the genuine impression about the position of law that once proceedings under section 153A are initiated, the material gathered or received from any source would be used in the same assessment proceedings. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement of BSL was habitual of financial malpractices including de-facto having dummy/benami Directors and the said statement of Sh. Ankur Aggarwal was not controverted for long time. However, after a gap of period of about two and half years, a letter dated 20.12.2016 was written by Sh. Ankur Aggarwal for retracting the statement but there was no reason for the said delay in retraction. He further observed that the assessee was offered the opportunity to cross-examine Sh. Ankur Aggarwal but he declined. He also pointed out that during the course of assessment proceedings summons u/s 131 of the Act was issued to Sh. Ankur Aggarwal on 16.12.2016 to appear before the AO on 22.12.2016. However, Sh. Ankur Aggarwal filed a letter of retraction on 20.12.2016 and did not appear on the date fixed by the summons u/s 131 of the 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: Ø Pr. CIT(C)-2, New Delhi Vs Avinash Kumar Setia (2017) 81 Taxmann.com 476 (Del.) Ø Gurdev Agro Engineers, Bhawanigarh Vs CIT, Patiala (2016- TIOL-2689-HC-P&H-IT) &Oslas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sham. The ld. CIT(A) did not find merit in the submission of the assessee by observing in para 53.4 of the impugned order as under: "53.4 I have found that there is overwhelming material to prove that the so called long term capital gain was result of series of stage managed activities to give the transactions under consideration a colour of genuineness. These evidences have been discussed exhaustively in the assessment order as well as in this order, as above. To recap, the important ones are mentioned below. i) The unaccounted cash generation by way of clandestine diversion and sale (in cash) of raw material shown to have been purchased for consumption in the manufacturing process, and payments for (bogus) transportation of this material, consistently for five years by/on behalf of Sh. Neeraj Singal (VC & MD of M/s 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 An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premises of Sh. R. K. Kedia as well as residential premises of Sh. Ankur Aggarwal. xiii) It is important to note that telephone no. of Sh. Ankur Aggarwal has been provided by Sh. Manish Arora (reference answer to question no. 34 as quoted in para no. 4.2.5 of the Assessment Order in case of Sh. Neeraj Singal for A.Y. 2010-11). This telephone no. is the same which has been disclosed by Sh. Ankur Aggarwal as per his statement dated 13.06.2004 (recorded during the search). xiv) Incriminating statements by the Directors of these penny stock companies to the effect that they were only dummy Directors and share prices were being manipulated by the entry operators. xv) Incriminating report of Directorates of Income Tax(lnv.) Mumbai and Kolkota recording statements of entry operators to the effect that they were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r got converted into jewellery subsequent to the said purchase but before search dated 03.03.2010. The said Diamond were also not found during the current search (on 13.06.2014). Therefore, the second limb of the AO's reasoning that there was grey market purchase is negated by this fact of non-finding of these diamonds during the above said two occasions of searches. Since, it is the stand of the appellant that these items were actually purchased, therefore, without going into the controversy whether such purchase was bogus or not, AR was asked to explain as to why non-finding of the said items during the subsequent two searches should not lead to the conclusion that these were sold before the first search(on 03.03.2010) and reasonable profit must have been made due to the said out of books sale. The AR had no reply, therefore, the addition to the extent of Rs. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng term capital gain through accommodation entries showing dealing in penny stocks (as a result of search on 13.06.2014) but also proves that the above said expenses of purchase of Zinc and (bogus) transportation charges are for personal benefit of Sh. Neeraj Singal. In view of the said material, the onus is upon the appellant to prove that the cash generated due to sale under consideration and corresponding (bogus) transportation charges is not income of Sh. Neeraj Singal but the appellant has miserably failed to discharge the onus." 70. The ld. CIT(A) enhanced the income and held as under: "56.13 In view of the above discussion, it is held that income generated in form of cash due to a) clandestine diversion and sale of raw material (shown to have been purchased for consumption in the manufacturing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sh. Neeraj Singal, the AO has stated that Sh. R.K. Kedia, in his statement 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 manipulatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot able to provide the bank statement showing payment for the same which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement, third party data etc which do not constitute incriminating material found in the course of search deserves to be deleted. The reliance was placed on the following case laws: Ø All Cargo Logistics Ltd. Vs DCIT (2012) 18 ITR 106 (SB) Ø CIT(C)-III Vs Kabul Chawla (2015) 61 Taxmann.com 412 (Del.) Ø Jai Steel (India), Jodhpur Vs ACIT (2013) 259 CTR 281 (Raj.) Ø Pr. CIT & Ors. Vs Meeta Gutgutia Prop. Ferns 'N' Petals & Ors (2017) 395 ITR 526 Ø Pr. CIT Vs Saumya Construction Pvt. Ltd. (2016) 387 ITR 529 (Guj.) Ø Pr. CIT-1 Vs Devangi Alias Rupa (2017-TIOL-319-HC-AHM-IT) Ø CIT Vs IBC Knowledge Park Pvt. Ltd. (2016) 385 ITR 346 (Kar.) Ø Pr. CIT-2 Vs Salasar Stock Broking Ltd. (2016-TIOL-2099-HCKOL- IT) Ø CIT Vs Gurinder Singh Bawa (2016) 386 ITR 483 (Bom.) Ø CIT Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) Ø Pr. CIT, Delhi-2 Vs Best Infrastructure (India) Pvt. Ltd. & Ors. in ITA Nos. 11/2017 to 22/2017 Ø Dharampal Satyapal Ltd. Vs DCIT in ITA Nos. 3310, 3717, 3718, 3719, 3737, 3877 to 3881/Del/2016, order dated 17.05.2018 Ø Pr. CIT Vs Dharampal Premch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l" meaning that use of the phrase "seized" material i.e. incriminating in nature is a mandatory requirement that cannot be done away u/s 153A/153C 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons, an opportunity to cross-examine the said persons may be provided. It was stated that in this regard, summons u/s 131 of the Act were issued to 15 persons 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or otherwise with respect to transactions in shares of the aforesaid scrips for the unabated assessment years i.e. assessment years 2010-11 to 2012- 13. Accordingly, assessments 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (STT) had been duly paid and having complied with all the requisite conditions, the LTCG was rightly claimed exempt u/s 10(38) of the Act but the AO by ignoring the specific 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Excise (2015) 281 CTR 241 (SC) Ø Kishinchand Chellaram (AIR 1980 SC 2117) Ø State of M.P. Vs Chintaman Sadashiva Waishampayan (AIR 1961 SC 1623) Ø Lakshman Exports Ltd. Vs Collector of Central Excise (2005) 10 SCC 634 Ø Rajiv Arora Vs Union of India and Ors. (AIR 2009 SC 1100) Ø CIT Vs SMC Share Brokers Ltd. (2007) 288 ITR 345 (Del.) Ø Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal.) Ø Prakash Chand Nahta Vs CIT (2008) 301 ITR 134 (MP) Ø Bangodaya Cotton Mills Ltd. Vs CIT (2009) 21 DTR 200 (Cal.) Ø CIT Vs Sanjeev Kumar Jain (2009) 310 ITR 178 (P&H) Ø CIT & Anr. Vs Land Development Corporation (2009) 316 ITR 328 (Kar.) Ø CIT Vs Rajesh Kumar (2008)_ 306 ITR 27 (Del.) Ø Heirs & LRs of Late Laxmanbhai S. Patel Vs CIT (2009) 222 CTR 138 (Guj.) Ø CIT Vs Pradeep Kumar Gupta (2008) 303 ITR 95 (Del.) Ø CIT Vs Dharam Pal Prem Chand Ltd. (2007) 295 ITR 105 (Del.) Ø CIT Vs A.N. Dyaneshwaran (2008) 297 ITR 135 (Mad.) Ø P. S. Abdul Majeed (1994) 209 ITR 821 (Kerala) Ø Prarthana Construction (P) Ltd. (2001) 70 TTJ 122 (Ahd. Trib.) &Os ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral modus operandi with respect to the shares of the said companies being allegedly utilized for the purpose of providing accommodation entries in certain cases but no concrete evidence had been unearthed in the course of search of the assessee to conclusively establish that the assessee had booked 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ø Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata- II Ø Principal Commissioner of Income Tax Ahmedabad and Ors. vs. Kanubhai Maganlal Patel Ø CIT v. Devendra Kumar Singhal Ø Commissioner of Income Tax-V vs. Indrajit Singh Suri Ø CIT vs. Supertech Diamond Tools Pvt. Ltd., 74 of 2012 Ø Commissioner of Income Tax vs. Ashwani Gupta Ø ACIT vs. Govindbhai N. Patel Ø CIT Kanpur vs. Shadiram & Others Ø Commissioner of Income Tax vs. Bhanwarlal Murwatiya and Ors. Ø CIT vs. Dhrampal Premchand Ltd Ø CIT vs. S.M.Agganval Ø Paramjit Singh vs. 1TO, IT Appeal No. 401 of 2009 Ø CIT-13 Vs. M/s. Ashish International (ITA No. 4299 of 2009; dated, 22.02.2011) Ø Commissioner of Income Tax vs. Anil Khandelwal (21.04.2015 - DELHC) Ø Commissioner vs. Motabhai Iron and Steel Industries (03.09.2014 - GUJHC) Ø CIT vs. S.C. Sethi, D.B.I.T Appeal No. 78 of 2005, 10.03.2006 Ø Vinit Ranawat Vs ACIT (2017) 88 Taxmann.com 428 (Pune Trib.) Ø Ganeshmull Bijay Sing Baid (HUF) & Ors. Vs DCIT & Ors. (2015) 45 CCH 306 (Kol Trib.) Ø CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing by reretraction) by the deponent undermines the credibility of its genuineness." 84. The ld. Counsel for the assessee in his conclusion enunciated the principles to the facts of the assessee's case as under: * "Mere seizure of documents/hard soft data/ pen-drive from the premises of third party (Sri. R.K. Kedia) / personal residence of employee of BSL (Sri Ankur Agarwal) would not conclude the issue against the Assessees herein since presumption u/s 132(4A)/292C would be operable only against the persons from whose premises the said documents/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 Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preliminary investigations carried out by the SEBI pending inquiry/investigation and passing of final orders by the SEBI. It was contended that the Hon'ble Gujarat High Court in the case of SEBI Vs Alka Synthetics (1999) 19 SCL 460 (Guj.) had opined on the nature of Ad Interim Ex-parte Orders, being merely preventive checks that are placed on certain assessees upon a mere prima facie opinion pending final decision of the SEBI. It was pointed out that the SEBI after conducting the detailed investigation into the entire scheme alleged in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies, the ld. Counsel for the assessee submitted that the AO was not justified in drawing any adverse inference against the assessee on the basis of enquiry as to the names of buyers who ultimately bought shares sold by the assessee because the assessees were neither aware of the identity of the buyers who bought the shares sold by them through brokers nor did they had any connection with them and that the shares were of listed companies which were sold at prevailing market rates through the Bombay Stock Exchange Online Trading (BOLT) platform 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Sh. Raj Kumar Kedia, even the department had failed to unearthed any incriminating material whatsoever to establish any link of the assessee with Sh. Raj Kumar Kedia or factum of obtaining any accommodation entries through him despite using the longest arm of the revenue against the assessees in the form of search and seizure operations u/s 132(1) of the Act at the premises of the assessee. Therefore, the assessee being an independent and having absolutely no relationship or interconnection with the beneficiaries or Sh. Raj Kumar Kedia should be considered in isolation without any 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kamal Kumar S. Agarwal (Indl.) & Ors. (2010) 113 TTJ 818 (Nag. Trib.) Ø Dolarrai Hemani Vs ITO (2016) 48 CCH 286 (Kol. Trib.) Ø CIT Shreevashi Ganguli in ITA NO. 196 of 2012 (Cal. HC) Ø CIT Bhagwati Prasad Agarwal in ITA No. 22 of 2009, order dated 29.04.2009 (Cal HC) Ø CIT Vs Lakshmangarh Estate & Trading Co. Ltd. in ITA No. 270 of 1999, order dated 07.10.2013 Ø Union of India Vs Azadi Bachao Andolan (2003) 263 ITR 0706 (SC) Ø Mc. Dowell and Co. Ltd. Vs Commercial Tax Officer (1985) 154 ITR 148 92. As regards to the enhancement of income by the ld. CIT(A), it was submitted that the ld. CIT(A) enhanced the income on account of alleged income generated from (a) alleged 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 Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nji (1962) 44 ITR 891 (SC) Ø CIT Vs Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) Ø CIT Vs Union Tyres (1999) 240 ITR 556 (Del.) Ø CIT Vs National Company Ltd. (1993) 199 ITR 445 (Cal) Ø CIT Vs Associated Garment Makers (1992) 197 ITR 350 (Raj.) Ø 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 Excise Authorities in the course of search conducted by the DGCEI on 20.02.2013 in the case of BSL group. It was submitted that the said order dated 27.05.2015 and the statements of the persons recorded by DGCEI in the course of search conducted by the Excise Department on 20.02.2013 in the case of BSL could not, by any stretch of imagination be categorized as " incriminating materials" unearthed as a result of search u/s 132(1) of the Act in the case of the assessee on 13.06.2014. The ld. Counsel for the assessee submitted that the identical additions made by the AO in the case of BSL on account of i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 was challenged separately therein, therefore, the said issues pertained to M/s Bhushan Steel Ltd. only and had no relevance in the personal assessment of the assessee. Particularly when, there was no evidence, whether direct, indirect, circumstantial or even suggestive to arrive at a conclusion that the amounts, if at all generated from the aforesaid alleged activities went into the personal coffers of the assessee. It was pointed out that the said enhancement had been made on the basis of statement of Sh. Chanderkant Mahadev Jadhav, on employee of BSL recorded u/s 131 of the Act on 13.06.2014 and hand writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 the extent of 10% must have been earned on the alleged sale. Accordingly, the ld. CIT(A) confirmed the addition to the extent of 10% on account of alleged profits earned from alleged 'out of books' sale of diamonds and the department had not filed any appeal in respect of balance 90% of the addition. It was submitted that the said addition had been upheld by the ld. CIT(A) merely on the basis of surmises, conjectures, assumptions and presumptions relating to the alleged 'out of books sales' of the impugned diamonds before the first search without any evidence whatsoever proving the actual sale by the assessee 'out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 money was utilized for purchasing shares of group companies at higher premium. He further submitted that the statement of Directors of the penny stock companies during the course of search on Sh. Raj Kumar Kedia group of cases were recorded, in the said statements also, it was stated that share prices of the companies were manipulated to convert black money of the persons into white by availing Long Term Capital Gains and that certain percentage of commission was received in lieu of that. He also referred to page no. 33 of the assessment order and stated that the incriminating materials were foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial 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: Ø Sanjay Bimalchand Jain L/H Shantidevi Bimalchand Jain Vs PCIT-1, Nagpur (2018) 89 Taxmann.com 196 (Bom.) Ø Abhimanyu Soin Vs ACIT (2018-TIOL-733-ITAT-CHD) Ø Chandan Gupta Vs CIT (2015) 54 Taxmann.com 10 (P&H) Ø Balbir Chand Maini Vs CIT (2012) 340 ITR 161 (P&H) Ø Usha Chandresh Shah Vs ITO (2014-TIOL-1459-ITAT-Mum) Ø Ratnakar M Pujari Vs ITO (2016-TIOL-1746-ITAT-Mum) Ø Arvind M Kariya Vs ACIT in ITA No. 7024/Mum/2010 Ø ITO Vs Shamim M Bharwani (2016) 69 Taxmann.com 65 (Mum) Ø CIT Vs Mukundray K. Shah (2007) 290 ITR 433 (SC) Ø CIT Vs S. Ajit Kumar (2018) 93 taxmann.com 294 (SC) Ø Vinod Kumar Gupta Vs DCIT in ITA No. 1003 of 2017, order dated 12.03.2018 (Del. HC) Ø Kishore Kumar Vs CIT 62 Taxmann.com 215 (SC) Ø Bhagirath Aggarwal Vs CIT 351 ITR 143 (Del.) Ø CIT Vs M. S. Aggarwal (2018) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was rendered on a completely disparate and incongruent set of facts vis-à-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 post search assessment scheme in respect of any search or requisition made after 31.05. 2003. It was further submitted that in the said case, relied by the ld. CIT DR, the search u/s 132(1) of the Act was conducted in the premises of the assessee and evidences regarding unaccounted cash payment seized from the premises of builder who admittedly was connected person having transactions/deali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 27.02.2011 and 14.02.2014 for the assessment years 2010-11 and 2011-12 respectively (copies of which are place at page nos. 66 to 92 of the assessee's compilation). The return of income for the assessment year 2012-13 was filed by the assessee on 31.07.2012 and the time to issue the notice u/s 143(2) of the Act had already expired before the date of search. Therefore, the scope of assessment u/s 153A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been complied with. Though documents belonging to the assessee were seized at the time of search operation, there was no incriminating material found leading to undisclosed income. Therefore, assessment of income of the assessee was unwarranted." 20. In the present case also, although the assessment was not framed u/s 143(3) of the Act but an intimation was issued u/s 143(1) of the Act, however, the time to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, when the opportunity to cross-examination of the witness whose statement were relied, was not given to the assessee. 108. On a similar issue, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Best Infrastructure (India) Pvt. Ltd. in ITA No. 11/2017 and Others (supra) vide order dated 01.08.2017 (copy of which is placed at page nos. 151 to 171 of the assessee's compilation) held in paras 35 to 39 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 of unaccounted sales and purchases, is nonexistent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission. 39. For all the aforementioned reasons, the Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djudicating 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 similar view has been taken by the Hon'ble Apex Court in the case of Kishinchand Chellaram Vs CIT 1980 AIR 2117 (supra) wherein it has been held as under: "(2) It is true that the proceedings under the Income Tax law are not governed by the strict rules of evidence and therefore it might be said that even without calling the Manager of the Bank in evidence to prove this letter, it could be taken into account as evidence. But before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough 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 Sukla has proved to be a shifty person as to witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case of the assessee and not on the recorded statement. In the instant case, the persons who gave the statements, retracted the same and even the opportunity to cross-examine was not afforded to the assessee. In our opinion, it cannot be said that those statements on the basis of which impugned additions were made by the AO, were incriminating material found during the course of search. As we have already noted that no incriminating material was found duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evance 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 and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A 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 cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '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 the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 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 unabated assessment in terms of second proviso to section 153A. Now under the jurisdiction of Hon'ble Delhi High Court it is a well settled principle that in the case of assessments which have attained finality and are nonabated assessment, then no additions can be made over and above the original assessed income unless some incriminating material has been found during the course of search qua that assessment year. This proposition has been well discussed in the judgment of CIT vs. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, most of the judgments are distinguishable; secondly, majority of the High Court judgments are in favour; and lastly, jurisdictional High Court in series of judgment has reiterated the same principle. Thus, in view of the settled proposition laid down by the Hon'ble Jurisdictional High Court which is applicable on the facts of the present case also, we hold that all the additions made by the AO in the assessment years 2006-07, 2007-08 and 2008-09 are beyond the scope of assessment u/s 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as under: "That the Assessing Officer had based his assessment order on the report obtained from the research institute. The correctness of that report itself having been under challenge by the assessee who had not only filed objections thereto but also sought permission on several occasions to cross-examine the analyst even agreeing to pay the necessary expenses, the report could not automatically have been accepted. Since the Assessing Officer did not permit the correctness or otherwise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mentioned in the return of the assessee or considered by the Income-tax Officer in the order appealed against." 127. A similar view has been taken by the Hon'ble Supreme Court in the case of CIT(Central), Calcutta Vs Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 wherein it has been held as under: "The Appellate Assistant Commissioner has no jurisdiction under section 31(3) of the Indian Income-tax Act, 1922, to assess a source of income which is not disclosed either in the returns fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of the finding by two Tribunals and one right of appeal. Accordingly, the Supreme Court dismissed the appeal of the Revenue in that case. In our view, the principles laid down in the aforesaid decision by the Supreme Court would apply to the facts of this case. The Appellate Assistant Commissioner was not competent to enhance the assessment taking an income whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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