TMI Blog2017 (8) TMI 1544X X X X Extracts X X X X X X X X Extracts X X X X ..... we have to adjudicate as to whether the CIT(A) has erred in deleting the addition made by the AO in absence of any incriminating material. Hon ble Delhi High Court in the case of Pr. CIT vs. Meeta Gutgutia [ 2017 (5) TMI 1224 - DELHI HIGH COURT] has held that addition cannot be made in absence of any incriminating material and the decision in the case of Smt. Dayawanti Gupta has been duly considered Since the Hon ble Jurisdictional High Court has clearly held that addition in order passed u/s 143(3)/ 153A cannot be made in absence of any incriminating material and since in the instant case, there is no evidence whatsoever on record that any incriminating material was found during the course of search and since the addition was made on the basis of certain inquiries conducted subsequent to the search on the basis of return already filed, therefore, on this issue itself addition has to be deleted. We, therefore, uphold the order of the CIT(A) and dismiss the ground raised by the revenue. - ITA No. 514, 515/Del./2017 - - - Dated:- 23-8-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND MISS SUCHITRA KAMBLE, JUDICIAL MEMBER For the Appellant : Ms. Rano Jain, Adv., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d u/s 131(1A) which clearly established that the assessee and Jakson Group took accommodation entry in the form of long term capital gain in shares through Shri Sanjay Jhunjhunwala. He, therefore, asked the assessee to explain as to why the amount of long term capital gain should not be held as accommodation entry and should not be added to the total income of the assessee. The assessee furnished documents i.e. copy of allotment letters of shares, copy of invoices of sale of shares and duplicate copy of contract notes issued by the brokers etc. 4. The AO refered to the notices u/s 133(6) which were issued to M/s Clarus Finance Securities Ltd. [now known as M/s Scan Steels Ltd.] and M/s S.V.Electricals Ltd. [now known as M/s Nivyah Infrastructure Telecom Services Ltd.] and observed that no replies were received till date. Further field enquiry was conducted by his office to confirm the genuineness of M/s. S.V. Electricals Ltd. and it was found that no such company existed on the address available on records. He therefore directed the assessee to produce the directors of the above said two companies but no compliance has been made in this regard till date. He further no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has found and held that there has been manipulative trading in the shares/ scrips of First Financial Services Ltd. Based on huge rise in traded price and volume of the scrips, compared to the financials of this company, preliminary investigations of SEBI have revealed that there were certain parties related to this entity who helped in consistent rigging in its shares and many related parties with no creditworthiness have helped many preferential allottees (beneficiaries) reaping bogus LTCG to help them evading their tax liabilities by purchasing shares from it at manipulatively elevated price and providing them profitable exit. Further vide its order no. WTM/RKA/ISD/31/2015 dated 20.04.2015 under section 11 and 11B of The Securities and Exchange Board of India Act, 1992 in the matter of M/s First Financial Services Limited SEBI confirmed its earlier order that there has been manipulative trading in the shares / scrips of First Financial Services Ltd. In view of the above the AO held that there was manipulative trading in shares / scrips of M/s First Financial Limited, in order to provide bogus LTCG, LTCL, STCG, STCL etc. to various beneficiaries. The investment in the shares of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of search. It was submitted that the addition of ₹ 5,62,61,726/- on account of bogus long term capital gain was not based on any incriminating material found during the course of search. Relying on the decision of Hon ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in 2015 (9) TMI 80 (Delhi High Court) it was argued that in absence of finding of any incriminating material no addition can be made in the order passed u/s 153A / 143(3). 7.1 So far as the merit of the case is concerned, it was argued that the assessee has provided all details along with documents to establish the genuineness of sale of shares and long term capital gain earned thereon. If the AO was not satisfied with the reply given by the assessed, he could have asked for other documentary evidences. However, the AO neither asked for any further documents nor pointed out any discrepancies in the documentary evidences provided by the assessee in support of its contention. It was argued that long term capital gain on sale of mutual funds amounting to ₹ 13,13,062/- added by the AO as bogus long term capital gain shows that the AO has completely ignored the bifurcation of long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, it was submitted that when the assessee has fully discharged his onus by submitting the necessary particulars / documentary evidences and nothing adverse has been brought on record by the AO, he cannot draw adverse inference against the assessee merely because there was no compliance to the said notice. The Assessee also submitted replies on various allegations of the AO such as statement of Shri Vipin Jain, modus operandi adopted in case of accommodation entries, statement of Shri R.K.Kedia, comparison with first financial services Pvt. Ltd. etc. It was accordingly argued that the addition made by the AO is uncalled for. 9. Based on the arguments advanced by the assessee, the CIT(A) deleted the addition made by the AO on account of sale of shares on the ground that no incriminating material was found during the course of search. While doing so he relied on the decision of Hon ble Delhi High Court on the case of CIT vs. Kabul Chawla and various other decisions. The relevant observation of the Ld. CIT(A) from para 4.3 to 4.3.4 is as under : 4.3 In ground nos. 04 05 the appellant has challenged the assessment made u/s 153A of the Act on the ground that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II vs. Kabul Chawla (Delhi) [2015] 61 taxmann.com 412 (Delhi), 234 Taxman 300 the Hon ble jurisdictional High Court of Delhi have held that an assessment has to be made under this section only on the basis of seized material and in absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made, and that completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment, and concluded that since no incriminating material was unearthed during the search, no additions could have been made to the income already assessed. This judgment has been considered in all the existing judgments on the matter, some of which have been referred to by the appellant in his submissions. 4.3.4 In view of the facts of the case discussed above and the position of law enunciated by the jurisdictional High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the appellant or that opportunity to cross-examine these persons were provided to the appellant. From the assessment order it is also observed that the AO has referred to the findings of SEBI in the matter of M/s FFSL regarding manipulative trading in shares of FFSL but there is no mentioned that these findings were confronted to the appellant providing opportunity for rebuttal or counter-comments. It is settled law that failure to provide sufficient opportunity to the appellant, confrontation of material statements utilized for arriving at adverse finding against the assessee and non-provision of opportunity to cross-examine the third parties whose statements or information is utilized to arrive at findings adverse to the assessee are violation of principle of natural justice and is fatal to the assessment as held in M/s Andaman Timber Industries v Commissioner of Central Excise Kolkata-ll in Civil Appeal No. 4228 of 2006 (SC), R. B. Shreeram Durga Prasad and Fatechand Nursing Das v/s Settlement Commission (IT and WT) and another (1989) 43 Taxman 34 (SC), C.B.Gautam v. Union of India (1992) 65 Taxman 440 (SC), Bagsu Devi Bafna v. CIT (1966) 62 ITR 506 (Cal.), Kisnichand Chell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard since FY 2007-08. The shares of SVEL CFSL were sold on various dates in FY 2010-11 2011-12 respectively, that of SVEL between 28.12.2010 to 19.01.2011 and that of CFSL between 18.05.2011 and 28.06.2011. ITA No.514, 515/Del/2017 13 During the appellate proceedings the appellant was asked to submit a detailed statement in excel sheet of the date-wise purchase and sale of these shares alongwith the rate of purchase and sale as also the payment details with copy of the bank statement. The same have been submitted, as Annx.-2 with WS on 09.11.2016 for AY 2011-12 and at pages-161-164 of PB filed with WS for AY 2012-13 which are enclosed as Annx.1 and Annx. 2 to this order. On perusal of these details it is observed that the shares of the two companies were purchased at the same rate at one go while these have been sold on different dates at varying rates, that of SVEL @ ₹ 189/- on 28.12.2010 to @ ₹ 194.90 on 19.01.2011 and that of CFSL @ ₹ 148.00 on 18.05.2011 to @ ₹ 163.90 on 28.06.2011. It is also noted that the sale rate is not constant and while that of SVEL was sold @ ₹ 204/- on 05.01.2011 it was later sold even @ ₹ 187.50 on 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bhawna Gupta) in the scrips of CFSL (511672) and SVEL (517534) for the period 01.04.2009 to 31.03.2013 alongwith the counter party details and stated that trades are executed on the Exchange as per the order matching mechanism of the BSE Online Trading (BOLT) System/BOLT Plus System wherein the identity/details of the counter party member/client are not revealed to each other. The appellant on being asked during the appellate proceedings submitted that only copy of the e-mails were provided to them by the AO but the tradelog data was not provided, but the AO has not willfully mentioned in the assessment order the reply of BSE nor what was provided in the tradelog data and has only stated that part reply was received . It is to be noted that SVEL and CFSL are listed companies and anybody can purchase or sale their shares through demat account through any registered broker. In this context it is pertinent to mention that the AO has also mentioned at para-4.3 of the assessment order that the appellant was asked to produce the Directors of the above companies. CFSL and SVEL, but no compliance has been made by the appellant and the appellant s AR has submitted in this regard that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions had been established by the assessee. Furthermore, in the master data the names of the Directors of the two companies are also available - the Directors of SVEL are Sh. Parind Sushil Parekh, Ajit Kumar Singh, Ashish Kumar Ray, Bhushan Sagarmalji Punamiya, and Cajetan Jerome Dsouza and those of CFSL are Rajesh Kumar Gadodia, Runvijay Singh, Debjani Sahu, Prabir kumar Das, Ankur Madaan, Vinay Goyal, Punit Kedia and Gobinda Chandra Nayak - who are apparently not related to the appellant family, nor is there any evidence brought on record of any insider trading. In these circumstances it can only be concluded that the additions are based on presumptions and surmises sans any material evidence, which I take up for consideration now in terms of submissions of the appellant s AR on the respective observations of the AO which were considered by the AO for arriving at the conclusions he did for making the addition. 4.5.2 The AO in the assessment order has referred to the statements of Sh. Vipin Jain and Sh. R. K Kedia. The statement of Sh. Vipin Jain was recorded on 16.12.2013 by the DDIT(lnv.) Noida during the survey at his premises and the AO, in the show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of Sh. R.K Kedia recorded during the search in the Kedia group separately on 13.06.2014 and has mentioned that Sh. Kedia in his deposition stated that M/s D B (International) Stock Brokers Ltd. (DBISL) was not doing any actual work but is being used for providing long term entries to various beneficiaries and that the company is controlled by two entry operators, Sh. S.N Daga and Sh. Natwar Lai Daga, operating from Connaught Place in New Delhi and Mumbai respectively. Beside this observation there is no further fact brought out in the assessment order including as to whether any enquiry was conducted against DBISL or against the two Dagas and whether any or what information was collected/available linking the transactions of the appellant with any such accommodation entry or that the transaction entered into by the appellant for purchase of shares of SVEL and CFSL through DBISL were in fact not genuine transactions. The observation and conclusion of the AO is simply based on the alleged statement of Sh. Kedia against DBISL which in any case is at best a general statement sans any specific case or transaction cited by Sh. Kedia or the AO. Besides, even the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectus of facts discussed herein above I find that the addition has been made in both the years on presumptions and surmises sans any material evidence or fact relevant to the transaction involved, and therefore the addition in both the years on this account is not sustainable even on merits. I hold accordingly and the addition is therefore deleted. 12. Aggrieved with such order of the CIT(A) deleting the addition made by the AO, the revenue is in appeal before us with the following grounds :- 1. The order of Ld. CIT(A) is not correct in law and facts. 2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of ₹ 9,54,62,250/- made by the Assessing Officer on account of gain on sale of investment. (Identical grounds have been raised by the revenue for assessment year 2012-13 :-) 13. The ld. DR heavily relied on the order of the AO. So far as the order of the CIT(A) deleting the addition in absence of any incriminating material found during the course of search by relying on the decision in case of Kabul Chawla (Supra) is concerned, the ld. DR referring to the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit of the case is concerned, the ld. DR heavily relied on the order of the AO. He submitted that despite issue of notice u/s. 133(6), no reply was received from the two companies namely M/s. Clarus Finance Securities Ltd. (CFSL) and M/s. SV Electricals Ltd.(SVEL). Filed enquiry showed that M/s. S.V. Electricals Ltd. did not exist at the given address. Shri R.K.Kedia in his statement had stated that he is an entry operator through his company D.B.International. Relying on various decisions, he submitted that the order of Ld. CIT(A) be reversed and that of the AO be restored. 17. The ld. Counsel for the assessee on the other hand heavily relied on the order of the CIT(A). She submitted that no incriminating material was found during the course of search. Therefore, no assessment u/s 153A could have been made. So far as the submission of the ld. DR that statement of Vipin Jain was recorded, she submitted that the statement was recorded during the course of survey which was conducted after the search in the case of the assessee. So far as the decision in the case of M/s. Dayawanti (supra) is concerned, she submitted that the said decision is distinguishable on facts and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts cannot be considered as incriminating material unearthed during the course of search. She submitted that the period of issue of notice u/s 143(2) had lapsed. The revenue was already having the information which was filed along with return of income. Therefore by making fishing and roving inquiries, revenue cannot make any addition. 21. So far as the merit of the case is concerned she submitted that the assessee had provided all the requisite evidences and the same were not proved to be false. If the AO was not satisfied with the evidences filed before him, he could have asked the assessee to produce some further information. She submitted that the various notices issued u/s 133(6) have never come back to the AO which proves that they were duly served on those persons. The AO has never confronted the assessee about the address of those companies nor has asked the assessee to produce the Directors. The assessee was not aware about what was asked and what was replied. Therefore, assessee cannot be held responsible for non-compliance of those persons or nonsubmission of reply by those companies. So far as the allegation of the AO that SEBI had found manipulative trading i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uiries. There is also no ground by the revenue that any such incriminating material was found other than the statement of Shri Sundeep Gupta at the time of search. Under these circumstances, we have to adjudicate as to whether the CIT(A) has erred in deleting the addition made by the AO in absence of any incriminating material. 25. We find the ld. CIT(A) while deleting the addition has relied on various decisions including the decision of the Hon ble Jurisidictional High Court in the case of CIT vs. Kabul Chawala reported in 21 taxman.com 412 (234 taxman 300). Finding of the CIT(A) on this issue has already been reproduced in the presiding paragraphs. So far as the reliance by the Ld. DR in the case of Smt. Dayawanti vs. CIT (supra) is concerned, we find the facts of that case are completely different from that of the facts of the present case. In that case the son of the assessee had categorically admitted that there were unaccounted purchase and sale of various items in Supari from different parties. He had also admitted that certain purchases are unaccounted and accordingly he had surrendered certain income. However, in the present case there is no unaccounted transact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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