TMI Blog2019 (9) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... considered view that the assessment order passed by the AO suffers from jurisdiction and is in violation of principles of natural justice, consequently, liable to be quashed. Hence, considering the facts and circumstances of this case and also by following the decision of Hon ble Supreme Court in the case of Andaman Timber Industries vs Commissioner of Central Excise [ 2015 (10) TMI 442 - SUPREME COURT] and other decisions, we quash the assessment order passed by the AO and deleted addition towards unexplained credit u/s 68 of the Act. - Decided in favour of assessee - ITA No. 1937/Mum/2018 - - - Dated:- 10-7-2019 - Shri G Manjunatha (Accountant Member) And Shri Ravish Sood (Judicial Member) For the Appellant : Shri Neil Khandelwal / Nagin Parekh For the Respondent : Shri Manoj Kumar Singh ORDER PER G MANJUNATHA, AM : This appeal filed by the assessee is directed against order of the CIT(A)- 33, Mumbai dated 12-03-2018 and it pertains to AY 2014-15. The assessee has raised the following grounds of appeal:- 1. The order dated 12/03/2018 bearing No. CIT[A] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence including broker note, bank statements and other details to justify long term capital gain derived from sale of shares. The AO was also analysed the share price of the scrip in the BSE / NSE to come to the conclusion that it is a pennystock and after considering various judicial precedents including the decision of Hon ble Supreme Court in the case of Sumati Dayal vs CIT 214 ITR 801 (SC), observed that the receipts shown by the assessee from sale of shares of NCL Research Financial Services Ltd was treated as unexplained credit u/s 68 of the Act, in view of the fact brought out by the department during investigation carried out at Kolkatta and also on the basis of statement of director of NCL Research Financial Services Ltd. Accordingly, he made addition of ₹ 2,29,80,188 u/s 68 of the Act. The relevant findings of the AO are as under:- 16. The detailed analysis of evidences available on record and the case laws quoted above provide enough support against the argument of the assessee regarding assessment being based on mere suspicion or presumption. The assessee has introduced/credited capital of ₹ 2,10,99,063/- during the year in his books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opies of statement recorded from director of NCL Research Financial Services Ltd, the AO never furnished such statement and also denied the opportunity of cross examination sought by the assessee in violation of principles of natural justice. 4, The Ld.CIT(A), after considering submissions of the assessee and also by taking note of facts brought out by the AO including modes of acquisition of shares, sale of shares and unusual rise in the price and on analysis of transactions including ignorance of the assessee about shares and pennycompanies, came to the conclusion that these were arranged transactions between parties in order to convert their own unaccounted income in the guise of long term capital gain to claim the benefit of exemption u/s 10(38) of the Act. The Ld.CIT(A) further observed that the facts brought out by the AO clearly suggested that the revenue cannot take or accept make belief transactions as presented by the assessee. Truth or genuineness of such transactions must prevail over smoke screen created by way of three meditated series of steps taken by the assessee with a view to imparting a colour of genuineness and character of commercial natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Anr. (1990) 184 ITR 308 (SC) (iii) Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 (SC), (iv) CIT v. Durga Prasad More (1971) 82 ITR 540 7.6 Apart from that in Mid East Port Folio Management Ltd. Vs. CIT (2003) 81 TTJ (Mum)(SB)37, it was held that McDowell is more of an approach to the facts of a particular case than any inviolable rule laid down regarding tax evasion. It is a call to the Courts and Tribunals to expose subterfuges, colourable devices and dubious methods in tax cases. It is a caution administered that lawful dues to the state cannot be withheld under schemes acquired off-the-shelf or through transactions that have no commercial or economic value or by taking certain preordained steps which are calculated to cancel out each other. The approach in such cases must be to take the entire transaction or arrangement as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties by ignoring the apparent has to be and has always been conceded, that in cases of make believe arrangement or a subterfuge or a dubious or a colourable device adopted, the Court will be merely removing the facade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of the arrangements are legally correct or valid, that the right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same, that all commercial arrangements and documents or transactions have to be given effect to even though they result in a deduction of the tax liability, provided that they are genuine, bonafide and not colourable transaction. 7.7 At the same time, it is observed that the judicial pronouncements relied upon by the appellant does not help the case of the appellant in view of aforesaid views and observations of the Hon'ble Supreme Court and Jurisdictional High Court, which is bin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has not taken the enquiry into its logical conclusion inasmuch as the AO did not examine the nephew of the assessee when the assessee repeatedly stated that she has invested in the shares of company on the advice of her nephew. Further, the persons from whom statements were recorded and also relied upon by the AO or the witness in the present proceedings and such being the case it is the duty of the AO to provide an opportunity to cross examine those persons. In this case, inspite of repeated requests, the AO has failed to do so. Therefore, the assessment order passed by the AO suffers from violation of principles of natural justice. Consequently, the addition made by the AO cannot be sustained. In this regard, he relied upon the decision of Hon ble Supreme Court in the case of Kisinchand Chellaram vs CIT (1980) 125 ITR 713 (SC). The assessee also relied upon the decision of Hon ble Supreme Court in the case of Andaman Timber Industries vs Commissioner of Central Excise (supra) and also the decision of Hon ble Supreme Court in the case of CIT vs Sunita Dhadda, judgement dated March 28, 2018. 6. The Ld.DR, on the other hand, strongly supporting the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CL Research Financial Services Ltd is exempt from tax u/s 10(38) of the Act. It is also an admitted fact that the AO has taken support from the report of investigation wing of Kolkata and also the statement of Shri Gautam Bose, one of the directors and promoter of NCL Research Financial Services Ltd. In the said statement, he had categorically admitted that NCL Research Financial Services Ltd was a penny stock company, whose main aim was to provide entry of bogus capital gain by various means. The AO has made addition on the basis of statement of director of the company, coupled with his own analysis of share price of said company in the stock exchange and also the purchase price paid by the assessee and sale of such shares during the year under consideration. Except this, the AO has not brought out any other contrary facts to come to the conclusion that the assessee is the beneficiary of accommodation entry of long term capital gain provided by director of NCL Research Financial Services Ltd. On the other hand, the assessee has filed complete set of documents including broker note, bank statements, copy of demat account and other details to prove that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger. In the absence of same being supplied to the assessee, the same cannot be used against the assessee. The Hon ble Court further observed that no reliance could be placed on any information unless, the assessee was given such information for his rebuttal and also to cross examine the person, who gave said statements. This legal proposition is further supported by the decision of Hon ble Supreme Court in the case of Andaman Timber Industries vs Commissioner of Central Excise (supra), where the court observed that not allowing assessee to cross examine witness by adjudicating authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw which makes the impugned order nullity as it amounted to violation of principles of natural justice. The same principle has been reiterated by Hon ble Supreme Court in the case of CIT vs Sunita Dhadda in SLP No.9342/2018 dated 28-03-2018, where the Court categorically affirmed its earlier finding in the case of Andaman Timber Industries vs Commissioner of Central Excise (supra) and held that when the assessee disputed the correctness of the statements and wanted to cross examine, the adjudicating auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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