TMI Blog2019 (8) TMI 1520X X X X Extracts X X X X X X X X Extracts X X X X ..... held the transaction as bogus on the basis of the general report of the investigation wing of the department without affording an opportunity to confront or cross examine the witnesses whose statements were relied upon by the AO. In the case of Smt. Shikha Dhawan vs. ITO [ 2018 (6) TMI 1451 - ITAT DELHI] has held that where the AO fails to afford an opportunity to the assessee to cross examine the witnesses whose statements were relied upon, such evidence cannot be used against the assessee. Authorities below have not pointed out any evidence on record to hold that the assessee has obtained bogus entries in connivance with entry operators and brokers etc. in order to claim bogus LTCG. As pointed out the assessee was not given an opportunity to cross examine the witnesses whose statements were relied upon and on the basis of their statements it was concluded that the transaction in question was a part of penny stock scam. As relying in the case of M/s Andaman Timber Industries [ 2015 (10) TMI 442 - SUPREME COURT] we are of the considered view that the CIT (A) has wrongly confirmed the assessment order passed by the AO in violation of the principles of natural justice. Hence, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, without providing the copies of such statements and without providing the opportunity to cross-examine such parties, thus violating the principles of natural justice as upheld by Honorable Supreme Court in case of Andaman Timber Industries v. Commissioner of Central Excise (Civil Appeal No. 4228 of 2006) and Kishanchand Chellaram v. CIT AIR 1980 SC 2117. 2. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of holding that the transaction of the sale of shares of M/s Sunrise Asian Ltd. is bogus and sham and making addition of ₹ 13,98,729/-. 3. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of not granting the exemption of long terms capital gain under section 10(38) of the Act on sale of listed equity shares sold through recognized stock exchange which has duly been subjected to security transaction tax (S.T.T.) on surmises, conjecture and suspicion. 4. In the facts and circumstances of the case and in law, the Learned CIT (A) has erred in upholding the action of the Assessing Officer of treating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is liable to be set aside. The Ld. counsel relied on the following cases to substantiate his contentions: i) CIT vs. Shyam R. Pawar, IT Appeals No. 1568 to 1571 of 2012 (Bom.) ii) CIT vs. Shri Mukesh Ratilal Marolia Income Tax Appeal No. 456 of 2007 (Bombay). iii) CIT vs. Smt. Sunita Dhadda Income Tax Appeal No. 191/2012 (Raj.). iv) Sri Dolarrai Hemani vs. Income Tax Officer, ITA No. 19/Kol/2014 (Kolkata Tribunal) v) Smt. Shikha Dhawan vs. ITO, ITA No. 3035/Del/2018, SMC, New Delhi. vi) Ms. Farrah Marker vs. ITO, ITA No. 3801/Mum/2011 (Mumbai Tribunal) vii) Manish Kumar Baid vs. ACIT, ITA No. 1236/Kol/2017 and Mahendra Kumar Baid vs. ACIT, ITA No. 1237/Kol/2017 (Kolkata Tribunal) 5. On the other hand, the Ld. Departmental Representative (DR) relying on the concurrent findings of the authorities below submitted that the Directorate of Investigation, Kolkata carried out a countrywide investigation to unearth the bogus operators, who used to provide bogus entries to facilitate beneficiaries in claiming bogus capital gains. These operators used to transfer shares to the beneficiaries at a very nominal price through preferential allotment or offline sale to sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubted the genuineness of the bank statement showing payment of ₹ 60,000/- made for purchase of shares of Conart Traders Ltd. Similarly, the AO has not doubted the sale of the shares in question. So the AO has held the transaction as bogus on the basis of the general report of the investigation wing of the department without affording an opportunity to confront or cross examine the witnesses whose statements were relied upon by the AO. In the case of Smt. Shikha Dhawan vs. ITO (supra), the SMC Bench of the Delhi Tribunal has held that where the AO fails to afford an opportunity to the assessee to cross examine the witnesses whose statements were relied upon, such evidence cannot be used against the assessee. The operative part of the said order read as under: 8. I have heard the rival submissions and perused the material available on record. The assessee placed sufficient documentary evidences before the AO which are copy of the shares certificates with transfer form, copy of debit note issued by Shreeji Broking (P) Ltd., copy of cash receipt of Shreeji Broking (P) Ltd., copy of the account statement of the assessee in the books of the broker, copy of ledger account of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below and delete the addition of ₹ 19,51,357/-. The appeal of the assessee is, accordingly, allowed. 7. In the case of Ms. Farrah Marker vs. ITO, ITA No. 3801/Mum/2011, for the AY 2005-06, F Bench of the ITAT has dealt with the similar issue and decided the same in favour of the assessee. In the said case also the AO did not provide opportunity to the assessee to cross examine the witness whose statement was relied upon to decide the issue against the assessee overlooking the direct evidence placed on record to establish the genuineness of the transaction of purchase and sale of the shares. The findings of the Bench read as under: 3.4.8 From the appreciation of the facts of the case, the material evidence placed on record by the assessee and in the light of the discussion of the factual and legal matrix of the case as discussed from para 3.1 to 3.4.7 of this order (supra), we are of the considered opinion that the authorities below, i.e. AO/CIT(A) have made the addition under section 68 of the Act merely on presumptions, suspicions and surmises in respect of penny stocks; disregarding the direct evidences placed on record and furnished by the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural justice. In the said case the plea of the appellant was that since the adjudicating authority did not allow it to cross examine the witnesses, whose statements were relied upon, the order is bad in law. The Hon ble Supreme Court allowed the plea of the assessee holding as under:- According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by th ..... 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