TMI Blog2021 (1) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... 007-08 2008-09 has decided the issue of treatment as bogus of the long term capital gain of shares in favour of the assessee. The same has not been reversed yet. Despite that learned CIT(A) erroneously distinguished the same. We have already held that the long-term capital gain cannot be treated as undisclosed income under section 68 the addition of commission on capital gain done in these cases is consequently not sustainable. Hence we delete the same also. Addition of unsecured loan - we note that assessing officer has accepted that assessee has submitted the confirmation, ITR, bank statement of the parties. However he rejected by simply observing that investigation wing at Kolkata has reported that some of the entry operators are providing bogus loans at Kolkata. The assessing officer did not make any enquiry of his own the only referred to the date of confirmation of the unsecured loan and drew adverse inference. The learned CIT appeals also has confirmed the assessing officer s action by simply making general observations that the loan creditors are bogus in as much as they don t have much income, that the entire TDS have been claimed as refund by them, that they hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of commission on capital gain, addition under section 68 of loans, addition of interest on loans. The grounds raised by the assessee are similarly worded except for the amounts. For the sake of reference we are reproducing hereunder the grounds of appeal raised in the case of Kalpana Mukesh Ruia for assessment year 2013-14 where all the grounds raised are referred and emanating. 1. The learned Commissioner of Income Tax (Appeals) erred in holding that even though the assessment for this year was not abated and no incriminating material was found during search, additions can be made in respect of long term capital gain on sale of alleged penny stock declared by the appellant in the previous year relevant to this assessment year-NIL. 2. The learned Commissioner of Income Tax (Appeals) further erred in not following the judgement of Hon'ble Bombay High Court in the case of CIT v. Continental Warehousing Corporation (Nhava Sheva) Ltd., 374 ITR 645, to hold that in the absence of any incriminating material found during search in unabated assessment, no addition can be made while passing order under section 153A read with section 143(3)- NIL 3. The learned Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss examine the parties.- NIL 9. The learned Commissioner of Income Tax (Appeals) further erred in confirming the additions under section 68 on account of long term capital gain by relying on statement of appellant's husband Mr. Mukesh Ruia recorded u/s 132(4) and not accepting the retraction made by him and not holding that in absence of incriminating material found during search proceedings, making additions under section 68 is not justified particularly when circular of CBDT in its INSTRUCTION F. NO. 286/2/2003-IT (INV. II), DATED 10-3-2003 and LETTER [F.NO.286/98/2013-IT (INV.II)], DATED 18-12-2014 prohibits taking of confessional statements during search proceedings.- NIL 10. The learned Commissioner of Income Tax (Appeals) further erred in rejecting the ground of appellant for not allowing cross examination of parties on whose statements assessing officer is relying and not following the judgement of Hon'ble Supreme Court in case of Kishinchand Chellaram (125 ITR 713) and Andaman Timber Industries v. Commissioner of Central Excise (281 CTR 241) wherein it has been clearly held by Apex court that relying on statement recorded on the back of the assessee withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in not accepting and giving any finding on judgement of Hon'ble Bombay High Court in the case of Pr.CIT Central-2 Vs. Skylark Build in ITA No. 616 of 2016 dated 24.10.2018, 2018-TIOL-2323-High Court-Mum-IT wherein it has been held that when the amounts borrowed by the assessee which are alleged as unexplained cash credit to make additions by invoking section 68, no addition can be made when such borrowings are repaid NIL 18. The learned Commissioner of Income Tax (Appeals) further erred in confirming the disallowance under section 69C of ₹ 22,47,3217- on account of interest paid on alleged bogus loans taken in last year and loan taken from Saraf Nivesh Pvt. Ltd. during this year.- ₹ 6,96,670/-. 19. The Appellant craves leave to add to, alter or amend any ground before or at the time of hearing.- NIL 3. In the revenues appeal following grounds are raised:- 1. Whether learned CIT(A) is justified in deleting the addition amounting to ₹ 1,93,60,000/- made u/s. 69 of the I.T. Act on account of variation in purchase value of the property purchased by assessee and market value of the property. Tax effect ₹ 63,88,800/- 2. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 Mukesh Ramniranjan Ruia HUF AY 2012-13 ITA 6513/MUM/2019 - - Yes Yes Yes 9 Mukesh Ramniranjan Ruia HUF AY 2013-14 ITA 6514/MUM/2019 Yes Yes Yes Yes Yes 10 Rajesh Ramniranjan Ruia AY 2014-15 ITA 6958/MUM/2019 Yes Yes Yes - - 11 Rajesh Ramniranjan Ruia HUF AY 2014-15 ITA 6959/MUM/2019 Yes Yes - - - 12 Lata Ruia AY 2014-15 ITA 6957/MUM/2019 Yes Yes - - - 13 Sneha Ruia AY 2014-15 ITA 6960/MUM/2019 Yes Yes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , judicial pronouncement has been discussed at 5(i) onwards including Latest decision of the jurisdictional Bombay High Court in the case of Shri SanJay Bimal Chand Jain Vs, Pr. CIT. 6. After giving the above said brief case the Assessing Officer reproduced the notice u/s. 143(2). In his notice he referred to the Investigation in Kolkata and Mumbai conducted by Investigation Wing of the Income Tax Department on the issue of long term capital gain. Thereafter he theoretically discussed modus operandi in the case of long term capital gain adopted by various assessees. Thereafter he observed that the Securities and Exchange Board of India (SEBI) has in the recent past, passed some orders on the issue of manipulation of share market for providing accommodation entry of bogus LTCG, SEBI considering the inputes from Income Tax Department as well as from its own surveillance system and that of the stock exchanges has taken appropriate action in case of the suspect scrips. These actions include passing Interim direction, suspending the trade, reducing the price band etc. Thereafter Assessing Officer referred to the discussion corroborating false long term capital gains. In this connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gains from those scrips. He noted that the assessee has demanded cross verification at this juncture is nothing but an evasive tactic. That the assessee has failed to comment upon the modus operandi enumerated in the show-cause notice. The Assessing Officer further observed that despite communication of the above facts the assessee has not explained the real transaction behind these entries availed in the books. The entry providers in both the cases/groups have categorically stated that, the cheques and bills/documents were issued and corresponding cash has been received from the beneficiaries. He stated that there are no book entries to the real transactions either in the books of the assessee or in the books of these entry providers. Therefore the statements on oath, solemn affirmation and the admission of the parties when confronted with the evidences found in the course of search are sufficient evidences under taxation provisions to conclude that, both the parties entered into such arrangements with connivance with each other. 7. Thereafter the Assessing Officer proceeded to examine the scope of section 68 of the I.T. Act. He referred to the case law from ITAT Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITRs, Bank Statement does not itself establish the identity, creditworthiness and genuineness of the creditors. After observing above the Assessing Officer the Assessing Officer held that the assessee has failed to prove that identity, creditworthiness and genuineness of the bogus transaction. Thereafter he again referred to catena of case laws for provisions of section 68 of the Act. Finally he further observed on the addition proposed by him as under :- Therefore by applying the ratios laid down in above cases, the facts and findings in the case and considering the assessee's submissions in the matter, the amount brought in by assessee in its books as loans from the party stated above amounting to ₹ 20,00,000/- for the year under consideration is treated as unexplained credit within the meaning of section 68 of the Act and taxed as assessee's income for the year under consideration. Penalty proceedings u/s.271(l)(c) of the Act are separately initiated for furnishing inaccurate particulars of income. Further, during the year under consideration, the assessee has debited an amount of ₹ 22,47,321/- on the said bogus loans. On the basis of the findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of honourable Bombay High Court decision in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. (supra). She observed that Assessing Officer had powers when assessment earlier was not done under section 143(3) of the Act. In this regards she referred to the admission made by Mukesh Ruia under section 132(4) of the Act. She also referred the statement of Kalpana Ruia. Hence, she held that assessee s appeal in this regard was liable to be dismissed. 14. As regards merits of the addition of long-term capital gain she reiterated the order of the assessing officer. She noted the statement of various persons referred by the assessing officer. She noted that Mr. Rajesh Khaitan has admitted that she was taking instructions from Shri Prakash Modi on behalf of the Mukesh Ruia and his family. Thereafter she reiterated the various aspects of modus operandi referred by the assessing officer. She also rejected the retraction by the assessee. She also rejected the request of cross examination of the persons on the basis of the statement addition was done. Thereafter he distinguished the case laws referred by the assessee. She even distinguished the case laws from ITAT Mum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thesis on the penny stock and observation in the Kolkata Investigation Report starting from para 3 (page no. 4) of the assessment order wherein it is stated that the shares in penny stock companies are acquired by the LTCG beneficiaries at very low prices through private placement. During the period of one year from the purchase date the prices of the stocks are rigged and are raised to a high level through circular trading. Later on after one year, when the prices are high the sale activity of the shares take place leading to long term capital gains. The Assessing Officer has given his findings in relying on the information received from Kolkata Investigation report and general thesis and statements recorded of various entry providers wherein none of the person has given any statement against the assessee in respect of long term capital gain earned. Learned Counsel of the assessee further submitted that the assessee has given detailed submission before learned CIT(A). But he pointed out that learned CIT(A) has dismissed grounds of appeal in this regard in view of referring to general thesis and information from Investigating Wing, Kolkata Investigation Report which was also relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relies on the decision in the case of Deepchand and Co. Vs. ACIT (1995) 51 TTJ (Bom) 421, wherein it was held that a statement recorded during search proceeding which continued for an unduly long period cannot be considered to be free, fearless and voluntary. Thus, an element of compulsion is discernible in the case of the assessee on the facts and circumstances of case justifying retraction. 21. Furthermore, learned Counsel of the assessee submits that in the following case laws it has been held that the statement recorded u/s. 132(4) does not have evidentiary value when retracted if there is no any corroborative material :- CIT Vs. Sunil Agarwal (379 ITR 367) CIT Vs. Naresh Kumar Agarwal (369 ITR 171) DCIT Vs. Narendra Garg Ashok Garg (AOP) (ITA No. 1531 1532 of 2007 dated 28.7.2016) DCIT Vs. Marathon Fiscal Pvt. Ltd. (ITA no. 5783 5784/Mum/2017 dated 28.8.2019) Tribhuvandas Bhimji Zaveri (ITA no. 2250 2251/Mum/2013 dated 4.11.2015) 22. Furthermore, learned counsel referred to CBDT Instruction F.No. 286/2/2003-IT(INV.II), dated 10.3.2003, wherein the Assessing Officer has been advised to avoid obtaining admission of undisclosed income und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers. c) In response to question no. Q 69 in his statement he specifically mentioned that he never doubted his clients i.e. Ruia Family because the trades happened over the period of 12-13 months when the price range was ₹ 26/- to ₹ 33/- per share and on exchange there was huge volumes of the shares. d) Further he stated that Ruia family has good financial background and social standing and he did work on the basis of faith and goodwill and earned only brokerage income which is his business. e) In the entire statement of Shri Rajesh Khetan, he has never said that alleged exit providers traded in share market through their broking company and he has never give any statement where it was admitted that shares of FCGL, Esaar India Ltd., Unno Industries Ltd or Tilak Finance Ltd were used to provide accommodation entries. Therefore, from this statement no negative inference can be drawn against appellant in this case. 25. That further during the course of assessment proceedings assessee requested the Ld. AO to provide him the opportunity to cross examine these persons but request was denied by the Ld. AO. That therefore their statement is not binding on assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spicion and conjectures. b. The Hon'ble Supreme Court in the case of Umacharan Shaw Bros. v. CIT (1959) [1959] 37 ITR 271 (SC) held that suspicion however strong, cannot take the place of evidence. c. The Hon'ble Supreme Court in the case of Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. d. Hon. Kolkata High Court in the case of CIT v. Lakshmangarh Estate Trading Co Ltd.(220 Taxman122) held that on the basis of a suspicion howsoever strong it is not possible to record any finding of fact, As a matter of fact suspicion can never take the place of proof. It was further held that in absence of any evidence of record, it is difficult to hold that the transactions of buying or selling of shares ware colorable transactions or were resorted to with ulterior motive. 30. Learned Counsel of the assessee further submits that recent decision of the ITAT, Mumbai in the case of Smt. Geeta Khare Vs. ACIT (ITA No. 4267/Mum/2018 dated 29.5.2019) has decided identical issue in favour of the assessee :- While doing so Hon. ITAT has distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of Hon. Bombay High Court in the case of Pr CIT, Central -2 Vs. Skylark Build in ITA No. 616 of 2016 dated 24-1O-2018, 2018-TIOL-2323-HC-Mum-IT, wherein it has been held that when the amounts borrowed by assessee which are alleged as unexplained cash credit to make additions by invoking section 68, no addition can be made when such borrowings are repaid. He further relied on the submission and judgements relied on in submission for AY 2012-13. 33. As regards interest on loan taken disallowed u/s. 69 of the Act, learned Counsel of the assessee submits that in Ground no. 18, the assessee has challenged the disallowance u/s 69C of interest of ₹ 22,47,321/- paid on loan taken from 9 parties in AY 2012-13 and loan taken from Saraf Nivesh Pvt Ltd during AY 2013-14. That it is also challenged that provisions of section 69C of the Act are not applicable in respect of disallowance of interest paid on loan borrowed as provisions of section 69C are applicable only if the assessee has incurred any expenditure and offers no explanation regarding source of expenses while in this case interest on loan paid is recorded in books of accounts. That as submitted above, since additions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion have abnormal increase which is totally unjustified. In this regard he referred to the modus operandi of the bogus capital gain and the statement of bogus exit providers and the brokers. He further placed reliance upon case laws referred by the learned CIT appeals. 37. As regards the addition of loans learned Departmental Representative relied upon the orders of authorities below. He reiterated the position that the date of confirmation was not proper and only xerox copy of confirmation was submitted. Overall learned departmental representative relied upon the orders of authorities below. 38. On a query from the bench as to whether the learned departmental representative is in a position to bring incriminating material on record from the search, learned departmental representative submitted that he is relying upon the materials that are referred in the orders of the authorities below and is not in a position to bring any further material on record. 39. We have carefully considered the submissions and perused the records. Firstly issue in appeal is that in assessment framed under section 153(A) in case of the unabated assessment addition without reference to incrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment order which has attained finality, unless the materials gathered in the course of the proceedings under section 153A establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings. If there is nothing on record to suggest that any material was unearthed during the search or during the 153A proceedings, the Assessing Officer while passing order under section 153A read with section 143(3) cannot disturb the assessment order. 42. A reading of the above makes it clear that it was expounded that in case of assessments which have attained finality no addition under section 153(A) can be done without seized incrementing material. In this regard, the learned departmental representative and learned CIT appeals have tried to make out a case that in the present cases before us the earlier assessments were not under section 143 (3). Hence the ratio from honourable jurisdictional High Court decision will not apply here. The learned departmental representative has mentioned that honourable High Court has referred about assessments which have been finalized. 43. In our considered opinion, the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in the case of Commissioner of Income Tax vs. Singhad technical education Society in civil appeal No. 11080 of 2017 and others. In this regard the honourable Supreme Court in paragraph 18 of the said order observed that :- In this behalf it was noted by the ITAT that as per provisions of section 153C of the act,, incriminating material which was seized had to pertains to assessment years in question and it is an undisputed fact that the documents which were seized did not establish any correlation, document wise, with these for assessment years since this requirement under section 153C of the act is essential for assessment under the provision it becomes a jurisdictional defect. We find this reasoning to be logical and valid having regard to the provisions of section 153C of the Act. 46. We also note that the co-ordinate bench of ITAT in the case of Shri Vijayrattan Balkrishan Mittal (supra) in similar situation held that, dehorse incriminating Material assessment u/s.153A is not sustainable in the case of unabated assessment. We may gainfully refer to the said decision as under: 44. After hearing both the parties and perusing the facts on record, we observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to delete the addition. Resultantly, the appeal of the assessee on jurisdictional issue is allowed. 47. As regards the issue of seized material it is clear that in the appeals which have remained unabated the addition is without reference to any seized material. The materials referred are only the statement obtained of the assessee under section 132 (4). These have been duly retracted. Hence without corroborative material addition only based upon the retracted statement is not sustainable. For this proposition following case laws are germane: CIT Vs. Sunil Agarwal (379 ITR 367) CIT Vs. Naresh Kumar Agarwal (369 ITR 171) DCIT Vs. Narendra Garg Ashok Garg (AOP) (ITA No. 1531 1532 of 2007 dated 28.7.2016) DCIT Vs. Marathon Fiscal Pvt. Ltd. (ITA no. 5783 5784/Mum/2017 dated 28.8.2019) Tribhuvandas Bhimji Zaveri (ITA 2250 2251/Mum/2013 dt. 4.11.2015) 48. It may also be pertinent to note here that no seized material said to be incriminating was produced before us. In light of above said case laws the observation of learned CIT(A) that incriminating material need not be specific has no legs to stand. This very observation by the learned CIT(A) itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted. The assessee has provided all the contract notes of the brokers in relation to sales and purchase of the shares which are system generated and prescribed by the Stock Exchange, copies of share certificates, copy of the Demat account statement of the assessee, copies of bank statements of the assessee highlighting the payments for purchase of shares and receipts against the sale of shares. Pursuant to sale of shares the broker issued contract notes for sale of impugned shares vide various bills. There is no evidence of any privy of contract between the assessee and the buyer of the shares as the assessee does not know to whom the shares have been sold and hence the long term capital gain on sale of shares cannot be treated as non-genuine. The assessee has received entire sales proceeds through regular banking channels from the stock broker registered with SEBI which establishes the identity of the payer, sources of funds on sale of the same shares and the genuineness of the transaction. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. 51. From the above, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years as per contract note directly in the bank account after shares are delivered from demat account and received by the assessee. Copy of demat account and bank statements where sale proceeds are received are submitted as discussed above. Geojit has also been examined and interrogated by the Investigation Department during search proceedings. Geojit's source is BSE settlement system. This explains identity of the creditor and source of money paid by assessee for genuine transaction of sale of shares. d) Sale is done at prevailing price quoted on the BSE. (BSE published quotations daily and rate list of the relevant dates can be produced if required) e) The shares are sold by assessee's broker on BSE platform and not off market to any buyer hence source is BSE's clearing system and broker. The transactions on the BSE platform and settlement system who are responsible for the transactions of the demat account and prevailing price on public domain prove the genuineness of the transactions. f) SEBI's final order dt. 19.09.2017 relating to PAL is enclosed. SEBI after detailed investigation into the transactions in the shares of these companies held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idences comprising contract notes, brokers, banking details in support of the genuineness of the transactions. The AO has not pointed out any deficiency in the documents or inherent weakness in the explanation or doubted genuineness of the transactions for want of any evidence. The AO did not produce any evidence whatsoever to prove the allegation that unaccounted money changed hands between the assessee and the broker or any other person including the alleged exit provider nor proved that the assessee has taken any type of accommodation from any person or so called exit providers to introduce unaccounted money into books by way of LTCG. With the purchase and sale transactions of shares of PAL are proved genuine by third parry evidences - bank, broker; DP-demat account, and in the absence of any material to prove cash changing hands in the transaction, the addition made by the AO under section 68 of the Act, by treating the sale consideration as unexplained, sham, non-genuine is baseless. The addition under section 68 of the Act made merely of the basis of suspicion, presumptions and probability of preponderance without any direct evidence to prove the transactions as non-genuine o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s below and delete the addition on merits in this regard. It may not be out of place to mention here that the ITAT in assessee s own case for A.Y. 2007-08 2008-09 has decided the issue of treatment as bogus of the long term capital gain of shares in favour of the assessee. The same has not been reversed yet. Despite that learned CIT(A) erroneously distinguished the same. 55. We have already held that the long-term capital gain cannot be treated as undisclosed income under section 68 the addition of commission on capital gain done in these cases is consequently not sustainable. Hence we delete the same also. 56. As regards the addition of unsecured loan is concerned, we note that assessing officer has accepted that assessee has submitted the confirmation, ITR, bank statement of the parties. However he rejected by simply observing that investigation wing at Kolkata has reported that some of the entry operators are providing bogus loans at Kolkata. The assessing officer did not make any enquiry of his own the only referred to the date of confirmation of the unsecured loan and drew adverse inference. The learned CIT appeals also has confirmed the assessing officer s action by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h that the amount was received by the Assessee from the share holders as share application money. The Assessee could not prove the identity of the creditors, their credit worthiness and the genuineness of the transactions. The party from whom the Assessee had received the share amount never responded to the summons issued by the Assessing Officer. The Assessing Officer has considered the said aspect and thereafter has added the amount under Section 68 of the Income Tax Act. According to the learned counsel, the Tribunal only on the basis that documents are available has accepted the case of the Assessee. The Tribunal has failed to consider the circumstances and the facts which are relevant. 3] The learned counsel for the Assessee supports the order and submits that the Assessee had discharged its onus. The Assessee had produced the PAN of all the creditors along with the confirmation, Bank Statement showing payment of share application money and relevant record is produced with regard to the allotment of shares to those parties. The share application form, allotment letter, share certificate are also produced. Even the balance-sheet, profit and loss account, the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities below have totally ignored this aspect. In this regard case law from Hon'ble Bombay High Court referred by learned counsel of the assessee above supports the proposition that when loan amount is duly repaid the same cannot be treated as undisclosed income under section 68. 59. Accordingly in the background of aforesaid discussion and precedents in our considered opinion the addition of unsecured loans as undisclosed income of the assessee is not sustainable. Hence, we set aside the orders of authorities below and delete the addition. 60. Since we have already deleted the addition of unsecured loan as undisclosed income the addition of interest thereon is consequently also not sustainable. Hence, the same is also deleted. 61. Our above adjudication on various grounds applies mutatis mutandis to all the assessees appeals in adjudication here. Revenues Appeal in ITA 6962/Mum/2019 for assessment year 2012-13 in case of Kalpana Mukesh Ruia 62. In this appeal the ground raised is that learned CIT appeals erred in deleting the addition amounting to rupees 1,93,60,000/- made under section 69 of the IT act on account of variation in the purchase price of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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