TMI Blog2021 (8) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... ndi of the penny stock companies and operators involved in carrying out the purchase and sale of shares. However, nowhere the AO has referred to incriminating material found during the course of search in relation to purchase and sale of shares. We have also examined the documents found during the course of search by the search team as furnished by the ld DR in the form of paper book but find that these documents only contained the details of sale of shares only - The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal Smt. Kalpana Mukesh Ruia [ 2021 (1) TMI 93 - ITAT MUMBAI] - Decided in favour of assessee. Addition u/s 68 - unexplained cash credit by treating the sale proceeds yielding long term capital gain on sale of shares as non genuine - HELD THAT:- Long term capital gain on the sale of shares of M/s. Splash Media Infra Ltd. is not a bogus capital gain as the AO has solely relied on the report of investigation/search team and has not carried out any further verification on the basis of documents furnished by the assessee. Similarly, the position of long term capital gain earned on the sale of shares of M/s. Comfort Intech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder or otherwise. 5. On the facts and circumstances of the Appellant s case and in law, Ld. CIT(A) erred in confirming the action of Assessing officer in making an addition of ₹ 62,62,467/- as alleged commission @ 6% paid on bogus share transaction, as per the grounds stated in the order or otherwise. 3. The issue raised in ground No.1 is against the jurisdiction of the AO to frame assessment under section 143(3) read with section 153A of the Act. The assessee has challenged by way of ground No.1 that the additions made in assessment framed are without jurisdiction as there is no incriminating material seized during search and therefore the order framed is bad in law. 4. The facts in brief are that the assessee filed return of income on 06.09.2010 declaring an income of ₹ 24,09,303/-. Thereafter, a search action under section 132 of the Act was conducted on 09.04.2015 on the assessee and his HUF. During the course of search, the search team found evidences of accommodation entries in the form of bogus long term capital gain on penny stocks. Post search, notice under section 153A of the Act has been issued on 08.08.2016 which was duly served upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t detailed investigations on the allegation of market manipulation in the scrip of FFSL and found that Anil Agarwal and entities of his Comfort Securities Group including Comfort Securities Ltd. and M/s. CIL to be guilty of market manipulation. The SEBI vide its final order dated 02.04.2018 has restrained/prohibited FSSL, Anil Agarwal and entities of his Comfort Securities Group including M/s. Comfort Securities Ltd. and M/s. CIL from accessing the market or trading for a further period of 3 years from the date of the order. 5.4 It is noted that in the statement recorded on oath, at the time of the search action of Shri Amit Patel, it was only vaguely informed that this investment decision was made by his late father as per the advice received from friends, brokers, etc. Similarly, no explanation could be given as to how the scrip-price rose to such high levels despite weak fundamentals and no positive corporate announcements. It is not always that a person gets implicated for being in possession of incriminating evidence. A person can also get implicated for not being in possession of a valid explanation or the requisite evidence. The statement given by Shri Amit Pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Works (328 ITR 384) and the Hon'ble Kerala High Court in the case of Paul Mathews (263 ITR 101)as against statement on oath recorded u/s 133A. 5.7 In view of the aforesaid judicial decisions, the statement on oath recorded of Shri Amit Patel wherein he could neither explain the basis for the investment in the said scrip nor explain the abnormal rise in the price of the said scrip despite weak fundamentals and no positive corporate announcements, has to be considered as incriminating evidence to implicate the assessee. This is all the more essential considering that there were a number of developments prior to the search action in the case of the assessee including various searches carried out by the Department exposing the scam of bogus LTCG, the in-depth investigation carried out by the SEBI to ascertain price rigging in the scrip of FFSL etc. In view of these developments, which were very much in the knowledge of the assessee, it is but natural to assume that the assessee would have ensured that the incriminating material to the extent possible is either hidden or destroyed. 5.8 Further, earlier the search assessments used to be finalized u/s 158BC/BD which was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as the assessment related to A.Y. 2010-11 whereas the search was conducted on 09.04.2015 and therefore the assessment was unabated on the date of search. The Ld. A.R. submitted that in the case of unabated assessment on the date of search, addition can only be made in the assessment framed under section 143(3) read with section 153A of the Act , if there is an incriminating material found during the course of search and not otherwise. In the present case the Ld. A.R. submitted that during the course of search, no incriminating material was found with regard to the purchase and sale of shares made by the assessee and therefore addition made under section 68 69C are without jurisdiction and may kindly be deleted on the jurisdictional defect only. The Ld. A.R. while taking us through the provisions of section 153A of the Act submitted that the provisions as regards search proceedings are contained in section 153A and it is a complete code by itself as the provisions of section 153A provide that the powers of AO to frame assessment in the case of unabated assessment are very limited and any additions in the unabated assessment year can only be based upon the incriminating material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year, addition can only be made on the basis of incriminating material found during the course of search and not otherwise. In the present case, we have noted that no incriminating material was found during the course of search in relation to the purchase and sale of penny stocks and the authorities below have relied on the general investigation that assessee has made purchase and sale in penny stocks on the basis of documents which are already on records and made huge addition of bogus long term capital gain. The AO had discussed the modus operandi of the penny stock companies and operators involved in carrying out the purchase and sale of shares. However, nowhere the AO has referred to incriminating material found during the course of search in relation to purchase and sale of shares. We have also examined the documents found during the course of search by the search team as furnished by the ld DR in the form of paper book but find that these documents only contained the details of sale of shares only. The case of the assessee is squarely covered by the decision of the co-ordinate bench of the Tribunal Smt. Kalpana Mukesh Ruia vs. DCIT ITA No.6519/M/2019 A.Y. 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incriminating seized material is not sustainable. 45. The jurisprudence regarding jurisdictional defect in assessment under section 153A / 153C without reference to incriminating seized material has also been expounded by honourable Supreme 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 IT AT in the case of Shri Vijayrattan Balkrishan Mittal (supra) in similar situation held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely. 45. Since, there is no incriminating material found during the course of search, we therefore respectfully following the ratio laid down by the Hon'ble Bombay High Court in the above decision, set aside the order of the CIT(A) and direct the AO 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 Bhiinji Zaveri (ITA 2250 2251/Mum/2013 dt. 4.11.2015) 48. It may also be pertinent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed record in this regard. The same remains solely statement upon survey which is not a conclusive evidence of addition of undisclosed income without corroborative material. 10. We, therefore, respectfully following the decision of the coordinate bench of the Tribunal which has been passed after following the decision of the jurisdictional High Court in the case of CIT vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015) 374 ITR 645 (Bom) and various other decisions, hold that the addition made by the AO under section 68 69 are without jurisdiction and are directed to be deleted on the jurisdictional issue. 11. The issues raised in ground No.2 ,3 and 4 are on merit challenging the order of Ld. CIT(A) confirming the addition of ₹ 10,43,74,444/- by Ld. CIT(A) as made by the AO under section 68 of the Act as unexplained cash credit by treating the sale proceeds yielding long term capital gain on sale of shares as non genuine. 12. The facts in brief are that the assessee has claimed the long term capital gain arising from sale of shares of Comfort Intech Ltd and Splash Media Infra Ltd. as exempt under section 10(38) of the Act, the details whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration realised from sale of shares of these two companies viz. ₹ 7,77,34,439/- as sale of shares of both the companies under section 68 of the Act as unexplained investment in the assessment framed under section 143(3) read with section 153A of the Act dated 27.12.2017. 13. In the appellate proceedings also the Ld. CIT(A) affirmed the order of AO by holding that the long term capital gain as claimed exempt under section 10(38) of the Act on sale of shares of two companies as stated hereinabove are bogus and fictitious and was rightly added u/s 68 of the Act by the AO. 14. After hearing both the parties and perusing the material on record, we observe that the assessee has earned capital gain of ₹ 7,46,41,952 by selling shares of two companies on a total sale consideration of ₹ 7,77,34,439/-. The assessee has claimed the said gain on the sale of these two scrips as exempt under section 10(38) of the Act. We note that assessee has purchased these shares through Bombay Stock Exchange and the payment was made through account payee cheques and the purchase of shares is duly evidenced by shares warrants which were converted into equity shares and l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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