TMI Blog2022 (3) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... f the intermediaries were never shared with the assessee. Even Assessing Officer has not extended the opportunity of cross examination to the assessee. From the assessment record that during the assessment proceedings assessee has raised several contentions vide letter dated 22.12.2017, in the contentions No. 12 and 13 in which assessee has demanded cross examination of persons whose statements have been discussed in foregoing paragraphs. The assessee also submitted that they do not know any of the said persons and never had connections with them. From the above paragraph it can be noticed the Assessing Officer expressed in clear term that that assessee has not utilized the opportunity extended by the Assessing Officer on the summons dated 27.12.2017 issued by him for the purpose of cross examination at his office. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE [ 2015 (10) TMI 442 - SUPREME COURT] held that when the assessment was made on the basis of the statements recorded from third parties and those statements were not provided nor cross examination was given to the assessee, the Assessment Order made based on those statements is bad in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific to the assessee. He also investigated with the share broker who had dealt with the shares sold by the assessee. 4. Coming to the specific enquiry made in the case of assessee, Assessing Officer observed that PCIL is one of the scrips identified by the Kolkata Investigation Wing and it was being used to provide accommodation entries to the beneficiaries. Therefore, he heavily relied on the findings of the Investigation wing, further he observed that the assessee and his brother family has invested in this scrips and they sold 1250000 shares each (4 members) of MJTL. AO also observed that the assessee is not conversant with the share transactions, complete ignorance clearly indicate that the reality of transactions in the scrip of PCIL were not the same and actually an accommodation entry. It was submitted by the assessee that his elder brother was authorised person to look after the share transactions on his behalf. AO observed in his order that purchase of such huge shares in the company which has no fixed deposits, incurred loss of ₹.7.18 lakhs, defaulted repayment of secured loans, suspended the trading by BSE w.e.f 5.2.2001 till 2.5.2012 due to non-payment of Annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empts to hide the truth behind the transactions. (d) The appellant and his family members had made investment in unknown scrips in respect of whom they did not know directors, nature of work and address of the company. As per statement of Mr. Dharmendra Karia, he did not even know as to whether M/s.PCIL was a profit making company or loss bearing. Such huge investment in an unknown company itself suggested that the appellant was having knowledge about the future occurrences. (e) Isolated transactions by way of preferential purchase of shares were made by the appellant in respect of a little known company having no such financial record which could justify the ₹ 1 crore investment made by the appellant and his family. (f) There was no economic or financial justification for the sale price of these shares. Hence, the fantastic sale price realization was not at all humanly probable as there was no economic or financial basis. (g) The appellant held shares of MJTL till it surged more than 4900%. This showed that the appellant was certain as to when he needed to offload the shares as the whole transaction was an arranged one. It was also proved by the fact that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unaccounted cash equal to the sale proceeds of shares in to white in the guise of exemption under section 10(38) of the I.T. Act, (t) The appellant declared transactions in his name but as per his statement, he knew very meagre details or knew nothing about the transaction in the shares of MJTL. This showed that a kind of benami transaction was being carried out. (u) No proof was submitted as to whether any other share was held by the appellant till its value surged considerably. (v) Despite extravagant increase in the share price of M/s.MJTL, it had not been justified as to why even part of the shares had not been sold by the appellant earlier. (w) With so much evidence against the appellant, the onus was on the appellant to prove that his transactions were genuine and that he had not availed the benefit of the aforementioned scheme to convert black money into white. (x) The findings of the Directorate of Investigation of Mumbai and Kolkata had proved various brokers as entry providers, the scrip of MJTL used for providing bogus LTCG and money trail in the case of paper companies. It was proved that the appellant had worked out an arrangement in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... structured transactions, entered into with the sold intent to evade taxes. (dd) The appellant had failed to appreciate that how a company who had no substantial business was being traded at such a high value and increase in sale price. In the circumstances the modus operandi of price rigging had been established by the department through various action. (ee) The appellant had failed to furnish the details/evidences about what acumen and foresight he had before purchasing about a no substantial means private limited company i.e.M/s.PCIL. The appellant had shown tremendous gain from investment in a jarnakhurchi company. Every prudent investor considering the nature of business, financial worth of the company makes investments. In the instant case, the appellant had no in depth knowledge of the share market. (ff) A planned tax avoidance tool cannot be used to defraud the interest of revenue. At the initial stage of operating of company, it cannot be said that in future the company will misuse the activities by way of providing accommodation entries. When got involved in such racket, the revenue tax took real time action and caught all the connivance and beneficiaries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated surveillance department. SEBI has investigated all those peoples who are involved in manipulating the prices within the small group of persons. In the SEBI investigations the name of the assessee s brother Shri Dharmendra Karia and his wife Smt Meena Deepak karia were included. After the investigations the SEBI has exonerated the charges of price manipulation in the case of the assessee s brother and his wife. Ld.CIT(A) discussed all these issues in his report and he proceeded to dismiss the appeal filed by the assessee by accepting the reasons for making addition by the Assessing Officer. Even Ld.CIT(A) has not brought any direct link with the price manipulation by the assessee or family members directly or indirectly. 7. Ld.CIT(A) has rejected the submissions of the assessee on the issue of not giving proper opportunity for cross verification of the persons on whose statements the additions were made, the statement of share broker and also the improper notice was issued at the fag end of the assessment for giving opportunity for cross examination. 8. Aggrieved assessee preferred an appeal before us raising following grounds in his appeal: - 1. BECAUSE, the Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns. 2.1.2 He is staying in a joint family, along with his family, his parents and the family of his brother with joint business in real estate development and consultancy. As per the family tradition, the share investments were looked after by the elder brother Shri Dharmendra Karia. Refer the submission of the Assessee before the A.O. as reproduced at Para 7 on Pg. 74 of the assessment order r.w. the statements of the Assessee (Q. 6, 7, 13 and [6 dt. 18.12.2017]) and of his brother Dharmendra (Q. 10, 15) as reproduced in the assessment order. This basic fact is admitted and undisputed. 2.1.3 The family was regular investor in shares since last many years. Refer Sr. No. 14 at Pg. 76 r.w. Sr. No. 14 at Pg. 83 of the assessment order. 2.1.4 he brother, Mr. Dharmendra Karia, is also a regular tax payer. 2.2 The share transaction 2.2.1 The Assessee, along with his brother and family members had subscribed preferential shares of Parshurampuria Credit Investment Limited [PCIL' - later on changed to Maa Jagdambe Tradelinks Limited (MJTU)] in second half of 2012 at par at ₹ 10 each (as per pricing formula of SEBI) (Refer Pg. 18 of the Paper Book [P.B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the Assessee. However, some statements reproduced in the assessment order. IV. ASSESSMENT PROCEEDING 4.1 The Assessee filed various replies from time to time [Refer one reply dated 22.12.2017 at Pg. 73 to 80 of the assessment order]. To the admission of the A.O., there was full compliance to all the requirements and notices and no recourse was taken to section 144 and / or section 145 of the Act. Refer Para 2 of the assessment order. 4.2 The most important aspect is that a copy of none of the material / report / statement was provided to the Assessee nor the Assessee was confronted with the same. Further, no opportunity of cross - examination of any of the persons was provided to the Assessee. This was in spite of specific request in that regard made by the Assessee. Refer Para 12 13 of Letter dated 22.12.2017 at Pg. 75 of the assessment order. In the statement on oath before the Department officers, both - the Assessee as well as his brother - categorically denied having any connection with the allegation of wrong doings. 4.3 Otherwise also, no proper, effective and reasonable opportunity was provided to the Assessee. The show cause notice, runni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Facts, Grounds of Appeal and documents annexed along with Form 35. Among other, specific ground was raised challenging the action of the A.O. in refusing to provide the Assessee with a copy of the material /statements relied upon as well as to provide an opportunity to cross examine the concerned persons. (Ground 2.3). This aspect was also raised in the written submissions filed before the CIT (A). [Refer, for example, para 5.7 5.8 at page 22-3 and para 5.5 at page 34 of his order] 6.1 The Assessee filed exhaustive submissions and various evidences. [Page 1 to 10 of the P.B. and also page 20 to 27 30 to 36 of the order of CIT (A).] 6.2 Even during the remand proceeding, a written request was once again made on 22.02.2020 for a copy of the statement and an opportunity to cross - examine the concerned persons. Refer Para 5.5. at Pg. 34 of the order of CIT (A). This request was denied. Most importantly, even Ld. CIT (A) also refused to give opportunity of cross - examination. Refer Pg. 47 (7th line from top) of the order of CIT (A). 6.3 Remand Report was obtained by CIT (A) [Para 4.2 at Pg. 27 to 30 of the order of CIT (A)]. A significant feature of Remand Repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cknowledged / brought to the knowledge the vital fact that the very same addition has been made, that too, on substantive basis, in the hands of the counter - parties / buyer of the shares. (ii) Similarly, in the assessment order it has not been acknowledged / brought to the knowledge that the statement of Shri Vipul Bhatt - on which heavy reliance is placed - already stood retracted to the knowledge of the Department. The Assessee craves leave to refer and rely upon the same when produced. (iii) In the assessment order, a serious allegation of the Assessee / Dharmendra not telling the truth on the aspect of the meetings with the share broker is not only made but repeated often and for which a part of the answer given by Dharmendra is reproduced (Refer Answer No. 11 at Para 6.7.1 at Pg. 52 r.w. Sr. No. 11 at Pg. 81 of the assessment order). However, on a bare perusal of the full answer given by Shri Dharmendra (Refer Answer 11 at Pg. 47 of the assessment order) would show an attempt to reproduce only a selected part of the said answer, in support of the allegation. (iv) Even with respect to the same broker, in the assessment order, a reference is made to the summons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions. 1.2 Further, the very starting point of the enquiry by the SEBI was the reference received from Investigation Wing of Income - tax Department, Kolkata and others, regarding alleged generation of bogus capital gains in the scrip of MJTL [Refer Para 2 at Pg. 237 (back) r.w. 244 (Para I) of P.B.]. 1.3 The Investigation Wing of Department had also forwarded statements of various alleged accommodation entry providers, their associates, etc. The SEBI also had sought Report from BSE. It appears that the BSE Report had not made any adverse comment (Refer para 2, Pg. 244 - 5 of P.B). 1.4 Interestingly, in this Report, SEBI has dealt with this very source of its enquiry, that is, the report from Income Tax Investigation Wing, in only one small paragraph as under (Refer Para 4, Pg. 244 back of P.B.): '4. Reference regarding this scrip received from DIT From the various reference letters received from DIT, it is observed that DIT has identified various penny stocks listed on BSE and alleged that promoter of 'Penny Stock' Companies, share brokers and entry operators who purchased shares through paper companies by taking cash are involved in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares to 77 preferential allottees (including the Assessee). Only 44 preferential allotees had sold shares in market. No connection could be established between the preferential allottees and entities who allegedly manipulated the price. This categorical finding, therefore, demolishes the very basis of the entire addition made by the A.O. Importantly, the Report also categorically exonerates the company as well as the promoters of the company from any wrong doing and held that they had no role to play in this alleged manipulation (Refer Para 17 18 at Pg. 255 of P.B.). This is very crucial as these factors also clearly contradict the allegation of penny stock transaction; being contrary to the usual parameters of a penny stock scheme. 3 Specific Thereafter, the Report has analysed in very detailed manner the transaction of purchase and sale in the script during the period 01.05.2013 to 31.07.2015. At the outset - (i) The Assessee was neither named in the Report, nor accused of any wrong doing nor any adverse finding was made against the Assessee. (ii) Further, even in the cases of Mr. Dharmendra and Ms. Meena, whose cases were subject to deep scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oup 1 found violating PFUTP regulations. Patch -III: No adverse inference was drawn against any entity. Apart from group entities, Top 10 sellers based on net negative UP contributors were also analysed and no adverse inference was drawn against them. (List included the Assessee's brother and wife). Also top 10 buyers in negative UP contributors were analysed and no adverse inference was drawn against them. Undisputedly, the Assessee had no direct or indirect connection with any of the entities mentioned in the Report, nor any material is brought on record to controvert this fact. 5.2 SAT in its order dated 24.08.202 1 further absolved 3 out of the above 9 entities. 5.3. In summary, the transaction undertaken by the Assessee are not found to be violative of any Act or Rules of the SEBI or part of any price manipulation scheme by the SEBI. 11. Ld. AR also filed a Comments by Ld. CIT(A) while rejecting claim of the Assessee, which is reproduced below: - Comments by Ld. CIT(A) while rejecting claim of the Assessee A bare perusal of the comments of the CIT (A) on SEBI Report at para 5.1 and comparing the same to the SEBI Report would reveal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he scrip. [Page 42]. Again, misleading averment, as already discussed earlier. Refer Part C [Sr. No. C of (3)]. Similar situation arose in the matter before Hon'ble Mumbai ITAT in the case of Vijayrattan B. Mittal. In that case also, the concerned assessee's investment was guided by information made available to him by third party. In that case also, the assessee's father was looking after his affairs of investment in shares etc. The Hon'ble Mumbai ITAT in that case in its judgment reported in 121 Taxmann.com 100 (2020) still held that such arguments are not relevant to hold the gain as manipulated and allowed the appeal. Family's investment in shares shows that the allegation of lack of knowledge of share market is an incorrect allegation. Scrip was trading in the market around the issue price only at the time of offer being made of private placement. Whether scrip was worth or worthless can never be envisaged at the time of investment. Investment in start - up companies and IPO's made in recent time are glaring examples of such an investment. In Assessee's case, the investment was based on a friend's suggestion, who were well versed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing earned exempt LCG.[Page 45]. First of all, none of the evidences brought on record have been disputed, much less controverted by any cogent evidence. It was the onus of the A.O. to provide cross examination of the so-called Mr. Vipul Vidur Bhatt with whom he was trying to link the Assessee. On the other hand, the Assessee repeatedly requested for cross examination of Mr. Vipul Vidur Bhatt buyers of the shares of so-called associates of Mr. Vipul Vidur Bhatt during the original and even during the remand proceeding. Nothing was brought on record by the A.O. or CIT (A) which would establish that the Assessee was a beneficiary of the alleged accommodation entries provided by Mr. Vipul Vidur Bhatt. The A.O. had simply relied upon the findings of investigation wing, without carrying out any independent investigation of his own. In fact, SEBI did not place much reliance on the Report. Even, no contrary and conclusive evidences were brought on record to dispute all the relevant direct documentary evidences brought on record and furnished by the Assessee. Ld. CIT(A)'s conclusion is merely on the basis of surrounding circumstances and on the basis of assumption, presum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not confronted the Appellant during the assessment proceeding, this material has to be completely ignored. Assessee for the above proposition relies on the following case law: - (i). Kishinchand Chellaram v. CIT [(1980) 125 ITR 713 (SC)] (ii). CIT v. Smt. S. Jayalakshmi Ammal [(2017) 390 ITR 189 (Mad)] 2B. If no copy of the statements as referred in the assessment order and ultimately relied upon by the A.O. to support the addition were not confronted to the Appellant during the assessment proceeding and no cross - examination granted of the concerned persons, such statement has to be ignored completely. Therefore, it is not permissible in law to take any cognizance of such material / information statement. statement. Therefore, it is not permissible to draw any inference based upon such material. Assessee for the above proposition relies on the following case law: - (i). Andaman Timber Industries v. CCE - [(2015) 127 DTR 241 (SC)] (ii). State of Kerala v. K. T. Shaduli Yusuff[(1977) 39 STC 478 SC)] (iii). Mehta Parikh Co. v. CIT [(1956) 30 ITR 181 (SC)] (iv). Vasanji Ghela Co, v. CST - [(1977) 40 STC 544 (Bom)] (v). C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the same period, there were similar price / quote patterns of various others reputed companies, which have been accepted as genuine and proper. Assessee for the above proposition relies on the following case law: - (i). CIT v. Orissa Corporation P. Ltd., [(1986) 159 ITR 78 (SC)] (ii). CIT v. Daulat Ram Rawatmul [(1973) 87 ITR 349 SC). 7. SECTION 68 CANNOT BE APPLIED TO THE CASE OF THE APPELLANT Section 68 has absolutely no application to the facts of the Appellant s case. The source of the credit entries was clearly established, being from recognised stock brokers, who had made payment in terms of the stock exchange rules and regulation in discharge of the statutory contract notes, and which transactions have not been held to be bogus by any concerned regulatory authority. The sale transaction was conducted through screen - based stock exchange mechanism, executed at the prevailing market rate. The relevant STT was collected by the broker and paid to the government treasury. The transaction is concluded automatically through the stock exchange mechanism on the matching of the parameters of price and up to that quantity, without any description / cho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt affirmed by Hon ble Supreme Court in SLP (Civil) No. 20146 of 2012] (ii) CIT v. Damyanti Mukesh Marolia - [ITXA 154 of 2009, Order Dated 19.03.2009 Bombay High Court] (iii) CIT v. Shyam R. Pawar - [(2015) 54 taxmann.com 108 (Bom)] (iv) CIT v. Jamnadevi Agarwal [(2010) 328 ITR 656 (Bom HC)] (v) Dipesh Ramesh Vardhan v. DCIT [ITA No. 7648/M/2019, Order dated 11.08.2020] (vi) Chhaya Hasmukhlal Ranawat v. ITO [ITA No. 3278/M/2019, Order dated 03.02.2021] (vii) Vijayrattan Balkrishna Mittal v. DCIT (2020) 121 taxmann.com 100 (Mum Trib.)] 9. In case of allegation of bogus cash credit that the Assessee has given cash and received back cheque entry, Department has to bring evidence to prove the aforesaid allegation Assessee for the above proposition relies on the following case law: - (i) CIT v. Lavanya Land (P) Ltd. 397 ITR 246 (Bom.) (ii) CIT v. Jamma Devi Agarwal (2010) 328 ITR 656 (Bom.) (iii) Baijnath Agarwalla Vs ACIT (2010) 40 SOT 475 (Agra) 13. On the other hand, Ld. DR submitted that assessee has made a small investment and within a short period of time it has grown several times, he submitted that assessee has not awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act on record Assessing Officer and the Ld.CIT(A) has not brought anything on record to link the assessee or his brother in any of the price manipulation taken place in the scrip of MJTL. Even the SEBI has exonerated assessee s brother and his wife from any of the charges of price manipulation. Assessing Officer has discussed in detail the price manipulation happened in this scrip and various intermediaries were involved and none of the intermediators were anyway connected with the assessee or his family members directly/indirectly. Even Assessing Officer proceeded to make investigations with the share broker through whom assessee has made the sales. These statements or any of the statements recorded by Shri Vipul Vidur Bhatt or any of the intermediaries were never shared with the assessee. Even Assessing Officer has not extended the opportunity of cross examination to the assessee. 16. We observe from the assessment record that during the assessment proceedings assessee has raised several contentions vide letter dated 22.12.2017, in the contentions No. 12 and 13 in which assessee has demanded cross examination of persons whose statements have been discussed in foregoing paragra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 400703, on 27.12.2017 at 11.00 A.M. there to give evidences and/or to produce either personally or through an authorized representative the documents as per annexure A and not to depart until you receive my permission to do so. Without prejudice to the provisions of any other law for the time being in force if you intentionally omit to so attend and give evidence or produce the books of account or documents , a fine upto ₹ 10,000/- may be imposed upon you under section 272A(1)(c) of the Income-tax Act, 1961. sd/- (Ravi Ranjan) Income Tax Officer, Ward 28(1)(3), Mumbai 20. From the above show-cause notice dated 26.12.2017 in which assessee was asked to attend personally on 27.12.2017 at 11AM. It is pertinent to note that there is absolutely no mention about cross examination of Mumbai based parties at his office. It clearly indicates that no opportunity was extended to the assessee and it is also important to note that the assessment was completed on 29.12.2017 and the opportunity for cross examination was extended only on 27.12.2017 even though there is no mention about such cross examination opportunity extended to the assessee anywhere in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal. 21. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE (supra) held that when the assessment was made on the basis of the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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