TaxTMI 
TaxTMI 
2022 (7) TMI 387
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....950/-. It was the submission that the assessee had disclosed Long Term Capital Gains (LTCG) of Rs.1,56,09,716/- on the sale of shares of CCL International Ltd. and had claimed exemption u/s.10(38) of the Act. It was the submission that the statement u/s.131(1A) of the Act had been recorded from the assessee in the course of survey operation. In reply to question No.16, Shri Radheshyam Singhania had agreed to pay taxes on the said Long Term Capital Gains claim. It was the submission that the assessee had not retracted the statement per se but had when filing the return claimed exemption u/s.10(38) of the Act. It was the submission that the CCL International Ltd. was a penny stock company and its shares had been traded for the purpose of claiming bogus long term capital gain. 4. To this extent, ld. Sr. DR placed before us the copy of the statement of one Shri Sanjay Bohra of Kolkata, who was a sharebroker. The said Sanjay Bohra had categorically identified CCL International Ltd. as one of the companies whose shares he had dealt with in the penny stock transactions. It was the submission that as the assessee had not complied with the statement recorded u/s.131(1A) of the Act but had ....
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....hukral (327 ITR 424) the Honourable Punjab & Haryana High Court had an occasion to deal with the same issue. In the cited case, the learned authorised representative of the assessee had sought annulment of the order on the ground that the assessee was not allowed to cross-examine the donors. The Honourable High Court disagreed with this preposition. Whatever material the Assessing Officer had gathered was put to the assessee to comment. Therefore, the statements of the donors who had denied to have made any gift, had not been utilized against the assessee without affording the opportunity of the assessee. The assessee had not discharged the initial onus to produce the necessary evidence to support the genuineness of the transactions. The donors in their statements had denied to have given any gifts to Smt. Kusum Lata Thukral, the assessee. They had denied even the acquaintance with the assessee. They had also denied to have made the deposit of cash in their accounts and issue of drafts for the purpose of gifts. When the donors had denied to have given any gifts it had to be logically concluded that it was the assessee's own money, which was routed through the mode of alleged gi....
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.... cases, the statement of the stock brokers, the entry operators or the Directors of the various penny stock companies does not directly implicate the assessee. If such being the situation, the assessee cannot be heard to say that the copy of the entire report should have been furnished to him, the person from whom the statements were recorded should have been produced for cross examination as admittedly there is nothing to implicate the assessee Smt. Swati Bajaj of insider trading or rigging of share prices. But the allegation against the assessee is that the claim for LTCG/LTCL is bogus. As pointed out by Mr. Rai, learned senior standing counsel, the investigation report is general in nature not assessee specific. Therefore, we are required to see as to whether non-furnishing of the report which according to the revenue is available in the public domain would vitiate the proceedings on the ground that the assessee was put to prejudice. 56. In State Bank of Patiala and Others versus S.K. Sharma, the Hon'ble Supreme Court pointed out that violation of any and every procedural provision cannot be said to automatically vitiate the domestic enquiry held against the delinquent emp....
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....hood of prejudice flowing from the non-observance of natural justice. 58. Therefore, the asses sees have to specifically point out as to how they were prejudiced on account of non-furnishing of the investigation report in its entirety, failure to produce the persons from whom the statements were recorded for being cross examined would cause prejudice to the assessee as nowhere in the report the names of the assessees feature. The investigation report states that the investigation has not commenced from the individuals but it has commenced who had dealt with the penny stocks, concept of working backwards. This is a very significant factor to be remembered. Therefore, there has been absolute anonymity of the assessee in the process of investigation. The endeavour of the department is to examine the "modus operandi" adopted and in that process now seek to identify the asses sees who have benefited on account of such "modus operandi". Therefore, considering the factual scenario no prejudice has been established to the assessee by not furnishing the investigation report in its entirety nor making the persons available for cross examination as admitted by the department in substantial ....
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....tive asses sees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/ LTCL made by them. In all the assessment orders, substantial portion of the investigation report has been noted in full. A careful reading of the some would show that the assessee has not been named in the report. If such be the case, unless and until the assessee shows and proves that she/he was prejudiced on account of such report/statement mere mentioning that non-furnishing of the report or non-availability of the person for cross examination cannot vitiate the proceedings. The assessees have miserably failed to prove the test of prejudice or that the test of fair hearing has not been satisfied in their individual cases. In all the cases, the assessees have been issued notices under Sections 143(2) and 142(1) of the Act they have been directed to furnish the documents, the assessee have complied with the directions, appeared before the assessing officer and in many cases represented by Advocates/Chartered....
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....are and diligence in the conduct of all investment business. The Code also enumerates different shades of duties of stock brokers towards the investor and those duties pertain to high standard of integrity that the stock broker is required to maintain in the conduct of his business. It was further pointed out that it is a fundamental principle of law that prove of an allegation levelled against a person may be in the form of direct substantive evidence or as in many cases such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/ charges made and levelled. It was further held that direct evidence is a more certain basis to come to a conclusion yet in the absence thereof the courts cannot be helpless. It was further pointed out that it is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a con....
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....ps; the particulars of the buy and sell orders, namely, the volume thereof; the proximity of time between the two and such other relevant factors. 69. Thus, the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the .test would be what inferential process that a reasonable/prudent man would apply to arrive at a conclusion. Further proximity and time and prior meeting of minds is also a very important factor especially when the income tax department has been able to point out that there has been a unnatural rise in the price of the scrips of very little known companies. Furthermore, in all the cases, there were minimum of two brokers who have been involved in the transaction. It would be very difficult to ga....
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..... in IA No.GA/2/2022 & in ITAT/6/2022, dated 14.06.2022. 7. Ld. Sr. DR read through the various paragraphs of the said judgment of the Hon'ble Kolkata High Court. It was the submission that the assessee's claim of exemption u/s.10(38) of the Act is liable to be denied as has been done by the AO and the order of the ld. CIT(A) is liable to be reversed. 8. It was the alternate prayer of the ld. Sr. DR that the transaction which has been claimed as exemption u/s.10(38) of the Act should be directed to be assessed as adventure in nature of trade, insofar as the assessee has invested in some worthless company shares and has made a windfall gain which is being claimed as exemption u/s.10(38) of the Act. Another alternate claim raised by the ld. Sr. DR is that the transaction should be treated as two Short Term Capital Gains insofar as the assessee had purchased the shares of AAR Infrastructure on 17.11.2011. These shares got extinguished when the said company merged with CCL International Ltd. and has been allotted to the assessee in lieu of the shares of AAR Infrastructure and the same were sold on various dates, the first being on 15.10.2012 and the last being on 22.01.2013. 9. In r....
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....e brokers and the requirement of providing opportunity of cross examination to the assessee in respect of these said brokers whose statements have been used against the assessee therein. One peculiarity that has become evident in the decision of the Hon'ble Kolkata High Court in the case of Swati Bajaj (supra), is that the Hon'ble High Court was given to understand, wrongly, that the investigation report was available in the public domain and that was the very foundation on which the Hon'ble Kolkata High Court has proceeded on its judgment that the evidence was very much available to obtain. Unfortunately, the Hon'ble Kolkata High Court was wrongly informed. Another portion of the decision of the Hon'ble Kolkata High Court in the case of Swati Bajaj (supra) gave substantial importance insofar as in para 15 of the said order the Hon'ble Kolkata High Court relied on the decision of Kishanlal Agarwalla. The Hon'ble Kolkata High Court itself had held that no natural justice requires that there should be a kind of formal cross examination as it is a procedural justice, governed by the rules and regulations. Further it was held that so long as the party charged has a fair and reasonable ....
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....ad along with the indication given by the Hon'ble Kolkata High Court that the said report is available in the public domain and it was available to the assessee and its counsel to download and examine the same and thereafter put up through defence. If the evidence is to be used against the assessee in the course of any assessment or any proceedings, the basic principle of natural justice demands and has been repeatedly upheld by the Hon'ble Supreme Court that such evidences must be put to the assessee and he should be given opportunity to rebut the same. The Hon'ble Kolkata High Court further went onto hold in para 69 of the order that the legal principle which can be culled out from the above decision is that to prove the allegations, against the assessee, can be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled and when direct evidence is not available, it is the duty of the Court to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be, ....
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....ructure Ltd., the merger of AAR Infrastructure with CCL International Ltd., the sale of shares through ISE Security & Services Ltd., a SEBI authorised broker, the proof of payment of STT as also the fact that these shares were in the Demat form. Other than the statement of the assessee showing that he is willing to pay tax on the transaction, there is no shred of evidence available with the AO to presume that the transaction done by the assessee in the purchase of AAR Infrastructure shares, merger of AAR Infrastructure with CCL International Ltd. shares was a colourable device or an attempt at evading tax by using the unscrupulous methods of tax planning bordering on side of tax evasion. 17. The revenue has not relied upon the report of the investigation authorities from the brokers for the purpose of making the assessment. The reliance on the statement of the broker Shri Sanjay Bohra and the investigation report has been made only in the annexures to the ground of appeal filed before the Tribunal. These are clearly evidences produced by the revenue to support its stand in respect of probability and possibility of assessee having indulged in colourable device of tax evasion, fring....