TMI Blog2018 (8) TMI 2096X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 2(42A)(c) which provides that in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee. In the present case, the original shares in M/s Drishti Suppliers Ltd were bought by the assessee in 2010 against which shares of Quest Financial Services Ltd were allotted to the assessee pursuant to amalgamation between the companies. Thus, the holding period has to be reckoned from the date when shares in M/s Drishti Suppliers Ltd were originally purchased by the assessee. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account. Addition made on account of notional commission u/s 69C as consequential to the issue of treatment of long term capital gain as bogus - HELD THAT: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as exempt U/s 10(38) of the Act. Simultaneously, the AO received information from the Investigation Wing, Kolkata, that survey U/s 133A of the Act was conducted at the business premises of Shri Prakash Jajodia who is one of the promoter of M/s Quest Financial Services Ltd and it has been found out that Shri Prakash Jajodia through a number of Private Limited shell companies and some penny stock companies was involved in providing bogus long term capital gain to its customers for commission. Accordingly, a show cause dated 18.01.2016 was issued to the assessee as to why the long term capital gains on sale of shares of M/s Quest Financial Services Ltd. be not treated as bogus and why commission expenses ranging between 5 to 6% of the transaction value should not be brought to tax as undisclosed expenses. 5. In response, the assessee filed his reply on 21.01.2016 requesting for the copies of statements of Shri Prakash Jajodia and other associates recorded during the course of survey proceedings. It was further submitted by the assessee that he had purchased shares of the companies which were subsequently amalgamated with M/s Quest Financial Services Ltd. by virtue of the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Quest Financial Services Ltd. were allotted to the assessee in lieu of shares in M/s Dristi Suppliers Limited and M/s Reward Agencies Limited. The AO thereafter referred to the statement of director of M/s Dristi Suppliers Limited and M/s Reward Agencies Limited and held that M/s Quest Financial Services Ltd. was a company in which Shri Prakash Jajodia was a director and he was involved in the racket of providing accommodation entries of bogus long term capital gain. It was accordingly held by the AO that Shri Om Prakash Modi has received entries of bogus long term capital gains of Rs. 26,83,000/- out of his untaxed income and it is an attempt to introduce untaxed income in his capital account, therefore, long term capital gains of Rs. 26,83,000/- was added to the total income U/s 68 of the IT Act. Further, relying on the information received from the Investigation Wing, Kolkata, the AO held that the assessee had paid commission at the rate of 5% to 6% of the long term capital gain and therefore, the amount of Rs. 1,60,980/- was treated as undisclosed income and brought to tax U/s 69C of the Act. 8. Being aggrieved, the assessee carried the matter in appeal before the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in physical forms through transfer deeds were purchased directly from the investors. c) No STT was paid on this share transfer transaction. d) The purchase of share was not credited in demat account. e) High ratio of allotment of shares 1:100 when. f) SEBI conducted a Preliminary inquiry in the dealings of the broking firm of Sh Prakash Chand Jajodia M/s Concord Vinimay Pvt Ltd and M/s Giriraj Stock Broking Pvt Ltd and subsequently debarred them also. M/s Giriraj Stock Broking Pvt Ltd has surrendered its CSE and BSE card also. Assessee has deliberately kept these facts away from the knowledge of the AO. g) SEBI has also barred from trading more than 250 entities including individuals and companies from the securities market from suspected tax evasion and laundering of black money through stock market platforms. h) No details filed by the assessee to prove its contention or disprove AO s findings. Documents e.g. (i) copy of share certificates (Reward Agencies Pvt. Ltd, Drishti Suppliers Pvt. Ltd. allotted to it (ii) Article of Association of company (iii) Valuation Report of a registered valuer evidencing value of shares allotted to assessee (iv) details of annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, AO s action is hereby sustained. Assessee s appeal fails in Gr. No. 2. 10.1 During the course of hearing, the ld. AR has submitted that the impugned assessment order is prima facie illegal inasmuch as it is solely based on the statements of a third party who is completely unknown and unrelated to the assessee. It must be noted that the statements of the said third party were not recorded by the Assessing Officer during the course of assessment proceedings, but were recorded in the investigation proceedings conducted by the Investigation Wing. Thus, in the present case, the Ld. AO has based the entire assessment order upon the statements of a third party which were recorded by some other authorities and that too behind the back of the assessee. As a matter of fact, and as can be seen from the assessment order itself that no corroborative material was either found during the course of search or was referred to in the assessment order, nor was brought on records by making independent enquiries during the course of assessment proceedings. On the other hand the assessee has filed various documents evidencing allotment of shares, copy of D-mat Account, payments being made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to bring on record any evidence of the said transaction being an accommodation entry ; STT has been on sale of shares and shares had been sold through National Stock Exchange ; Payment for sale of shares was received through banking channels; Thus, when all the documentary evidences filed before the Ld. AO were in favour of assessee, solely on the basis of some casual replies given by assessee, transactions cannot be held as sham. 10.4 It was submitted that in the case before Hon ble Punjab and Haryana High Court, shares were purchased for cash, then too, transaction was held as genuine as all the documents were in favour of assessee, thus case of assessee is far better as payment for purchase of such shares was made by account payee cheques. 10.5 It was submitted that it is also a matter of fact that the statements of Shri Prakash Jajodia was recorded on 26.08.2014. Subsequently, a show cause notice was served on M/s QFSL on 16.02.2015 wherein it was stated that Shri Prakash Jajodia has accepted in his sworn statements that QFSL was engaged in providing accommodation entries as bogus LTCG. On receipt of such show cause notice, retraction affidavit was filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no provision for permitting crossexamination and also that right to cross-examination is not necessarily a part of reasonable opportunity. Ld. CIT(A) also affirmed such action of ld. AO in not affording opportunity of cross examination by placing reliance on some judicial pronouncements, which all are not at all relevant and ignored the binding judgment of the Hon ble Apex court in the case of CCE Vs. Andaman Timber Industries, (324) ELT 641 wherein it has been held as under: 6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses 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 impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite of the specific requests made by assessee which were turned down in arbitrary manner. v. Such uncorroborated and retracted statements were relied upon and used against the assessee without providing any opportunity of cross-examination, nor was any other corroborative material brought on record. vi. The shares of QFSL were allotted to the assessee by virtue of order of the Hon ble Calcutta High Court, who has granted the permission of amalgamation of companies after thorough investigation and examination of scheme of amalgamation, thus it cannot be said that the assesse in conjunction with some persons has managed the affairs in such a manner which could affect the working of an institution such as the Hon ble Calcutta High Court. vii. Transaction of sale was routed through recognized stock exchange where trading is done on an on-line system and is impossible for a person to have knowledge about the buyer who can be any person of this planet. viii. Even in the said retracted statements, nothing adverse has been stated against assessee by Shri Prakash Jajodia. A perusal of the statements shows that he has made general remarks about how he provided bogus LTCG to certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otment letter and bills and vouchers which were duly submitted before the Ld. AO during the course of assessment proceedings. A perusal of such evidences would show that all the transactions were carried out through the Calcutta Stock Exchange (CSE) having independent trade Nos., duly appearing in the respective bills of sales. ii. In consideration of allotment of shares, the payment was made through an account payee cheque which stands debited in the bank account of the assessee. Also the payments in respect of bills raised by the broker i.e. M/s Gangotri Dealers (P) ltd against the services rendered to assessee were made through account payee cheque. Further, all the sale transactions were made through online portal. The shares sold by the assessee were through the Stock Exchange. iii. All the sale transactions were made through online portal after due payment of STT, thus the assesse fulfills all the conditions of section 10(38) to claim such profits as exempt income. At this juncture it is further submitted that the Ld. CIT(A) has alleged at page 42 of the appellate order that since the shares of QFSL which were received by the assessee in lieu of original shares post ama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot at all be relied upon to draw adverse inference in the case of assessee as assessee s transaction is supported by all the requisite documentary evidences. In this regard, reliance is placed on decision of Hon ble Special bench of Mumbai ITAT in the case of ITO Vs. M/s. GTC Industries Limited Tobacco House where the Hon ble Special Bench of ITAT after considering all the aspects of preponderance of human probabilities and other issues has held that : 46. ..It is quite a trite law that suspicion how so ever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of preponderance of probability is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee. The aforesaid judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by showing relevant material, facts and circumstances and documents, then merely on the basis of the reason that share broker was involved in dealing in the share of a particular company in collusion with others or in the manner of unfair trade practices against the norms of S.E.B.I and Stock Exchange, then merely because of that fact a person who bonafidely entered into share transaction of that company through such broker then only by mere assumption such transactions cannot be held to be a shame transaction. Fact of tinted broker may be relevant for suspicion but it alone necessarily does lead to conclusion of all transaction of that broker as tinted. In such circumstances, further enquiry is needed and that is for individual case. Such further enquiry was not conducted in that case. 11. At this juncture, it would be relevant to mention here that it is not disputed by the Revenue before us that the shares of these assessees were already shown in the earlier Balance Sheet submitted by the assessees, and therefore, in that situation, how the revenue condemned the transaction even on the ground of steep rise in the shares. If within a period of one year, the share price has r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, as per the rule of preponderance of human probability the transaction of the assessee cannot be accepted as genuine and the onus is on the assessee to prove the same as how there is a spike in the price of the shares within such short duration. The surrounding circumstances clearly lead to only one possible conclusion that the assessee has manipulated the entire record and availed the bogus transaction of long term capital gain to convert his unaccounted income to avoid tax through long term capital gain. Further, the ld. DR has relied upon the orders of the Assessing Officer as well as ld. CIT(A) and submitted that during the course of survey conducted U/s 133A of the Act, statement of Shri Prakash Jajodia was recorded who has admitted that he is involved in providing accommodation entries of bogus long term capital gains through his companies and M/s QFSL is one such company and in view of that the lower authorities have rightly brought the amount of Rs. 26,83,000/- to tax U/s 68 of the Act. It was further submitted that the right of cross examination is not an absolute right and where the statement of Shri Prakash Jajodia and other persons were made available to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the purchase consideration has also been paid through cheque, therefore, even if the purchase consideration is found to be very less in comparison to the sale consideration at the time of sale of shares, in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape in the long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in absence of any corroborating evidence. Further, the AO has passed the assessment order based on the statement of Shri Prakash Jajodia and his associates however, the assessee has specifically demanded the cross examination of Shri Prakash Jajodia during the course of assessment proceedings as we have noted above. However, the Assessing Officer did not offer the opportunity to the assessee to cross examine Shri Prakash Jajodia. In view of the decision of Hon ble Supreme Court in case of CCE vs. Andaman Timber Industries 127 DTR 241 the assessment based on statement without giving an opportunity is not sustainable in law. We further note that the assessee produced copy of affida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be doubted because of the reasons that the shares of M/s Oasis Cine Communication Ltd. could be allotted only in exchange of shares of M/s Gravity Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee. 7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards. 4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good self, we have to submit that from the reading of the statements of Shri Deepak Patwari it is clear that he has never taken the name of the assessee, nor the assessee is aware of any Shri Deepak Patwari neither he has made any transaction with him, so in what capacity he can call him for cross examination before your good self. Since your good self has got the authority, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross-examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. 7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. 13. Thus, it is clear that the Bench in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Bench after placing reliance on the decision of Hon ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon ble jurisdictional High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account, then in the absence of any evidence brought on record, it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. Similarly, in the case in hand, the assessee has produced the relevant records to show the purchase of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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