TMI Blog2018 (12) TMI 1962X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity to rebut the same and also provided an opportunity to cross examine if the material adverse to assessee is used against the assessee to draw adverse inference. We also note that the coordinate benches in the case of Gautam Pincha [ 2018 (10) TMI 1969 - ITAT KOLKATA] have upheld the assessee s claim of LTCG on purchase and sale of shares of M/s. NCL Research Financial Services Ltd. for AY 2014- 15, as in the instant case before us. So respectfully following the aforesaid decision and also taking note of the documents filed before us from which we note that assessee has discharged its onus to prove the genuineness of the transaction by filing the contract note of Purchase through registered broker of Bombay Stock Exchange and transaction happened through banking transaction Coordinate bench of this Tribunal in the case of Prakash Chand Bhutoria [ 2018 (7) TMI 46 - ITAT KOLKATA] upheld the assessee s claim of LTCG on sale of shares as in the instant case before us so respectfully following the decision and also taking note of the documents filed before us from which we note that assessee has discharged its onus to prove the genuineness of the transaction of the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was increased to 7200 shares. In later stage, the Pinnacle Vintrade Limited was merged with Unno Industries Ltd. and the shareholders of Pinnacle Vintrade Ltd. got 10 shares of Unno Industries Ltd. for each shares held by them. It was also noticed by the AO that the assessee had sold 2780 shares of NCL for a gross sale consideration of Rs. 40,64,609/- through transactions on 02/07/2013, 04/07/2013, 08-08-2013, 12-08-2013 and 07-03-2014. The said 2780 shares of M/s. NCL were purchased for a sum of Rs. 2,64,050/- (@ Rs.88/- per Share) on 28/03/2011 and 29/03/2011. The AO noted the script wise LTCG made by the assessee during the year as under: Name of the scrip Purchase amount Sale amount LTCG NCLR 264050/- (3000 shares) 4064609/-(2780 shares) 3819923/- Unno Industries Ltd. 100000/-(72800 shares) 963866/- 72800 shares 863866/- The AO noted that he had received information from the office of the DGIT(Inv.), WB, Sikkim NER ,Kolkata in respect of 'Dissemination of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 4. We have heard rival submissions and gone through the facts and circumstances of the case. The Ld AR submitted that the assessee sold her shares in M/s. NCL Research Financial Services Ltd. and that of M/s. Unno Industries Ltd. in the previous financial year relevant to the assessment year under consideration and claimed it as exempt income u/s. 10(38) of the Act which has not been accepted by the AO and the Ld. CIT(A). The Ld. AR drew our attention to the fact that similar action was taken by the AO/Ld. CIT(A) in respect of Long Term Capital Gain on sale of shares of M/s. NCL Research Financial Services Ltd. and M/s Unno Industries Ltd which action has not been accepted by the Tribunal and therefore prayed that assessee s claim need to be allowed and drew our attention to the decisions of the Tribunal wherein such claims have been upheld: i) Sri Gaurav Pincha Vs. ITO, ITA No.644/Kol/2018 Sri Gautam Kumar Pincha Sons (HUF) Vs. ITO, ITA No. 645/Kol/2018 dated 24.10.2018. ii) Prakash Chand Bhutoria Vs. ITO, ITA No. 2394/Kol/2017 dated 27.06.2018 iii) Navneet Agarwal Vs. ITO, ITA No. 2281/Kol/2017 dated 20.07.2018. 5. However, the Ld. DR vehemently supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that income is exempt. On appeal, the Ld. CIT(A) confirmed the order of the AO. 7. We note that that during the previous year relevant to assessment year 2012-13 the assessee on 28-03-2012 29-03-2012 purchased 3000 equity shares of M/s. NCL Research and Financial services Ltd. (page 8 9 of paper book) through registered broker of Bombay Stock Exchange ( pages 8 to 18 of paper book). Later, 2350 shares were sold during the year resulting into long term capital gain of Rs. 38,19,923/-. Another long term capital gain of Rs. 8,63,866/- was earned during the year on sale of shares of M/s. Uno Industries Ltd. The facts leading to LTCG on this scrips sale was that assessee on 24-01-2012 purchased 80 shares of M/s. Pinacle Vintrade Ltd. at a cost of Rs. 1,00,000/- on which 7200 bonus shares (page 22 of paper book) were issued on 20-07-2012 making her holding at 7280 shares (page 24 of paper book). Later on as per scheme of arrangement approved by the Hon ble Bombay High Court the said company was merged with M/s. Unno Industries Ltd. and the assessee was issued 72800 shares of M/s. Unno Industries Ltd. (page 26 of paper book). These shares were sold by the assessee on 07-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Ko112011 dated 28.10.2015 and in the case of Income-Tax Officer vs Raj kumar Agarwal in ITA No. 1330 (Kol) of 2007 dated 10.08.2007 wherein it was held that when purchase and sale of shares were supported by proper contract notes, deliveries of shares were received through de-mat accounts maintained with various agencies, the shares were purchased and sold through recognized broker and the sale considerations were received by account payee cheques, the transactions cannot be treated as bogus and the income so disclosed was assessable as LTCG. We find that in the instant case, the addition has been made only on the basis of the suspicion that the difference in purchase and sale price of these shares is unusually high. The revenue had not brought any material on record to support its finding that there has been collusion/connivance between the broker and the assessee for the introduction of its unaccounted money. 10. We note that in similar facts the Tribunal took the same view - 1. Surya Prakash Toshniwal HUF, vs. Income Tax Officer, Ward - 41(3), ITA No. 1213/KOL/2016 dated 11/01/2017 2. Deputy Commissioner of Income-Tax vs. Sunita Khemka in I T A Nos. 714 to 718/Kol/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions are carried out, the AO has to ensure to give copies of the adverse material/statement given to the assessee and allowed the assessee an opportunity of cross examination, if the AO is going to rely on any adverse statements of third party as evidence to draw adverse inference against the assessee. If any material or evidence is sought to be relied upon by the AO, he has to confront the assessee with such material. The claim of the assessee cannot be rejected based on mere conjectures unverified evidence under the pretentious garb of preponderance of human probabilities and theory of human behavior by the department. 13. It is well settled that evidence collected from third parties cannot be used against an assessee unless this evidence is put before him and he is given an opportunity to controvert the evidence. We note that neither the evidence based on which the DDIT report is prepared is not brought on record by the AO nor is it given to the assessee to rebut. 14. In our view, just the modus operandi, generalization, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee in the light of documents filed by assessee to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated. In this case, in our view, the Assessing Officer at best could have considered the investigation report as a starting point of investigation. The report only informed the assessing officer that some persons may have misused the scrip for the purpose of collusive transaction. The Assessing Officer was duty bound to make inquiry from all concerned parties relating to the transaction and then to collect evidences that the transaction entered into by the assessee was also a collusive transaction. We, however, find that the Assessing Officer has not brought on record any evidence to prove that the transactions entered by the assessee which are otherwise supported by proper third party documents are collusive transactions. 16. The Hon ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. 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. The Hon ble Court held: Adverting to the various probabilities which weighed with the Income-tax Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high denomination notes of Rs. 1,000 each was satisfactorily explained by the appellant but not that of the balance of 141 high denomination notes of Rs. 1,000 each . 17. The observations of the Hon ble Apex Court are equally applicable to the case of the assessee. In our view, the assessing officer having failed to bring on record any material to prove that the transaction of the assessee was a collusive transaction could not have rejected the evidences submitted by the assessee. In fact, in this case nothing has been found against the assessee with aid of any direct evidences or material against the assessee despite the matter being investigated by various wings of the Income Tax Department hence in our view under these circumstances nothing can be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) AyaaubkhanNoorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P .v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amination. 29. In Rajiv Arora v. Union of India and Ors. AIR 2009SC 1100, this Court held: Effective cross-examination could have been done as regards the correctness or otherwise of the report, if the contents of them were proved. The principles analogous to the provisions of the Indian Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the Appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross-examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ist 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 17-3-2005[2005 (187) E.L.T. A33 (S.C.)] 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. 7. 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 notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTAHIGH COURT in the case of BLB CABLES CONDUCTORS[ITA No. 78 of2017] dated19.06.2018. The High Court held vide Para 4.1: we find that all the transactions through the broker were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the appreciation actually represented the assessee s income from undisclosed sources. In ITA-18-2017 also the CIT (Appeals) and the Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner. The Court also held the following vide Page 3 Para 5 the following: Question (iv) has been dealt with in detail by the CIT (Appeals) and the Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lutely no adverse material to implicate the assessee to the entire gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts which are supported with material evidences furnished by the assessee which are on record and could only rely on the orders of the AO/CIT(A). We note that the allegations that the assesse/brokers got involved in price rigging/manipulation of shares must therefore consequently fail. At the cost of repetition, we note that the assessee had furnished all relevant evidence in the form of bills, contract notes, demat statement and bank account to prove the genuineness of the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is no way concerned with the activity of the broker. Detailed finding has been recorded by CIT (A) to the effect that assessee has made investment in shares which was purchased on the floor of stock exchange and not from M/s Basant Periwal and Co. Against purchases payment has been made by account payee cheque, delivery of shares were taken, contract of sale was also complete as per the Contract Act, therefore, the assessee is not concerned with any way of the broker. Nowhere the AO has alleged that the transaction by the assessee with these particular broker or share was bogus, merely because the investigation was done by SEBI against broker or his activity, assessee cannot be said to have entered into ingenuine transaction, insofar as assessee is not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s RamkrishnaFincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he trader had also shown sales out of purchases made from Raj Impex which were also accepted by the Revenue, no question of law arises. 20. We note in the present case that the AO did not find any fault/infirmity in the document/supporting evidences filed by the assessee to substantiate its claim. The documents filed by the assessee are records of the transaction which happened in the platform of SEBI authorized Stock Exchange, which was carried out through authorized broker of Bombay Stock Exchange of scrips which were held in Demat account and consideration rising from the purchase/sale which were through the banking channel cannot be held to be bogus, without the AO returning a finding that these documents filed by assessee are false, concocted or fabricated. Without doing so, based on a general report/study by the DIT (Inv.) that the scrips on which the assessee received LTCG cannot be held to be bogus. Here in this case the Ld. DR vehemently relied on the order of the Hon ble Supreme Court in Rakhi Trading Pvt. Ltd. (supra) which we see does not come to the aid of Revenue. Here, in this case, the Hon ble Apex Court while adjudicating the action of Securities Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the stock market and these facts go on to show that traders indulged in the alleged transactions (specifically charged transactions spelled out by SEBI in those cases) tantamount, to violation of the regulations of the SEBI s (Prohibition of Fraudulent and unfair trade practice relating to Securities Market) in respect to traders therefore, in the aforesaid factual matrix, the traders were penalized. However, as stated earlier the decision of SAT to delete the penalty on the brokers was accepted by the Hon ble Supreme Court, so we note that the charges levelled against the traders in the facts of those cases indicated their hand in manipulating the market by various acts which have been mentioned (supra). So the Hon ble Supreme Court restored the penalty on them, which is not the case before us. Here, the AO has not brought anything on record to show that assessee or the broker on instruction from assessee took part in or entered into transactions in scrips with the intention to artificially raise or depress the price and thereby automatically induced the innocent investors in the market to buy/sell their stock. It is not the case of the AO that assessee or broker as per instruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us so respectfully following the decision and also taking note of the documents filed before us (paper book page 19 to 31) from which we note that assessee has discharged its onus to prove the genuineness of the transaction of the purchase of shares by filing the share certificate along with share transfer advice of Pinnacle Vintrade Ltd (pages 19 to 21PB) and the purchases having taken place through bank transaction (page 23 PB) and later bonus share allotment letter (page 25PB) and bonus share certificate (page 24 PB) and thereafter by virtue of Amalgamation scheme allotment letter of M/s Unno Industries Ltd (page 26 PB) which were sold through registered broker of Bombay Stock Exchange (M/s. Anand Rathi Securities Ltd). and sale of scrips is evidence by contract note of sale (page 27 PB) and transaction happened through banking transaction (page 28 of paper book). Since AO/Ld. CIT(A) could not find any fault or specific adverse materials against the assessee/broker/ or scrips of M/s. NCL, the addition u/s. 68 cannot be sustained. The addition based on a common/general report of DIT (Inv.) and there is nothing in the report specifically against the assessee, cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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