TMI Blog2022 (11) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... ket is based completely on electronic system. The SEBI suspended only trading of 26 scrips out of the above said 58 scrips and only 11 scrips prices were found rigged. Sunrise Asian Ltd. (Scrip Code 506615) was not included in these scrips whose shares assessee had purchased on 01-04- 2012. As also noted that no cogent evidence against the assessee has been found by the lower authorities and all the payments were routed through banking channel by using cheque. In this case, it is found that the enquiries were conducted by the DCIT at Kolkata and the statements were recorded at the back of the assessee. Assessee was deprived off to cross examine the witnesses. It is also noted that no any cogent material to show that the assessee has brought back his own unaccounted income in cash. In view of the above deliberations, facts and circumstances of the case, the Bench finds that the ld. CIT(A) is not justified in dismissing the appeal of the assessee by confirming the above additions hence, the Bench delete the additions made by the lower authorities by allowing the appeal of the assessee. - ITA No. 56/JP/2022 - - - Dated:- 18-10-2022 - Hon ble Shri Sandeep Gosain, Judicial Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed the impugned assessment order while the assessing officer failed in discharging his burden to prove that the appellant has relation with such brokers and got back the capital gain amount in cash or kind. (II) Addition of Rs.1,45,421/- U/S 69C of the Income Tax (a) That the learned Commissioner of Income Tax (Appeals) erred in confirming the impugned order which was completely based on presumptions surmises and conjectures that the transactions in shares of penny stock companies were bogus and deemed commission 6% of the gain against the written documentary evidence of registered broker and baking institutions (b) That the learned Commissioner of Income Tax (Appeals) passed order without any reason and basis, it is non specking order against principle of natural justice (c) That the assessee craves his right to amend, alter or add any ground before hearing of this appeal. 2.1 Brief facts of the case are that the assessee had filed her e-return of income on 27-07-2014 declaring total income at Rs.520/- vide acknowledgement No. 267760850270714. The case of the assessee was selected for scrutiny on the basis of CASS. First Notice u/s 143(2) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d informed the BSE accordingly. (iv) The assessee has sold all the 5000 shares for Rs.24,23,696/- by 2-08-2013 in one lot. (v) The assessee allegedly earned dRs.23,23,696/- as Long Term Capital Gains on this transaction Besides above observations, the AO went through the reports of Investigation Wing of New Delhi, Mumbai, Kolkata relating to the actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangement. The AO at the time assessment proceedings noted that it was being noticed by the Department for a long time that certain share transactions in penny stock companies were fabricated one with a motive to launder the unaccounted money in form of bogus LTCG/STCG with nil taxes or taxes at nominal rates. There have also been cases of claims of huge bogus losses on account of trading in such penny stock companies. The AO noted from the reports of the Investigation Wings that Coordinated actions u/s 132(1) 133 of the Act, 1961 were carried out by the Investigation Wing of Kolkata, Mumbai, New Delhi and other units of the country. Statements of certain individuals relating to such bogus entry provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and why it should not be added u/s 68 to the total income. Further, explain as to why an amount of Rs.1,45,421/- be added u/s 69C to your total income being unexplained expenditure incurred by way of commission paid to arrange bogus entry of Long Term Capital Gains. Your reply (in soft copy also) should reach the undersigned on or before 20-12-2016 failing which it will be construed that you do not have any explanation to offer in this regard and the assessment will be completed as proposed and on the basis of material on record, without any further notice. This may be treated as notice u/s 144 of the Income Tax Act, 1961. Statutory notice u/s 142(1) is enclosed herewith. 2.2 In response to the show cause notice, the assessee has submitted written reply vide his A/R letter dated 23-12-2016 which are mentioned in the assessment order at para 4.1. 4.1 In responses to the show cause, the assessee has submitted written reply vide his A/R's letters dated 23.12.2016 which are reproduced as under: With reference to above referred notice the assessee submits reply as under:- 1.That the notice is issued to deny the claim of deduction UIS 10(38) (Long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring income in Income Tax return. If any person did any trading transaction in the scripts of selected companies selected in penny stock does not mean 100% transactions are relating to bogus transactions of shares. Further it is relevant to remember that the prices of shares in stock market depend on so many factors and does not in control of any one person, if the prices of any one or more scrip increased 10 times to 1000% or more in stock market does not mean there is any seam. So many companies script are available in market there price multiple 300% to 1000% list of some companies was published showing that some script increased 10000%. Therefore in, creasing in price of share does not mean there is any scam. 1. That the impugned notice is completely based on investigation report of the officials of Income Tax department and mentioned gist of facts to establish that the entry of the long term capital gain is bogus as statement on oath recorded during survey proceedings against the operators involved in scam. (A) Statement of Rakeshsomani s/o shri Prakash Ram somani recorded on 31.03.2015 (i) That the copy of pages regarding Q.No.3 to Q. No.22 were prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... korp securities Ltd and other companies situated at martio business house, Kolkata 01 is not mentioned therefore his statement is neither considerable nor reliable. (iii). That Shri Anuj Agarwal replied questions in statement shows that those were recorded like ipse dixit. It is not possible that a person having knowledge about control and management of any company but don't know who was the promoter or Directors of the company, whereas the account books were maintained by other person i.e. Accountant Shri Vikas Gadia. (iv) That Shri AnujAgarwal told on answer of Q. No. 16 how his client were arranged the long term capital gain on share of bogus companies and got brokerage only 35% to 1% on cheque amount as per cash deposited in bank a/c of other companies. But no such evidences on record to the fact against document. Therefore the other companies are incorporated and working only as entry provider of non-taxable profits is not correct further the answers were recorded not according to questions of 18 and 19 therefore it is prima facies proved the statement is recorded only to write the certain companies are working for providing accommodation entry of long term capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per customer creditability. Therefore the addition of 6% is also unjustifiable. Again, therefore it is requested that the proposal for addition in income U/S 68 and 69C is not justifiable. Notice is completely based on conjunctures and surmises, and on statement of third parties in survey of other trading companies is used against the assessee without providing opportunity to cross the person concerned is against the principle of natural justice and settled judicial precedents. The above referred notice may be vacated and assessment may be completed on return income. The AO thus submitted the rebuttal of the reply of the assessee at para 5.1 which is reproduced as under:- 5.1 The assesee has put forth general plea in his reply, which can be summarized as under:- (i) The transactions of sale/purchase were duly recorded in the regular books of accounts of the assessee. (ii) Transactions were executed through banking channel. Apart from above, assessee has made investments since last 10 years. (iii) The persons whose statements were recorded by the Investigation Wing of the department are not related to the assessee. 2.3 Replies of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rathi Shares and Stock Brokers Ltd. in it. A notice u/s 133(6) was issued to M/s. Sunrise Asian Limited to its only known address at 133, Panchratna, Opera House, Mumbai which return back by the postal authorities with the remarks not claim return to sender . Further on googal search, the same address is found to be belonged to Patel Manilal Maganlal Sons, a angadia service provider i.e. courier agent It is also noted that the AO in the assessment order has mentioned that the request of the assessee for cross examination of all such persons (more than 100 of such persons) at this juncture of time, appears to be an attempt to delay/ halt the proceedings by assuming the instrument of Cross Examination as a right. The AO further mentioned that in order to exercise the power of cross examination, there must be sufficient reasons with the assessee that she/ he was not in knowledge of the evidences which were gathered by the Investigation Wing of the Department and it is not the case of the assessee. The AO also relied on the following case laws on the issue of cross examination in an authoritative manner. (i) State of Jammu Kashmir vs Bakshi Ghulam Mohammed (1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount of sale proceeds of bogus share transaction and the assessee had not offered any explanation about the source of the same. Thus the AO made two additions namely Rs.23,23,696/- u/s 68 and Rs. 1,45,421/- u/s 69C of the Act respectively. 2.4 In first appeal, the ld. CIT(A) has confirmed the action of the AO by dismissing the appeal of the assessee and the relevant observation of the ld. CIT(A) is mentioned as under:- 6.3. I have carefully considered the matter. From a reading of the assessment order, it is noticed that the AO relied to a large extent on the findings of investigation wing of the department regarding systematic manipulation of share prices of many penny stock companies by collusion of promoters, brokers, entry providers and willing beneficiaries. The fact of certain shares of companies being manipulated in order to generate bogus LTCG or loss has been unearthed by the department. The AQ had based his order on the facts unearthed. Besides, the AO had demonstrated that the performance of the company whose shares have been manipulated had no fundamentals that would lead to dramatic increase in share prices just to be followed by equally sharp fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of operation yielding bogus LTCG, there is systematic collusion between brokers, operators and beneficiaries. When such collusion takes place, any amount of paper evidences can be generated. Such evidences do not appeal to me as genuine considering the facts of the case. AO had relied on various decisions of Hon'ble Higher Appellate Authorities in his order. They need not be repeated here. In the written submission, appellant relied on several decision of Hon'ble Jurisdictional Tribunal and that of Hon'ble Jurisdictional High Court. But in similar type of case, the Hon'ble Apex Court in Suman Poddar vs ITO [2019] 112 taxmann.com330 9SC) had already decided the matter in favour of department. In that case, the assessee, Suman Poddar was showing huge profit on sale of shares of Cressenda Solution. The assessed allegedly purchased 15000/- shares of M/s Smart Champ I.T. and Infra limited on 22.09.2011 @10 per shares. On 21.02 2013, Smart Champ was amalgamated into Cressenda Solution and 15,000/- shares of Cressenda Solution were allotted to assessce Between 18.7.2013 to 12.09.2013, the shares numbering 15,000/- were sold for Rs. 73,77,806/- @Rs. 501.75 to 503.50). Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the judgment of Hon'ble court in the case of Pratham Telecom India Pvt Ltd, wherein, it was stated that bank statement is not sufficient enough to discharge the burden. Regarding the failure to accord the opportunity of cross examination, we rely on the judgment of Prem Castings Pvt. Ltd. Similarly, the Tribunal in the case of Udit Kalra, ITA No. 6717/Del/2017 for the assessment year 2014-15 has categorically held that when there was specific confirmation with the Revenue that the assessee has indulged in non-genuine and bogus capital gains obtained from the transactions of purchase and sale of shares, it can be a good reason to treat the transactions as bogus. The differences of the case of Udit Kalra attempted by the Ld. AR does not add any credence to justify the transactions. The Investigation Wing has also conducted enquiries which proved that the assessee is also one of the beneficiaries of the transactions entered by the Companies through multiple layering of transactions and entries provided Even the BSE listed this company as being used for generating bogus LTCG On the facts of the case and judicial pronouncements will give rise to only conclusion that the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited above. The decision of Hon'ble Apex Court on similar issue has to be given precedence over the case laws cited by the appellant. 6.3.1. Suffice it to say that there was systematic-generation of bogus capital gains by manipulating the prices of penny stocks shares which was unearthed by the Investigation Wing of the department in Kolkatta. Appellant and other assessees were found to be beneficiaries of the sham and pre-arranged transactions. Bogus LTCG was generated for laundering of black money only. In view of the threadbare factual findings of the AO as well as circumstances of the facts, am of the considered view that his decision deserves to be upheld. Grounds taken are dismissed. Appeal is dismissed. Order is passed u/s 250 of the Act. 2.5 During the course of hearing, the ld. AR of the assessee prayed that the lower authorities have erred in confirming the addition of Rs. Rs.23,23,696/- u/s 68 and Rs. 1,45,421/- u/s 69C of the Act respectively for which the ld. AR of the assessee has filed the written arguments as under:- The humble appellants respectfully submits as under 1 That the appellant has submitted the written facts and argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta submitting for record. 3. That the learned CIT Appeals copied the written arguments in the impugned appeal order. The points are submitting for ready reference as under: (i) supporting arguments: (A) (1) The impugned order is against the facts of this case, Completely based on cooked story, based on observations on investigation Authority report while these were against documentary evidence. (ii) Without any corroborated evidence put on record. (iii) bonafide investor for last eight years and submitting I.T. Return regularly. (B) The Respondent had not provided copy of relevant documents and statements on oath on record. therefore the statements were not completely and closely scrutinized even objections raised in reply of notice dated 13.12.2016 (Page 46 to 52 of Paper book) (C) Third person incremental statements recorded in absence of assessee cannot used against the assessee without providing opportunity to cross examine of the person concern. (D) Not considering the nature of stock market which is based on so many reasons mentioned in para 5 of reply dt 13.12.2016 and may other also.. (E) Order based on suspicion and surmises wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fit case and does not constitute the law laid down by the Hon'ble Supreme Court (ii) That the Hon'ble Supreme Court decided this issue in several judgements and having constant view, For ready reference submits copy of the following judgements: (1) State of Manipur other Vs Thingujam Brojen (AIR 1996 S.C. 2124 (Page 9) (2) Collector of customs Bombay Vs Elephanta Oil Industries Ltd ( AIR 2003 S.C. 1455 (Para 15) (3) Union of India Vs Jaipal Singh ( AIR 2004 S.C. 1005 Para 3) (b) Udit Kalra Vs I.T.O. ward 5(1), Appeal No. 220/2019 order dated 08.03.2019 the Hon'ble High Court held that Having regard to these circumstances and principally on the ground that the findings are entirely of fact. This court is of the opinion that no substantial question of law arises in the present appeal. This appeal is accordingly dismissed Order in aforesaid case is also not created binding precedent being the order is without assigning any reason as principle laid down by the Hon'ble supreme court in cases referred in Para A c) Citations or particulars of other cases Referred in appellate order available to the appellant and find ratio of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertinent to mention and discuss the application of the judgements referred in impugned assessment order (a) Para 5.3 of assessment order: (i) State of jammu Kashmir Vs Bakshi Ghulam Mohammed (AIR 1967 S.C. 122) The learned 1.T.O. referred the Hon'ble court observation in para 5.3.1. regarding application of principle of natural justice as held by the Hon'ble Supreme court in case of agendra Nath Bora Vs Commr. of Hills Division and Appeal Assam that: That the rules of natural justice vary with the varying constitution of statutory bodies and rules prescribed by the Act under which they function, and the question whether or not any rules of natural justice had been contravened should be decided not under any preconceived notions but in the light of the statutory rules and provisions Therefore the specific provisions of relevant Act i.e. J K. Commission of Inquiry Act 1962 are applicable and right of cross will be available according to sec. 10 and rules provided relating to cross examination. It is prima facie appears that the above said judgement Le state of Jammu Kashmir Vs Bakshi Ghulam Mohammad wrongly applied. No restrictions and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Therefore the said judgment is not applicable. (d) Para 5.3.4 Smt Kusum Late Thukral ( 327 ITR 424) (H Court P H) (e) Para 5.3.5 Nath International Sales and Anr. vs Union of India (AIR 1992 Del 295). These judgments are also neither applicable nor having binding precedent force therefore referred only ornamentally. (f) In para 7.6- The learned Income Tax officer referred the following cases (1) Harsh win chadha VS DCIT (ITA No. 3088 to 3098 3107/ Del 2005. (ii) Indian Eastern News Paper Society VS CIT (119 ITR 976 S.C.) (iii) Dhakeshwari Cotton Mills Ltd Vs CIT (26ITR 775 SC.) (iv) Mahindra Mahindra Ltd Vs U.O.I. (1979 S.C.798). (v) CIT (Addl.) Vs Jai Engineering Works Ltd (1978) 113 ITR 389 (Del.) (vi) Bhagat Halwai (1928) 3ITC 48 (All) (vii) Gaiti (SS) Vs Lal Co. (1964) 53 ITR 231(SC) (viii) CIT Vs Metal Products of India (1984)150 ITR 174 (P H) The all above judgments are regarding the proceedings nature under Income Tax Act is quasi judicial and may collect evidence (documentary) from any sources on record, which may be confidential and not open to the public. Therefore opt the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent. In para 8.5 to 8.6 some ITAT cases were also referred for following the principle of human probabilities to decide the genuineness. That the genuineness of the transaction on probability basis is depend on nature and circumstances of each transaction. Therefore justification of event should be decided by considering the factors of all possible reasons as a prudent man and the result should be liberally constructed in favour of the person concern unless otherwise apparently proved. (C) Following cases also cited by the Respondent for justification of cooked story - MC Dowell Vs CTO (Para 8.3 if A.O. order) The above judgments are laid down general principle but the cases are not relevant in matter of the assessee. Arguments: The humble appellant submitted written submission with copy of reply before 1.T.O. dated 13.12.2016 (Marked as Annexure of Paper Book Page 46 to 52) and argument in support of grounds of appeal submitted alongwith copy of judgments given by the jurisdiction Hon'ble Rajasthan Court and Hon'ble ITAT. But the learned CIT (appeals) has not considered in passing the impugned order. Kindly also consider the written ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21, she noted. By doing so, the notices have violated... PFUTP (Prohibition of Fraudulent and Unfair Trade Practices), the order added. In another order, the regulator has imposed a fine of Rs lakh on two individuals in a case. pertaining to disclosure lapses in the matter of Bronze Trading Ltd (BTL). The amount has to be paid jointly and severally. The order came after Sebi received a report from BSE Ltd regarding circulation of SMS/calls recommending the purchase of BTL scrip providing a target price to be reached by the stock in a time-bound manner for the period July 2016 to December 2016. The ld. DR has also relied on following case laws. (i) Ms. Manvi Khandelwal vs ITO (ITA No. 3212/Del/2018 dated 26-11- 2019 ITAT Delhi Bench) (ii) Satish Kishore vs ACIT (SA No.373/Del/2019 dated 18-04-2019 ITAT Delhi Bench) (iii) M/s. Pankaj Agarwal Sons (Huf) and Others vs ITO (ITA No. 1413, 1414, 1415, 1416,1417, 1418, 1419 1420/Chny/2018 dated 6-12-2018 Chennai ) (iv) Pooja Ajmani vs ITO (ITA NO.5714/Del/2018 - ITAT Delhi Bench) (v) Sanjay Bimalchand Jain vs PRCIT-1, Nagpur (IT Appeal No. 18 of 2017 dated 10-04-2017) (vi) C. Vasant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual date of purchase is not ascertained. (iii) The Santoshima Tradelinks Ltd. was merged with M/s. Sunrise Asian Ltd. The Board of Directors have approved the merger on 9-11-2012 and informed the BSE accordingly. (iv) The assessee has sold all the 5000 shares for Rs.24,23,696/- by 2-08-2013 in one lot. (v) The assessee allegedly earned dRs.23,23,696/- as Long Term Capital Gains on this transaction Besides above observations, the AO went through the reports of Investigation Wing of New Delhi, Mumbai, Kolkata relating to the actions conducted by them in cases of bogus LTCG/STCG/STCL/Loss entry providers and also in cases of beneficiaries of this arrangement. The AO at the time assessment proceedings noted that it was being noticed by the Department for a long time that certain share transactions in penny stock companies were fabricated one with a motive to launder the unaccounted money in form of bogus LTCG/STCG with nil taxes or taxes at nominal rates. There have also been cases of claims of huge bogus losses on account of trading in such penny stock companies. The AO noted from the reports of the Investigation Wings that Coordinated actions u/s 132(1) 133 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Somani, Sanjai Vohra, Anuj Agarwal (PBP 21 to 45). The assessee submitted reply with complete facts and requested for cross examination of the said persons and also requested to provide copy of their complete statements (PBP 46 to 52). It is noted that the assessee requested the AO for cross examination of all such persons but the assessee was not provided opportunity of cross examination holding that at this juncture of time, it is an attempt to delay/ halt the proceedings by assuming the instrument of cross examination as a right. It is understandable that for the sake of natural justice, the assessee can exercise his power to cross examine the evidences gathered against her. Hence, the assessee was deprived off to cross examine the persons whose statements / evidences were obtained against her. Thus the ld. AR submitted that subordinate authorities passed the impugned order against principles of natural justice laid down by the Hon ble Supreme Court in several cases wherein third person statements recorded behind a person cannot be used without allowing cross examination for which the ld. AR relied on following decisions. (i) Andman Timber Industries vs CCE (127 DTR 241-S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 292/2017 dated 6-04-2018 PBP No. 158-171) The ld. AR further submitted that ld. CIT(A) has referred the decision of Hon ble Supreme Court in the case of Sumati Dayal vs CIT, 214 ITR 801 (horse race lotteries ticket) based on theory of probabilities but the theory of probability wrongly applied in case of the assesseee on the basis of pre-arranged transactions in the penny stock companies scrips and rigged the prices accordingly. It is worthwhile to mention that the equity market is under control and supervision of SEBI, price of scrip is not in control of the assessee or any individual person. The stock market is completely based on probabilities of market political scenario, trend of market, fiscal policy, stability of government speculation, global trend of market etc. (PBP 50). Theory of probability of gain or loss is always there but it may not be pre-arranged as the market is based completely on electronic system. The SEBI suspended only trading of 26 scrips out of the above said 58 scrips and only 11 scrips prices were found rigged. Sunrise Asian Ltd. (Scrip Code 506615) was not included in these scrips whose shares assessee had purchased on 01-04- 2012.It is also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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