TMI Blog2023 (10) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... es not allege any involvement of the assessee herein with the manipulation of share prices, how can the revenue herein state that long term capital gains derived by the assessee is merely an accommodation entry and is bogus. We are unable to persuade ourselves to accept to the contentions of the ld. DR that Kolkata Investigation Wing had conducted a detailed enquiry with regard to the scrip dealt by the assessee herein and hence whomsoever had dealt in this scrip, would only result in bogus claim of long term capital gain exemption or bogus claim of short term capital loss. Merely because a particular scrip is identified as a penny stock by the income tax department, it does not mean all the transactions carried out in that scrip would be bogus in the hands of all the investors. In this case only logical recourse would be to place reliance on the orders passed by SEBI pointing out the malpractices by certain parties and taking action against them. Since assessee s name does not even figure in the list of parties who were involved in manipulation of shares prices of MARL in the order of SEBI dated 30.8.2019 after its detailed investigations, the transaction carried out by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of probability and not beyond reasonable doubt . 4. That the Ld. CIT(A) has erred in law and on facts in not considering the fact that assessment order passed by the Ld. AO is time barred and has not explicitly dealt with the Ground No.6 raised before the Ld. CIT(A) by the assessee wherein it is challenged by the assessee that assessment order passed u/s 153A of the Act is time barred in terms of section 153B of the Act and ought to have held to be annulled. 5. That the Ld. CIT(A) has erred in law and on facts in ignoring that no material has been alleged to be found by the Securities exchange Board of India (SEBI) against the assessee which is duly verifiable from the Show Cause Notice (printed in assessment order) issued by SEBI to contributors to positive LTP in the share of M/s. Mahavir Advanced Remedies Ltd (MARL) and merely alleging that trading in such scrip was suspended by SEBI. 6. That the Ld. CIT(A) has erred in law and on facts in upholding the reliance placed by the Ld. AO in assessment order on alleged similar LTCG matter emerged from trading of MARL shares and pending with Hon ble ITAT Bangalore in the case of M.K. Rajesjhwari vs. ITO ITA No.1723 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; and ii) the said incriminating material found and seized could only be used to frame any reassessment order by assuming jurisdiction through the course of the section 153C of the Act and then passing a separate assessment order u/s 153A of the Act in terms of the section 153C of the Act. 16. The impugned assessment order need to be quashed in view of the jurisdictional issue which goes to the root of the assessment proceedings as has been held in Kanwar Singh Saini vs High Court of Delhi (2012) 4 SCC 307, PCIT vs S S Con Build (P) Ltd 2022-TIOL-656-HC-DEL-IT and Mavany Brothers vs CIT (2015) 62 taxmann.com 50 (Bom). 4. We find that these additional grounds go to the root of the matter and is a legal issue not requiring any verification of facts. Hence in the light of the decision of the Hon ble Supreme Court in the case of NTPC Ltd reported in 229 ITR 383 (SC), the additional grounds are hereby admitted and taken up for adjudication along with the original grounds of appeal. 5. We have heard the rival submissions and perused the materials available on record. We find that assessee is an individual earning income from salary and interest income. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 30.3.2016. Warrant of authorisation u/s 132 of the Act was issued in the following names:- a) For the assessee for searching his residential premises; b) For KRBL Ltd for searching its office premises, where name of the assessee was not included. 8. In the course of search in the premises of the assessee on 30.3.2016, no incriminating documents were found representing any undisclosed income of the assessee either in the form of money, bullion, jewellery, investment in other movable and immovable assets, notings in loose sheet, trail of any transactions involving receipt / payment of monies etc. Accordingly, the search stood concluded in the premises of the assessee on 31.3.2016 itself at 8.40 P.M. 9. Since simultaneous search was carried out in the hands of KRBL Ltd, where assessee is a Joint Managing Director, the assessee was taken to the premises of KRBL Ltd on 31.3.2016 after 8.40 PM. No incriminating materials were found in the premises of KRBL Ltd during the course of its search. 10. On the date of search on 30.3.2016, the time limit for issuing notice u/s 143(2) of the Act for the regular return filed for the Asst Year 2015-16 was available and hence the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of MARL in the relevant return of income because some earlier search actions on many share brokers by the income-tax department had yielded evidence that in the listed equity shares of MARL, bogus LTCG was facilitated by them. However, all connected surveys and enquiries were also conducted on the same date by the revenue across the country as is mentioned in the assessment order where interestingly as mentioned by the ld. AO in the assessment order, all the persons shifted the blame on others for the said transactions. 13. The ld. AO based on statements recorded from the exit providers inter alia among other persons, proceeded to treat the sale proceeds of shares of MARL to be bogus and concluded that the same is merely an accommodation entry obtained by the assessee in connivance with the various intermediaries. With these observations, the ld. AO treated the sale proceeds of shares to be taxed as unexplained cash credit u/s 68 of the Act. Having treated the sale proceeds of shares as an accommodation entry, the ld. AO proceeded to add estimated commission expenditure thereon @6% of net gain. This action of the ld. AO was upheld by the ld. CIT(A). 14. The ld. AR state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orgery in signature by stating that the signature of Shri Koteshwar Rao was forged by Shri Jitendra Joshi. e) Investigation was carried out by the ld. AO with the exit providers of shares of MARL, wherein they had stated that the shares of MARL were purchased by them from the assessee as per the instructions of Shri Jitendra Joshi. 17. On the aspect of cross examination not provided to the assessee, the ld. DR by relying on the judgment of the Hon ble Supreme Court in the case of ITO vs M. Pirai Choodi reported in 20 taxmann.com 733 (SC) pleaded that the absence of allowing cross examination cannot be fatal to the conclusion of the AO so as to delete the addition but the same be restored to the AO for allowing cross examination of the witnesses as was directed therein. 18. In rebuttal to the decision relied upon by the ld. DR in the case of ITO vs. M Pirai Choodi supra, the ld AR submitted that the decision in the case of Pirai Choodi was on peculiar facts therein as the said assessee had not filed an appeal before the CIT(A) against the order of the AO but had approached the High Court directly by way of a writ petition. In those circumstances, the Supreme Court held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Here there is no failure by the Assessee to raise objections at every stage of proceedings . Similarly in SHL (India) (P.) Ltd. [2021] 128 taxmann.com 426 (Bombay) it was held that The Supreme Court decision in the case of ITO v. M. PiraiChoodi[2012] 20 taxmann.com 733/[2011] 334 ITR 262, referred to in the Revenue's reply is also not applicable to the issue at hand as that was a case where the assessee was not given an opportunity to cross-examine the concerned witness and which assessee also had a statutory appellate remedy which the assessee had failed to avail of, whereas there is no such right available to Petitioner in this case . 20. The ld AR vehemently argued that the fact that the revenue was in possession of the definite incriminating information is transparent from the words material or / and evidences gathered by the income-tax department in the income-tax searches conducted in the premises of the other persons involved in the alleged scheme of providing the LTCG, mentioned in the assessment order in para 5.1 and 5.2 on page no. 6, in para 5.8.1 on page no. 35, second para on page no. 69 and in para 5.13 on page no. 77 of the assessment order besides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mittedly, the income-tax search in the premises of the assessee yielded no evidence at all in any manner to support the said allegation as none is mentioned in the assessment order to suggest exchange of any consideration either in cash or kind for the amounts received by the assessee on sale of those shares. 22. The ld. AR further stated that nowhere the name of the assessee was ever taken by anyone whose statements have been mentioned in the assessment order and who have also never even acknowledged any acquaintance with the name of the assessee in any manner. The SEBI has also nowhere mentioned the name of the assessee in its orders nor there is any allegation of involvement of the assessee in any manipulation/ rigging of the prices of the said shares as he was not part of the alleged manipulating syndicate mentioned by the ld. AO in the assessment order. The assessee never knew the buyers of those equity shares as he was not legally permitted to operate on the platform of the stock exchanges where only members of the Stock Exchange could undertake transactions. As per the conditions of trade on the stock exchanges, whenever anyone wishes to sell some listed equity shares, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those informations from MCA and had confronted Shri Koteshwar Rao during the course of search. Shri Koteshwar Rao denied having affixed his signature thereon as he had resigned from the post of Director of MARL in the year 2012. However, from the statements recorded by the investigation wing of income tax department from various persons involved , it is evident that the signature of Shri Koteshwar Rao was indeed forged in the documents pertaining to allotment of preference shares to various persons including the assessee and his family members. At this juncture, it would be relevant to note that both Shri Koteshwar Rao as well as the assessee in their individual sworn statements had categorically denied having known each other. Hence it becomes evident that assessee was never involved in any of the forgery acts that had been carried out in the allotment of preference shares of MARL. But we find that the assessee was confronted by the revenue with those very same forged signed documents in order to draw adverse inference on the claim of exemption u/s 10(38) of the Act on the assessee. Hence the said forged signed documents become incriminating documents found during the course of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 10 years when some incriminating information pertaining to the assessee is detected in searches elsewhere at different times which were not accessible to the revenue earlier. The assessment procedures under the two specific situations have, therefore, been categorically mandated by the legislature without any fetters and need to be followed by all the courts including the Hon ble Supreme Court being a jurisdictional issue as has been held by the Hon ble Supreme Court in S S Con Build Pvt Ltd reported in 293 Taxman 491 (SC) dated 4.5.2023 by following the earlier Apex Court judgment in Kanwar Singh Saini vs High Court of Delhi reported in (2012) 4 SCC 307 . We find that undisputedly section 153C of the Act starts with a non obstante clause and both the AOs involved were bound to act as per this provision as term deployed therein is shall . Accordingly, as per the law, no addition in an assessment order passed u/s 153A of the Act without following the mandatory route of section 153C of the Act in the case of the assessee was possible on the basis of some alleged material seized / statements from / of the alleged entry providers as no incriminating material in any manner at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person: P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents seized belong to another person, then, the assets or books of account or documents seized shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against such other person, if he is satisfied that the books of accounts or documents or assets seized have a bearing on determination on the total income of such other person. It is proposed to amend sub-section (1) of the said section so as to provide that where the Assessing Officer is satisfied that, (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein , relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned, shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RRJ Securities Ltd reported in 380 ITR 612 (Del) followed in Pr. CIT vs Raj Buildworth (P) Ltd reported in 113 taxmann.com 600 (Delhi) and the SLP of the revenue dismissed by the Hon ble Apex Court which is reported in 113 taxmann.com 601 (SC). Consequently, the period relevant to the Asst Year 2015-16 herein, when the impugned incriminating material was found in a search of a third person, got shifted from the scope of an assessment u/s 153A of the Act to the provisions of the sections 153C of the Act being one of the six assessment year preceding the date of search in the case of the other person. 29. Thus, it could be safely concluded that in addition to the assessment order passed u/s 153A of the Act on the basis of an income-tax search conducted on the assessee, the impugned amount assessed in this assessment order as undisclosed / unexplained income, allegedly based on some incriminating material found elsewhere, with respect to the long term capital gain already declared in the return of income filed on 29/11/2015 could not be assessed in the said assessment order passed u/s 153A of the Act but it could be considered for the purpose only and only in a separate assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conceived scheme to procure bogus long term capital gains and hence the transactions are not bonafide ; that SEBI also passed an interim order in the case of MARL holding that share prices were determined artificially by manipulations ; that these are close circuit transactions and are pre-structured; that assessee had failed to discharge the onus cast on him ; that net worth of MARL is negligible and that its share prices were artificially rigged ; that investigations prove that cash is routed through various accounts to provide these bogus long term capital gain entries. The ld. AO by making these observations proceeded to treat the sale proceeds of the shares as unexplained cash credit u/s 68 of the Act. Since the receipt of sale proceeds was treated as bogus, the ld. AO also proceeded to add estimated commission @ 6% on LTCG amount for arranging the said bogus transaction as estimated expenditure. 33. It would be not out of place to mention here that in none of the statements of various persons relied upon by the ld. AO, the name of the assessee or the share broker through whom the shares were sold by the assessee, was mentioned. Further no money trail was proved by the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates, as was seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions could not be a ground to treat the transactions as sham transactions. On a perusal of those documentary evidences, the Tribunal had arrived at a finding of fact that the transactions were genuine. Nothing was brought to notice of the Court that the findings recorded by the Tribunal were contrary to the documentary evidences on record. Therefore, no substantial question of law arose from the order of the Tribunal. 36. We find that independent enquiries were conducted by SEBI for the relevant period from 26.6.2013 to 6.1.2015 and SEBI had passed an order dated 30.8.2019 in the case of MARL after its final investigation, wherein only three persons viz. Ms Shilpa Gowdanakunta (PAN-AOFPS5937R) ; Mr Mukesh Kanakriya (PAN- AAIPM5576B) and Mr Vinod Hari Mhatre (PAN ANQPM0834M) were held to be involved in artificial rigging of share prices of MARL and hence they we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2012 had observed that in that case, the Hon ble Calcutta High Court held that the Assessing Officer doubted the transactions since the selling broker was subjected to SEBI s action. However the transactions were as per norms and suffered STT, brokerage, service tax, and cess. There is no iota of evidence over the transactions as it were reflected in demat account. The appeal filed by the revenue was dismissed. We find that the assessee s case before us is in a much stronger footing as no action has been initiated on the Broker or on the assessee by SEBI. Even though the trading of the scrip was suspended from 07.01.2015 in view of the fact that SEBI carried out the investigation for the movement of share prices of MARL during the period 26.6.2013 to 6.1.2015 (i.e. the period during which assessee herein also sold the shares in the open market), still the SEBI in its final order dated 30.8.2019 after carrying out detailed investigations, did not implead either the assessee or his broker for any manipulation of share prices. Infact this is also evident and this fact gets further strengthened from the statements recorded from various entry operators who had also never mentioned th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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