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TMI Blog2024 (12) TMI 1213X X X X Extracts X X X X X X X X Extracts X X X X ..... declared at Rs. 68,92,570/-. The case was selected for limited scrutiny under CASS. Accordingly, notices u/s 143 (2) and 142(1) of the Income-tax Act, 1961 (for short 'the Act') were issued and served on the assessee. In response, ld.AR of the assessee attended the proceedings from time to time and submitted relevant information as called for. 4. During assessment proceedings, the AO observed that assessee has earned capital gain amounting to Rs. 38,63,362/- from sale of shares of M/s. CCL International Ltd. and Rs. 28,12,941/- from sale of shares of M/s. Channel Nine Entertainment Ltd. Relevant chart of calculation of long term capital gain and short term capital gain are extracted in the assessment order. The AO observed that assessee has earned windfall gains in both the scrips within a period of short span of time. The AO analyzed both the scrip's trade and price movement from March 2013 to March 2017 and analyzed the financials of both the companies and observed that share prices of both the companies rose to astronomical height and the rise of shares is not commensurate with the movement of Sensex during the same period. The company has no credentials to justify sharp price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s much as contract note, DEMAT A/c, payment of SIT, appellant had discharged the burden cast upon it under the Act. 8. That the impugned assessment order is arbitrary, illegal, bad in law and the violation of rudimentary principle of contemporary jurisprudence." 7. At the time of hearing, ld. AR for the assessee briefly submitted the facts of the case and submitted detailed written submissions, which is reproduced below for the sake of brevity :- 1. That the Appellant is an individual filed his Income Tax Return("ITR") for the AY 2015-16 on 28.08.2015, declaring therein a total income of Rs. 64,24,570/- 2. That the Appellant during the year under consideration, derives income chargeable to tax under the head Income from house property, Income from capital gain, Agricultural income and Income from other sources. 3. A revised return was filed on 23-09-2016, declaring taxable income of Rs. 68,92,570/in which she had offered the amount of short-term capital gain earned as "Income from other sources". 4. The case was selected for complete scrutiny under the CASS. 5. A notice under Section 143(2) of the Income Tax Act, 1961, was issued on 04-08-2016 but no notice of 143(2) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine Entertainment as bogus and taxable under Section 68 of the Income Tax Act, 1961, Consequently, an addition of Rs.29,71,941/- was made to the income of the Appellant. 16. That the Appellant, being aggrieved by the assessment order dated 30.11.2017, preferred an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] challenging the said order. 17. Further, that the Ld. CIT(A) has upheld the assessment order and sustained the addition of Rs. 29,71,941. 18. That the Appellant, being aggrieved by the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)], has preferred the present appeal before this Hon'ble Income Tax Appellate Tribunal (ITAT). A. In Re Ground no. 1 & 2: That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in sustaining the action of the Ld. AO by confirming the order passed under section 143(3), despite the fact that no notice under section 143(2) was issued subsequent to the filing of a valid revised return. 19. That the Appellant has filed her revised return of income for A.Y 2015-16 dated 23.09.2016 declaring her income of Rs. 68,92,570/- wherein she had offered the amount of Long-term Capital Gain ("LT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initial scrutiny notice issued under section 143(3) of the Act dated 12.04.2016 by ITO was without jurisdiction as he did not possess jurisdiction over the assessee for the A.Y. 2015- 16. Consequently, assessment framed under section 143(3) of the Act is hereby quashed as void ab initio. The additional ground no.2 is hereby allowed..." In the recent case of LSR Foods Ltd., New Delhi v. ITO, New Delhi (decided on 25th September 2024), the Hon'ble Income Tax Appellate Tribunal (ITAT) placed reliance on the aforementioned decision. 24. In light of the above submissions and judicial precedents, it is evident that the failure to issue a mandatory notice under Section 143(2) of the Act, 1961 by the Respondent, renders the assessment proceedings void ab initio and legally unsustainable. B. Ground no. 3 & 6 That on facts and in circumstances of the case and in law, Ld. CIT(A) erred in sustaining the addition of Rs. 29,71,941/- under section 68 of the Act treating the gain accrued on the shares of Channel Nine as bogus. 25. Without prejudice to the above submissions, it is pertinent to note that the Appellant had submitted cogent and unchallenged material documentary evidences bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erly instructed as to the relevant law could have found, the Court is entitled to interfere. In our decision in Meenakshi Mills, Madurai v. Commissioner of Income-tax, - Madras (3) after discussing the various authorities on the subject we laid down that: - (3) A finding on a question of fact is open to attack under S. 66(1) as erroneous in law when there is no evidence to support it or if it is perverse." The latest pronouncement of this Court in Omar Salay Mohamed Sait v. The Commissioner of Income-tax, Madras (4) summarises the position thus: - "We are aware that the Income-tax Appellate Tribunal is a fact-finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this Court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence before it. The conclusions reached by the Tribunal should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents from various Directorates, none of which disclosed adverse findings against the Appellant or established involvement in bogus accommodation entries. Additionally, the Respondent failed to rebut the Appellant's documentary evidence substantiating the genuineness of the transactions and arbitrarily deemed the LTCG entry as bogus, relying solely on a SEBI report based on preliminary inquiries, (Please refer to pages 28-76 of the assessment order)which lacked any direct nexus to the Appellant's case, rendering the findings unsustainable in law. 31. Further, that no documentary evidence(s) has been brought on record by the Respondent to substantiate the purported allegation qua the Appellant and moreover, even the Ld. CIT(A) has affirmed the impugned addition on applying mere the presumptions and concept of human probabilities which vide recent ruling of the Hon'ble Mumbai Tribunal in case of Vikram N. Chandan v. ITO., [2024] 165 taxmann.com 340 on parimateria facts cannot be sustained legally: "6. We note that transactions for purchase was undertaken in an offline mode which is an acceptable mode and that of the sale of the aforesaid shares were undertaken on the stock exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessment order) which does not ipso facto determine that shares/transaction are bogus vide the jurisdictional High Court ruling in case of Pr. CIT v. Krishna Devi [2021] 126 taxmann.com 80 wherein the Court noticed that the reasoning given by the Assessing Officer to disbelieve the capital gain declared by the assessee, viz. astronomical increase in the price of shares, weak fundamentals of the relevant companies are based on mere conjectures. 33. That the Respondent for the initiation of impugned assessment proceedings placed reliance on purported statements recorded and sudden increase in share price (evident vide para 7.4 of Assessment order). 34. That further while framing the reassessment/consequent reassessment order also major reliance has been placed on the statements. Apropos, it is imperative to mention that no relied upon purported statements have been provided to the Appellant. 35. That the Appellant has provided comprehensive documentary evidence supporting the genuineness of the transactions, which the Respondent has neither rebutted nor discredited. Judicial precedents, including those from the Hon'ble Jurisdictional High Court, unequivocally affirm t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to second issue framed above on impact of cross examination, I strongly rely on the following string of decisions of various courts to hold that when revenue strongly relies on statements of certain persons to implicate an assessee, principle of cross examination has to invariably followed if truth and justice needs to be found out. Keeping in view of the facts and circumstances of the case and respectfully following and applying principles in aforesaid Hon'ble Supreme Court, Hon'ble High Court and this Tribunal rulings, on the issue of lack of cross examination and violation of principle of natural justice, I have no hesitation to accept the plea of Ld AR that lack of cross examination and violation of principle of natural justice results is total nullity of the entire addition, hence, the additions in dispute is hereby deleted." Further, reliance is placed on Andaman Timber Industries v. CCE., [2015] 62 taxmann.com 3 (Supreme Court of India) "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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in law, having been rendered in complete violation of the rudimentary principles of contemporary jurisprudence, as outlined below: 45. That the assessment order has been passed without fulfilling the mandatory jurisdictional requirement under Section 143(2) of the Income Tax Act, 1961. The Hon'ble Supreme Court in Assistant Commissioner of Income Tax v. Hotel Blue Moon(Supra) has categorically held that the issuance of notice under Section 143(2) is not a mere procedural formality but a jurisdictional prerequisite. The non-issuance of such notice invalidates the assessment proceedings, rendering the order void ab initio. 46. That the Appellant respectfully that the impugned assessment order is arbitrary in its approach, as it disregards the documentary evidence submitted by the Appellant, including contract notes, DEMAT account statements, bank statements, and proof of payment of Securities Transaction Tax (STT), which collectively substantiate the genuineness of the transactions and the Appellant's compliance with statutory obligations. The failure of the Respondent to address these crucial submissions demonstrates a lack of reasoned decision-making, rendering the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material with the tax authorities to substantiate their findings that the impugned transaction is non-genuine. Therefore, we are inclined to allow the ground raised by the assessee. Accordingly the grounds raised by the assessee are allowed." In view of the above judgment, it is aptly clear that addition on account considering sale of Penny stock as scrupulous transection, without having any conclusive evidence or facts is immaterial and bad in law. 52. Based on the above binding precedents it is humbly submitted that the initiation of impugned reassessment proceedings and consequent impugned assessment order is unjust, void and illegal." 8. On the other hand, ld. DR for the Revenue vehemently argued that the issue involved in this case is penny stock and lower authorities have given elaborate findings and assessee could not explain why the assessee has made the investment on such companies which has no financial capacity and not justified enough material to make investment in these companies. She prayed that addition may be sustained on the basis of detailed findings of lower authorities. 9. Considered the rival submissions and material placed on record. The Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares of the alleged penny stock of shares of Ramkrishna Fincap Ltd. ("RFL") is done through stock exchange and through the registered Stock Brokers. The payments have been made through banking channels and even Security Transaction Tax ("STT") has also been paid. The Assessing Officer also has not criticized the documentation involving the sale and purchase of shares. The Tribunal has also come to a finding that there is no allegation against assessee that it has participated in any price rigging in the market on the shares of RFL. 3. Therefore we find nothing perverse in the order of the Tribunal. 4. Mr. Walve placed reliance on a judgment of the Apex Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. but that does not help the revenue in as much as the facts in that case were entirely different. 5. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 6. The appeal is devoid of me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 4849.2% jump in share prices of the aforesaid company within a span of two years, which is not supported by the financials. On an analysis of the data obtained from the websites, the AO observes that the quantum leap in the share price is not justified; the trade pattern of the aforesaid company did not move along with the sensex; and the financials of the company did not show any reason for the extraordinary performance of its stock. We have nothing adverse to comment on the above analysis, but are concerned with the axiomatic conclusion drawn by the AO that the Respondent had entered into an agreement to convert unaccounted money by claiming fictitious LTCG, which is exempt under Section 10(38), in a pre-planned manner to evade taxes. The AO extensively relied upon the search and survey operations conducted by the Investigation Wing of the Income Tax Department in Kolkata, Delhi, Mumbai and Ahmedabad on penny stocks, which sets out the modus operandi adopted in the business of providing entries of bogus LTCG. However, the reliance placed on the report, without further corroboration on the basis of cogent material, does not justify his conclusion that the transaction is bogus, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tartling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. With regard to the claim that observations made by the CIT(A) were in conflict with the Impugned Order, we may only note that the said observations are general in nature and later in the order, the CIT(A) itself notes that the broker did not respond to the notices. Be that as it may, the CIT(A) has only approved the order of the AO, following the same reasoning, and relying upon the report of the Investigation Wing. Lastly, reliance placed by the Revenue on Suman Poddar v. ITO (supra) and Sumati Dayal v. CIT (supra) is of no assistance. Upon examining the judgment of Suman Poddar (supra) at length, we find that the decision therein was arrived at in light of the peculiar facts and circumstances demonstrated before the ITAT and the Court, such as, inter alia, lack of evidence produced by the Assessee therein to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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