9911796707
TMI Blog2011 (10) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... al statement of Shri Khemka was not backed by any other independent evidence. On the other hand the assessee’s explanations were backed by relevant documentary evidences which substantiated purchase 67,04,678/- made u/s 68 of the Act. Accordingly we uphold the order of the CIT(A) and dismiss the revenue’s appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... ter long time gaps; ranging upto 45 days from the dates of purchases and the purchase consideration was paid in cash. f) The shares were purchased during the pendency of amalgamation proceedings and the purchase consideration was paid after the dates on which Calcutta High Court passed orders approving amalgamation of the companies whose shares were purchased by the assessee. g) The amalgamating companies whose shares were purchased by the assessee did not file annual returns with the Registrar of Companies and the amalgamated did not file returns of allotment in respect of shares allotted by them consequent to amalgamation. h) The assessee was shown sworn statements of Shri Khemka and Ashish Stock Broking Pvt. Ltd but assessee did not ask for copies thereof. In response to show cause, the assessee merely filed copies of retraction affidavits of Shri Khemka and Director of Ashish Stock Broking. The retraction affidavits could not be accepted because these were never filed before the ADIT(Inv) and there was considerable gap between the dates of original statements and retraction affidavits. i) The statement on oath recorded before the ADIT(Inv) carried greater evidentiary va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased they were delivered to respective companies for registration in assessee's name. The order of the Calcutta High Court approving the amalgamation proved that the shares purchased by assessee were validly issued by respective companies and the Calcutta High Court had permittedc these companies to amalgamate with Khoobsurat Ltd & Emrald Commercial Ltd. the amalgamation was approved by the Calcutta High Court in conformity with the Companies Act 1956 & therefore its bonafide could not be doubted unless the AO had brought on record material to prove that the order was obtained by fraud or by misrepresentation. The documents also showed that the amalgamated companies received share certificates from amalgamating companies for registration of shares in the assessee's name. pursuant to the order of amalgamation, approved by the Calcutta High Court; the amalgamated companies allotted their shares in the approved ratio in assesee's favour. The letters of allotment issued by the amalgamated companies contained details of share certificate numbers, distinctive numbers of shares, folio no. etc. which proved the valid issuance of shares in assessee's name by the amalgamated companies. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Computer Pvt. Ltd. were purchased by the assessee on 29.08,2003 for ₹ 27,000/-. Payments of ₹ 16,000/- & ₹ 11,000/- there against were made on 12.09.2003 & 16.09.2003 respectively. According to AO the time gap between the dates of purchases and dates of payments is found to be 14 & 18 respectively and not 45 days as alleged. Similarly shares of Bosky Marketing Pvt Ltd were purchased by the assessee on 21.08.2003 for ₹ 34,000/- whereas ₹ 15,000/- & ₹ 19,000/- were paid on 25.08.2003 & 26.08.2003 respectively. Full consideration was thus paid within 5 days of purchase. Yet according to AO the time gap between the purchase and payment was 22 & 23 days respectively. Again in the case of Bosky Tradecome Pvt. Ltd shares were purchased on 28.08.2003 at the cost of ₹ 27,000/- and ₹ 13,000/- ₹ 10,000/- & ₹ 4,000/- were paid on 6.09.2003, 11.09.2003 & 12,.09.2003 respectively. The entire payment was completed within 15 days of purchase but according to AO the time gap was 38, 42 & 45 days respectively. The above empirical data proved that AO's conclusion that there was considerable time gap between the date of purchase and date of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was ₹ 69,11,678/-. Deducting cost of acquisition of shares i.e. ₹ 2,07,000/- the net gain was ₹ 67,04,678/- which was assessed as income of the appellant for A.Y. 2005-06, These facts therefore show that what was assessed in the impugned order was the excess of sale price over the cost of acquisition. I therefore find that the AO did not disbelieve nor dispute cost of acquisition incurred by the assessee himself and allowed deduction for the cost and arrived at taxable income of ₹ 67,04,678/-. In the circumstances, when the AO neither disproved the purchase of shares nor disputed or disbelieved incurring of the cost of acquisition then the AO could not hold that purchase of shares was bogus or non existent. 17. In the impugned order the AO justified the addition of ₹ 67,04,678/- relying on the statements of Shri Khemka and Shri Sunil Kedia wherein these persons allegedly admitted that they had provided accommodation entries to the family members of Shri R.S.Agarwal. The alleged modus operandi adopted by them in providing accommodation entries was explained in their statements. The statements of Shri Khemka; Shri Sunil Kedia and the stock broker were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock broker. These statements were however not recorded in the assessee's presence. Copies of the statement have also not been made available to the assessee. Even by AO's own admission these statements were shown to assesee's A/R in November 2008. on being confronted with these sttements the assessee confronted these person when the assessee received from the concerned parties copies of the affidavits made in February 2007 wherein they had retracted the statements earlier made. Despite the fact that the affidavits made in February 2007 were contrary to the statements originally recorded the AO for the reasons known only to him did not find it relevant to examine the concerned parties and allow the assessee opportunity of cross examination. The principles of natural justice demanded that the assessee was given reasonable opportunity of rebutting the statements of the departmental witnesses particularly when the statements originally recorded at the assessee's back were retracted by the parties. In the remand report the AO has stated that he was unable to examine the witnesses u/s 131 because no proceedings were pending. In my opinion this was a lame excuse which cannot be accepted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and these documents were independently verifiable. In the remand proceeding the AO was asked to furnish documentary evidence in his possession other than the statement of Shri Khemka which substantiated the ultimate destination of cash or investigate the chain of transaction. The AO was not able to bring to my attention any such material nor did the AO even examine the concerned party whose statement was used "in evidence". On these facts therefore I am in agreement with the A/R that the decision of the Supreme Court was not applicable to assessee's case. 21. The AO disbelieved the genuineness of sale of shares on the ground that the stock broker through whom assessee sold shares had indulged in price manipulation activities. In support of the finding the AO relied on the SEBI's order u/s 11(1) 11(4) & 11 (B) of SEBI Act 1992 dated 30.11.2005 where under Ashish Stock Broking Pvt. Ltd. & Shri Sunil Kedia were debarred form operating on any stock exchange on the charge of share manipulation activities. From perusal of said order it appeared that SEBI had conducted detailed investigation of the share transactions conducted by few stock brokers who were all members of CSE. From inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted sale of his shares. The published quotations contained information with regard to number of shares traded, number of trades conducted, highest and lowest price of shares on the date and total value of shares traded on the stock exchange on the given date. From the CSE quotations it appeared that at the relevant time; there were regular transactions in shares of Khoobsurat Ltd & Emrald Commercial Ltd The number of trades in the shaes of the 2 companies were substantial on each day. The total volume in terms of number of shares, number of trades and total value transacted was much more than the value of assessee's transactions. The CSE's published data established that apart from the assessee, several other persons also traded in shares of Khoobsurat Ltd & Emrald Commercial Ltd at the similar prices. The AO placed much emphasis on the fact that prices at which the assessee sold shares of these 2 companies were much higher than the break up value of the shares and this fact indicated the market price of the shares was artificially inflated. I however find that apart from the assessee several other persons also conducted purchase & sale of shares of the 2 companies at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very of shares through demat account of the assessee. The sale consideration was received through CSE channel. The documents and other evidences brought on record therefore cumulatively show that the assessee substantiated both purchase & sale of shares by producing documents which were verifiable; independent of statements of Shri Khemka or the stock broker. The evidence also establish that apart from the assessee there were several other persons who traded in shares of both Khoobsurat Ltd & Emrald Commercial Ltd at the same time and at similar prices at which the assessee sold his shares. Having regard to all these facts and evidence I have no hesitation in holding that the assessee discharged the onus caste on him and established genuineness of purchase & sale of shares. 25. On the contrary despite specific directions of my letter dated 20.04.2009 the AO did not conduct any enquiry during the assessment nor in the remand proceedings in relation to alleged chain of transactions leading to ultimate destination of the cash which proved his conclusions nor the AO examined either Shri Khemka or stockbroker, nor allowed the assessee opportunity of cross examination. In view of above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment Pvt. Ltd. was a 'penny stock' and the AO had acted on the information received from CSE which is a regulatory authority. CSE denied that any trade in Nageshwar Investment Pvt. Ltd. shares was executed by the broker on reported dates and therefore AO was justified in taking the view that the assessee in collusion with the broker brought into account his undisclosed income. On facts the Tribunal held that the purchase & sale of shares was backed by proper contract notes. Deliveries of shares were received and given through demat account maintained with authorized agency. The shares were purchased and sold through the recognized broker and the sale consideration was received by account payee cheque. The share broker had admitted the transaction when called upon u/s Sec 133(6). The AO failed to bring on record any evidence which established that documents filed either by assessee or stock broker were fabricated or false. The brokers was registered with CSE and had confirmed transaction by quoting registration number, contract number, settlement number etc. it was not the Revenue's case that the broker did not exit or that the relevant shares of Nageshwar Investment Pvt. Ltd did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solely on the statement of Shri Roopani at the time of search without taking cognizance of cross examination and documents produced and disallowed the loss treating it to be bogus. The CIT(A) upheld the disallowance which was deleted by the tribunal. While dismissing the revenue's appeal u/s 260A the Calcutta High Court observed as follows : "It appears that the share loss and the whole transactions were supported by contract notes, bills and were carried through recognized stock broker of the Calcutta Stock Exchange and all the payments made to the stock broker and all the payments received from stock broker through account payee instruments, which were also filed in accordance with the assessment. It appears from the facts and materials placed before the Tribunal and after examining the same the Tribunal came to the conclusion and allowed the appeal filed by the assessee. In doing so, the tribunal held that the transaction fully supported by the documentary evidences could not be brushed aside on suspicion and surmises. However, it was held that the transaction of share are genuine. Therefore we do not find that there is any reason to hold that there is any substantial quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of Revenue carried us through the order of the Assessing Officer in which facts concerning the addition of ₹ 67,04,678/- u/s 68 of the Income Tax Act were discussed at length and submitted that all the assessees who are respondents in this batch of appeals are family member of Sri R. S. Agarwal. Sri R. S. Agarwal; his family members and the Companies belonging to the family were subjected to search & seizure operation u/s 132 of the Income Tax act at Calcutta & Siliguri on 8th December 2006. During the course of search certain papers were found and seized which inter-alia included copies of the Contract Notes, Demat statements and other documents which indicated that 6 members of R.S. Agarwal Family had earned substantial capital gains on sale of shares of M/s. Khoobsurat Ltd & M/s. Emrald Commercial Ltd. These shares were allegedly sold on Calcutta Stock Exchange on payment of Security Transaction Tax; after allegedly holding the same for more than 12 months. Accordingly, all the 6 assessees claimed capital gains to be exempt u/s 10(38) of the Act. 4.1. Simultaneously with the search conducted in the case of R. S. Agarwal Group, search & seizure proceedings were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132(4) of the Act carried more evidentiary value. He further submitted that the copies of the retraction affidavits were never furnished to the ADIT (Inv.). Even though in the retraction affidavits the Stock Brokers had alleged that the statements before the ADIT (Inv.) were obtained by coercion and undue influence but before the AO no evidence was produced by the assessee to prove as to how undue influence or coercion was exercised for giving the confessional statement. He further submitted that the statement of the Brokers could be used as evidence by the AO; against the assessee because in the statement recorded u/s 132(4) there was clear admission on the part of the brokers as also by Sri Arun Kumar Khemka that they had merely provided accommodation entries and share purchase/sale transactions were sham and not genuine. 4.4. The Ld. DR further submitted that in the assessment order; besides relying on the confessional statements of Sri Khemka and the Stock Brokers the AO also brought on record cogent; relevant and circumstantial evidences & facts which clearly proved that in reality there was in fact no purchase & sale of shares of Khoobsurat Ltd & Emarald Commercial Ltd. Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Shri Khemka & the Stock Brokers. 4.5. The ld.DR then brought to our attention an order passed by SEBI in which the 2 Stock Brokers viz. Sunil Kumar Kedia & Ashis Stock Broking Pvt. Ltd were held guilty of manipulating prices of shares of Companies listed on Calcutta Stock Exchange. Referring to the SEBI's order, the ld.DR pointed out that SEBI had found clear evidence to establish that M/s. Ashis Stock Broking Pvt. Ltd & Sunil Kedia were engaged in circular trading of shares of Companies whereby prices of shares were artificially inflated. As SEBI found the two brokers were involved in price manipulation activities, they were banned by SEBI from transacting any business on the floor of the Exchange. The ld.DR argued that the order of SEBI clearly proved that the Brokers through whom the assessee carried out his sale of shares were guilty of price manipulation of shares and having regard to their tainted character the AO was well justified in holding the assessee's share sale transactions through these Brokers to be sham. 4.6. The ld.DR further submitted that both M/s. Khoobsurat Ltd & Emarald Commercial Ltd were Companies having no established track record and did not conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Khemka or the stock Brokers. In fact the assessee was never given copy of these statements either by the ADIT or by the AO. Only in November 2008 the A/R of the assessee was merely shown copy of the alleged confessional statements of Sri Khemka and the Stock Brokers and the assessee was directed to show-cause why no addition should be made. The A/R therefore submitted that till November 2008 the assessee was not even made aware about the serious charges contained in the alleged confessional statement of Sri Khemka or the Stock Brokers. Only on getting information about the alleged confession in November 2008; the assessee ascertained the facts from the Stock Brokers. At that stage the assessee was presented with the retraction affidavits by the Stock Brokers which were immediately furnished before the AO. The A/R further submitted that the assessee not only submitted the retraction affidavits of the brokers but also furnished before the AO all the cogent and relevant documentary evidences which substantiated both purchase & sale of shares. Even though these documentary evidences were furnished; the AO did not bring on record any material or evidence to prove any infirmity or fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any independent verifiable evidence but contained bald statement accusing the assessee of availing accommodation entries. On the other hand, the retraction statements of the Stock Brokers were supported by large number of documentary evidences which were verifiable from independent sources. He stated that the shares in question were transacted through assessee's demat account maintained with depository participant of NSDL. The delivery of shares was given from the demat account of the assessee to the demat account of the Broker. No infirmity in these evidences was proved. The payment for sale of shares was received by account payee cheque. Despite opportunities given the AO was not able to prove the allegation of cheques being issued in lieu of cash received. Referring to the assessment order he stated that even the AO had admitted that the payment for sale of shares was received by the assessee through Calcutta Stock Exchange. This fact proved that the payment for sale of shares was made from independent source and the transaction was fully verifiable from the Exchange. Referring to order of SEBI, the A/R pointed out that after conducting in depth investigation, SEBI had found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement, share transfer forms etc were found and seized. The documents pertained to the assessee's transactions in shares resulting in earning of capital gains on sale of listed shares. Since the documents were found in the course of search u/s 132 of I T Act there was presumption that the documents found represented the state of affairs as appearing from the same. The seized documents indicated that during F Y 2003-04 the assessee had purchased shares of 5 private limited companies through stock broker at a cost of ₹ 2,07,000/-. The purchase cost of shares was accounted in the appellant's books of F.Y. 2003-04. No adverse inference with regard to purchase cost of shares was drawn by the AO. Even in the impugned order the addition u/s 68 was not made with reference to sale proceeds of ₹ 69,11,678/- realized on sale of shares but the addition was with reference to income element only. We therefore find that even in the impugned order in making addition u/s 68 the AO himself allowed deduction for purchase cost of shares. These facts therefore indicated neither the cost of purchase was doubted nor addition in respect thereof was made either in the year of purchase or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shares in the assessee's name. The amalgamation of the companies was approved by the Calcutta High Court and there was no material which showed that approval for the amalgamation was obtained by misrepresentation of facts. We also note that the assessee had furnished evidence in the form of letters issued by the amalgamated companies; allotting fresh shares to the assessee in exchange of the shares of the amalgamating companies. The letters of allotment contained details with regard to number of shares, distinctive numbers of shares, folio number, share certificate numbers etc. Shares of the amalgamated companies were listed for trading on Calcutta Stock Exchange. As per SEBI regulations the shares were required to be held in dematerialized form. For this purpose the assessee surrendered share certificates to Eureka Stock & Share Broking Services Ltd., a depository participant of NSDL. Before us the assessee filed copy of the application made with the depository participant for surrender of share scrips from which we find that the distinctive number of shares , share certificate numbers etc exactly tallied with the information mentioned in the letters of allotment issued in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on CSE at ₹ 477 and shares of Emrald Commercial Ltd were transacted at ₹ 464.50. Even during the period January to March 2011 shares of both the companies were transacted on CSE at prices ranging from ₹ 464 to ₹ 477 per share. These facts therefore show that long after the date on which the assessee sold his shares; shares of both the companies were regularly transacted on CSE at prices which are more or less similar to the prices at which the assessee sold his shares in 2005. We find there has been no fall in the market prices of these shares even after 6 years and the shares of these companies are still actively transacted on CSE. 6.5. We also note that after shares were sold, delivery of shares was given from the demat account of the assessee and shares stood transferred to the demat account of the brokers. Documentary evidences on record therefore showed that sale of shares was full verifiable with reference to credible third party evidences. Before the AO as well as before us the assessee was able to substantiate his purchase & sale of shares by producing documents and evidences which ordinarily an investor maintains in relation to his transactions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the said person before using his alleged confession as the sole basis for drawing adverse inference against third person. We however find that the AO at no stage personally examined either Shri Khemka or the stock brokers but simply relied on the earlier statements before the ADIT (Inv.). Considering this glaring omission the CIT(A) had required the AO to personally examine the witnesses in remand proceeding. We however find from the remand report that the AO declined to examine his witnesses nor allowed the assessee the opportunity of cross examination. We also note even though in the remand proceeding the CIT(A) expressly directed the AO to investigate the alleged trail of cash the AO did not bring on record any evidence to substantiate his conclusion that assessee's own cash was returned to him in form of cheques. Failure on the part of the AO to even investigate the alleged cash trail justifies the CIT(A)'s conclusion that the AO had no material or evidence with him to prove that the capital gain earned by assessee on sale of shares represented assessee's undisclosed income. 6.8. Keeping in view of the above observations we find that in the present case the confessional stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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