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TMI Blog2018 (2) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the AO on account of notional commission paid to Shri Deepak Patwari will not be sustainable being consequential to the first issue and hence deleted. Disallowance of legal expenditure - Held that:- We find that the assessee claimed the payment of ₹ 12,500/- to M/s R. Mangal & Co., Chartered Accountants towards legal fees for filing the income tax return. The genuineness of the payment has not be doubted by the authorities below. Therefore, the said expenditure is allowable claim against income declared by the assessee under the head income from other sources for which the assessee has filed the return of income and paid taxes. Accordingly we allow the claim of the assessee. - ITA No. 368 /JP/2017, ITA No. 369 /JP/2017, ITA No. 370/JP/2017, ITA No. 371/JP/2017 And ITA No. 372/JP/2017 - - - Dated:- 31-1-2018 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P.C. Parwal (C.A.) For The Revenue : Shri Rajender Jha (Addl. CIT) ORDER PER BENCH: These five appeals by five assessees who are family members/related persons are directed against the five separate orders of ld. CIT(A) all dated 23.03. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ₹ 2,64,04,191/- made in the assessment completed u/s 143(3) by the AO by treating the long term capital gain income claimed exempt u/s 10(38), as unexplained income u/s 68 of the I .T .Act 1961, as the provisions of section 68 are applicable only when the assessee is maintaining books of accounts and in the present case assessee is a salaried individual not requiring to maintain the books of accounts . Thus, the additions made by the Ld. CIT(A) by applying the provision of section 68 is bad in law and deserves to be deleted . 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in making addition of ₹ 1,32,020/- on presumptions and assumptions @ 0.50 % of transaction amount of long term capital gain, without any basis and with out establishing the as to how the amount has been paid to the broker. Thus additions made without any basis just on presumptions and assumptions is bad in law and deserves to be deleted . 3.1 That, the Ld. AO and the Ld. CIT(A) has further erred in making the addition of ₹ 1,32,020 /- solely on the basis of the statements given by Shri Deepak Patwari, recorded by I.T. Officials after giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies were paper companies operated by an entry operator Shri Deepak Patwari and in his statement recorded u/s 131 of the Act accepted that he was merely an operator and was buying shares by using money provided by other operators for creating bogus entry of long term capital gains. The AO after discussing the modus operandi of entry providing operator as well as the statement of Shri Deepak Patwari issue a show cause notice to the assessee as to prove that the transactions carried out were genuine and exempt long term capital gain earned by it is beyond doubt. The assessee was also asked to make appearance of principal officers of the companies whose shares were purchased and sold by the assessee. In response the assessee filed its reply vide letter dated 15.03.2016 and explained that the assessee has purchased the shares of M/s Gravity Barter Pvt. Ltd. subsequently changed its name to M/s Gravity Barter Ltd. and thereafter got merged with M/s Oasis Cine Communication Ltd. after approval of Hon ble Kolkata High Court. The shares were purchased against the consideration paid by the assessee through cheque and the shares were transferred in the name by the assessee by the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then referred to the bank statement of the assessee and submitted that the payment of ₹ 4,00,000/- was made through cheque on 17.05.2011 and therefore, M/s Winall Vinimay Pvt. Ltd. is shown as as creditor in the balance sheet as on 31.03.2011. He has further submitted that in the mean time M/s Gravity Barter Pvt. Ltd. changed its name and status from private limited to a public limited company vide Board of resolution dated 08.01.2011, which was approved by the Registrar of companies and fresh certificate of incorporation was issued on 05.02.2011 placed at page no. 43-46 of the paper book. The ld. AR has further submitted that Pvt. subsequently amalgamated with M/s Oasis Cine Communication Ltd. as per the order dated 25.08.2011 of Hon ble Kolkata High Court and as per the terms of scheme of amalgamation approved by the Hon ble High court every shareholder of M/s Gravity Barter Ltd. was allotted 44 shares of M/s Oasis Cine Communication Ltd. for each share held by it. The ld. AR has referred to the letter dated 01.11.2011 of M/s Oasis Cine Communication Ltd. whereby the assessee was communicated about the amalgamation of consequential allotment advice along with physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the P.B. for a consideration of ₹ 2,12,34,671/-. The sale proceeds were credited in the bank account of the assessee. Thus, the ld. AR has contended that when the assessee produced all evidences to prove the transactions of purchase of shares, the payment of purchase consideration, amalgamation and merger of the companies subsequent to the purchase of shares, allotment of the shares of the merge entity, dematerialization of shares in the demat account and subsequent sale of the share from demat account of the assessee then the finding of the authorities below are based on presumption and suspicion along. He has further contended that the AO has given its finding on the basis of the statement of Shri Deepak Patwari without giving an opportunity to the assessee to cross examine. Further, Shri Deepak Patwari was nowhere stated that the assesseee ever approached him for providing entry for capital gains. Rather the assessee has purchased the shares paying the consideration through cheques. The Assessing Officer has doubted the transactions because of the changed name of the companies and subsequent amalgamation and mergers without appreciating the facts that all these change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish a link that the assessee has brought back his unaccount income in form of Long term capital gain. The ld. AR has also relied upon the decision of Mumbai Special Bench of this Tribunal in case of GTC Industries vs. ACIT 164 ITD 1. Thus the ld. AR has contended that in case of the assessee, there is no direct evidence brought on record by the AO to hold that the assessee introduced his own unaccounted money by way of bogus long term capital gain. The assessee has furnished all the evidences in support of its claim showing the investment in the shares and purchases of the shares has been accepted by the AO in the year of its acquisition and thereafter, until the same were sold. The ld. AR has submitted that the assessee has shown the shares in the balance sheet as on 31.03.2011 which were not doubted by the AO and only when the same were sold, the Assessing Officer has raised the suspicion of genuineness of the transactions. Further, the assessee still holds 17,200 equity shares of M/s Oasis Cine Communication Ltd./ M/s Ecowave Infotech Ltd. The assessee is regulary investing in the shares as can be seen from the various shares appearing in his balance sheet and in the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allots of 400 each for a consideration of ₹ 2 lacs each total amount to ₹ 4 lacs @ ₹ 500 per shares. The purchase price of ₹ 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of ₹ 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee. 8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under: 5. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the assessee, and Mr. K. Radhakrishnan, learned senior counsel who appeared for the Revenue. 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 order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only basis of issuing the Show Cause Notice. Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:- 46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:- 12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:- Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant. In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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