2020 (2) TMI 786

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..... HRI, SANJAY GARG, JJ. Appellant by : Shri S.K. Tulsiyan, Advocate, Shri Ashwani Kumar, C.A, Ms. Abha Aggarwal, C.A, Ms. Bhoomija Verma, Advocate, Mr. Aditya Kumar, C.A Respondent by : Shri. G.C. Srivastava, Special Counsel Order PER BENCH: All the above appeals filed by the different Assessees are arising out of the common order dt. 31/03/2018passed by the Ld. CIT(A)-3, Gurgaon. 2. These appeals were earlier heard on 01/10/2019, at that time, one of the contention of the Ld. Counsel for the Assessee was that these appeals are squarely covered vide order dt. 31/10/2018 of the ITAT Delhi Bench in the case of Shri Brij Bhushan Singal Ors Vs. ACIT in ITA Nos. 1412-1414, 1476-1478, 1482, 1485- 1487/Del/2018. To clarify this fact that as to whether the said order has been confirmed or reversed by the higher forum, these cases was fixed for clarification on 04/02/2020 i.e. the date on which another cases of the same group to which these assessees belong are fixed. The Ld. Counsel for the assessee clarified that the Departmental appeals against the said order dated 31/10/2018, were belated by approximately 200 days and till date those appeals had not b .....

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..... rounds of appeal raised by the Appellant by relying on statements of various persons and data without affording any opportunity to cross examine such persons thereby ignoring the basic principles of natural justice despite the fact that a specific ground was raised to this effect. 4. The ground nos. 1 5 are legal grounds vide which the assessee had challenged the jurisdiction of the A.O. in initiating the proceedings under section 153A of the Act when no incriminating material was found during the course of search. These legal grounds were argued at the first instance by both the parties. 5. Facts relating to the issue as emerging from the order of the authorities below in brief are that a search and seizure operation under section 132(1) of the Income Tax Act (here-in-after referred as Act ), was carried out by the Department at the business premises of the assessee Group i.e; Bhushan Power Steel Group (BPSL in short) alongwith residential / business premises of its Directors and other related entities persons on 03/03/2010. 6. During the course of search certain incriminating documents, papers, books of accounts etc. were found and seized. The A.O. mentioned th .....

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..... as in our view this goes against the basic accounting principles. After hearing both the parties we are of the view that the income of the applicant company can be quantified at the amount of ₹ 239,11,90,780/- minus ₹ 168,26,80,893/- (amount of opening balance pertaining to Smt. Arti Singhal and Shri Sanjay Singhal in the seized Annexures) and balance amount of ₹ 70,85,09,887/- is treated as undisclosed income of the applicant company. As the said income of ₹ 70,85,09,88 7/- has been declared in the hands of Shri Sanjay Singhal and his wife Smt. Aarti Singhal which is to be shifted in the hands of applicant company on the basis of stand taken by the Department, we direct that this income will be excluded from Shri Sanjay Singhal and Smt. Aarti Singhal in the ratio of 107:32 respectively. We further direct that the taxes paid by Shri Sanjay Singhal and his wife Smt. Aarti Singhal in the ratio of 107:132 on income of ₹ 70,85,09,887/- will be given credit to the applicant company. For this direction, we are guided by the decision of Hon'ble Supreme' Court in the case of Bachu Lal Kapoor Kewal Ram 60 ITR 74 (SC) in order to avoid taxation of the sa .....

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..... r section 143(2) and 142(1) of the Act. The Assessee objected to the assessment proceedings initiated under section 153A of the Act on the ground that no incriminating evidences were found from him and that the books of accounts and other data maintained in the server of the Assessee Group at 3, Industrial Area Phase-I, Chandigarh was cloned and thereafter seized. The AO observed that the details of the cheques / RTGS transactions of assessee as well as group concerns with the paper entities of entry providers were mentioned in the cloned data seized from the assessee and those details matched with the data seized from the various entry providers located at various places which suggested that OT accommodation entries and LTCG were obtained by the Assessee Group in lieu of cash and with the nexus of the assessee with the entry providers and incriminating nature of data seized was established, therefore the objection of the assessee was not accepted. The A.O. observed that during the course of investigation and assessment proceedings, it was exercised that the assessee had shown Long Term Capital Gain(LTCG) as exempt income, through sale of share of various companies from A.Y. 2008-0 .....

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..... 11 Grandma Trading Agencies Ltd. 12 Asiallak Capital Finance Ltd now known as Glot al Infratech Ltd. 35.04 13 Global Infratech Finance Ltd. 13.99 14 G-tech Info 0.23 Total 0.37 0.00 0.23 54.36 60.48 8.48 58.65 6.5 The A.O. asked the assessee to furnish the complete details of exempt LTCG earned in the various assessment years and the details of bank accoun .....

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..... 3.06.13, 11.06.13 and u/s. 131(1 A) dated 25.11.13 and 13.01.14 (Relevant Parts) 2 Rajan Kachalia Main person handling the accounting and documentation part. 09.04.2013 u/s. 132(4); 11.04.2013 u/s. 131(1A) 3 Chandan Kumar Singh Mam person handling cash and bank transactions and preparation of primary receipt payment documents. 09.04.2013 u/s. 132(4) and 10.04.2013 u/s. 131(1 A) 5 Damodar Attal Main person handling share trading and synchronized trading work. 09.04.2013 u/s. 131(1 A) 6 Devang D. Master Key- associate handling the compliance work and involved in legal planning 09.04.2013 u/s. 132(4) and 10.04.2013 u/s. 131(1 A) 7 Devang Jhaveri Key associate handling day to day compliances and verification of documents. u/s. 132(4) dated 09.04.2013 8 Prakash Dave Employee of Shirish Sha .....

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..... d by the SCS from Kedia (i.e. Shri Raj Kumar Kedia or R.K. Kedia of Delhi) on behalf of the BPSL Group against the payment made on the purchase of shares. The A.O. mentioned names of the entities to whom the shares of M/s PIL held by the assessee and his family were sold at page no 10 of the assessment order, for the cost of repetition the same are not reproduced herein. The A.O. pointed out that the analysis of the time difference between the order placed and the trade execution by the assessee and his family had been carried out on the data received from the BSE which revealed that out of the total 3138 share sold, transactions entered into by the assessee and his family i.e. 48% of the total traded were executed within one minute of the order placed in the exchange and more than 71% orders were executed within five minutes of placing the orders on the Exchange. He also pointed out that modus operandi followed by the SCS for providing exempt LTCG had been explained in details in his various sworn statements recorded during the course of search and post search proceedings which had been corroborated and collated with the evidences found and seized / impounded during the course of .....

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..... ntries for providing LTCG against receipt of cash. The A.O. summarized the modus operandi stated by SCS and OPK as under: SCS approaches promoters of defunct listed companies and enters into an arrangement with them to use their companies for giving accommodation entries. He then appoints dummy Directors in such companies and opens a bank account of such companies in Mumbai which is operated by him. With regard to PIL it is clear from the statement of SCS and OPK, discussed above. To have effective control over the shares of the penny stock companies, the share capital of these penny stock companies is structured by SCS by allotting a large number of fresh shares through private placement. The structuring of share capital involves two types of allotment: b. Majority of the shares are allotted a number of private companies which too are under control of SCS. The investment is made by the private limited companies in the shares of listed companies following two modus operandi: Firstly, the unaccounted cash received from clients is layered into the investing private company which invests in the shares of the listed company and the listed company in turn provide .....

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..... as recorded in the cash sheets which were maintained in the computer at the office of SCS situated at Dwarka Ashish Building and the physical copies of the printouts were also maintained at the said office which were found during the course of survey conducted on 09/04/2013 at the office of Shri SCS. The A.O. pointed out that the name, code name or the initials of the client/intermediary from or through whose reference, cash had been received or paid was recorded in the column PARTY , and the amount of cash received/collected by or on behalf of SCS from /through the person mentioned in the Party column was entered in the column Received . The A.O. also pointed out that in the most of instances the cash received by SCS from the assessee Group had been paid to Pintu alias Chintan (Praveen Kumar Jain) and the same had also been found to have been recorded in the books independently maintained by Pintu, seized during the course of search conducted in his own case. The A.O. reproduced the details of new accounts in Kedia 2 Sheet at page no. 19 to 27 of the assessment order, the contents of the same was extracted as under: Date DETAILS .....

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..... orded. The + Ve sign denotes purchase of shares of the company recorded at Column No. 2 by SCS though persons and companies controlled by him wherein the counterparty is the seller which has provided cash to SCS and has received payout through synchronized trading. In this case ₹ 1,00,000/- shares of M/s Pranneta Industries Ltd. have been purchased by SCS from counter party from whom cash has been received. At column No. (4), the rate per share (in certain cases the average rate of the shares purchased by SCS through synchronized trade from the client) of shares of the company mentioned at Column No (2) is recorded. In this case the rate per share is ₹ 46.25 per share. At column No. (5), the total trade value of the shares sold by the client and purchased by SCS (through persons controlled by him on BSE) is recorded. In this case the total trade value of the purchase of shares of M/s Pranneta Industries Ltd.from the client is ₹ 46,25,000/-. This column represents the debit made by SCS to the account of the client. In this case the account of BPSL Group has been debited by ₹ 46,25,000/-. At column No. (6), the commission debited to the account (&# .....

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..... 68.75 1718750 Kinita Real Estate Pvt. Ltd. Sanjay Singal HUF 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-2011 25000 68.75 1718750 Kinita Real Estate Pvt. Ltd. Aarti Singal 14-02-20 .....

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..... he A.O. pointed out that the details which were found in the books of accounts of SCS entities matched with the details found in books of accounts and document seized from Shri R.K. Kedia who admitted that the code language has been used and a dot(.) had been placed before two zeroes (.00) while recording the amount of transaction in the books of accounts. The same fact was admitted by the employees of Shri R.K. Kedia in their statements recorded on oath. He also observed that the details of LTCG accommodation entries arranged by Shri R.K. Kedia through listed paper entities like M/s PIL of SCS had been found seized in the case of Shri R.K. Kedia. The AO prepared a cash trail showing the flow of unaccounted cash from various individual of BPSL Group to SCS through Shri R.K. Kedia at page no. 60 of the assessment order and observed that the evidence in the form of seized books of accounts from three independent searches on SCS Group, Kedia Group and Pintu Group at different point of time, having the exactly same details of accommodation entries in lieu of unaccounted cash established beyond any doubt that various individuals of the BPSL Group had taken LTCG accommodation entries wit .....

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..... ted cash receipts. Sh. R.K. Kedia also arranges various kind of accommodation entries from different entry operators (SCS in this case) for his different client beneficiaries various individuals of the BPSL group in this case, after charging a fixed percentage of commission in cash. Out of the total percentage of commission received in cash (6 - 7%) from Bhushan Power steel Group he paid around 4.50-4.75% of commission to SCS and 0.25% to angadias for cash courier. 6.13 The A.O. observed that Shri R.K. Kedia and his employee Shri Manish Arora admitted on oath that they were in the business of providing accommodation entries and had arranged various kinds of accommodation entries for the various individuals of the BPSL Group and received commission @ 6% of the entries provided by them and that upon being confronted with the evidences the assessee disclosed additional income of ₹ 250 Crores under section 132(4) in the sworn statement recorded on 22/02/2014 and backed it up with disclosure letter, however he could not give any satisfactorily reply to the question asked by the authorized officers and reiterated the disclosure of unaccounted income of ₹ 250 C .....

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..... anneta Industries Ltd. Sh. Shirish Chandrakant Shah 2 DB International Stock Brokr Ltd. Sh. S.N. Daga 3 Blue Circle Services Ltd. Sh. Jagdish Prashad Purohit 4 Unisys Software Holding Ltd. Sh. Jagdish Prashad Purohit 5 Action Financial Services (India) Ltd. Sh. Bakul Parikh 6 Global Infratech Ltd. Sh. Jagdish Prashad Purohit 7 Rutron International Ltd. Sh. Anil Aggarwal 8 Matra Kaushal Enterprises Ltd. Shri Krishan Kumar Khadaria 9 Rander Corporation Ltd. Sh. Natwar Lai Daga and Krishan Kumar Khadaria 10 Grandama Trading Agencies Ltd. Sh. Sawan Jaju 11 Nouveau Multimedia Ltd. Shri Krishan Kumar Khadaria .....

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..... ous beneficiaries, were found and seized which revealed that Shri R.K. Kedia sold 2,00,000 shares of BCSL held in the name of Shri Aniket Singal @ an average rate of ₹ 79.93 for approx. ₹ 1,59,86,000/- on 13/09/2012, also 2,00,000 shares @ an average price of ₹ 79.88 for approx ₹ 1,59,76,000/- and on 17/09/2012, 13,000 shares @ an average price of ₹ 79.87 for apporx ₹ 1,03,83,100/- were sold. The A.O. also mentioned that in the pages found during the course of search at Shri R.K. Kedia, the details of Chopra Account /BPSL Account, reconciliation of the said accounts had been given wherein the details of the cash received by Shri R.K. Kedia from Shri Suresh Gupta on behalf of BPSL Group and cheque payments to and from the entities of BPSL Group for providing various kind of accommodation entries were given and details of commission charged/premium received @6.5% for arranging bogus LTCG accommodation entry on account of sale of shares of BCSL were also given. 6.16 The A.O. also pointed out that the SEBI had carried out investigation in few listed companies on the basis of common trading pattern, identical developments like stock splits, prefer .....

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..... tries, Statement by Sh. Manish Arora on oath that Sh. R.K. Kedia is in the business of providing accommodation entries, Hand written cash receipt and payment account related to accommodation providing business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora. Coded tally books of accounts pertaining to accommodation entry business of Sh. R.K. Kedia found and seized from the residence of Sh. Manish Arora, Accountant of Sh. R.K. Kedia. Date and time wise mail communications between Sh. R.K. Kedia and other entry operators for providing various kind of accommodation entries found as printouts and seized. These mails printouts also establishes beyond doubt that Sh. R.K. Kedia has provided accommodation entries. These mails printouts also have details to decipher the codes used while entering transations in tally in coded language. Coded SMS communication (generally currency notes numbers) while receiving and delivering cash from beneficiaries to entry operators through angadias from the phone of Sh. Manish Arora. Statement on oath given by Sh. San jay Kumar and Sh. Bishu Jain two employees of Sh. R. K.Kedia, that they used to collect cas .....

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..... a were found and seized on 13/06/2014 by the investigation wing which were confronted to Shri R.K. Kedia whose sworn statement were recorded from 13/06/2014 to 16/06/2014 and detailed statement of his accountant Shri Manish Arora were also recorded on various dates in which he described the whole modus operandi of providing accommodation entries and also explained each and every papers alongwith the code words mentioned on them and when there was no escape route Shri R.K. Kedia accepted all the facts mentioned by Shri Manish Arora. However Shri R.K. Kedia vide letter dt. 20/10/2014 retracted from the sworn statement given earlier and stated that those were given under mental stress. The A.O. again recorded the statement of Shri R.K. Kedia under oath on 26/03/2015 wherein he was confronted with the evidences gathered and he again confirmed that he was an entry provider and also confirmed all the sworn statements given earlier. The A.O. did not accept this contention of the assessee that the department put a lot of pressure on Shri Manish Arora to receive favourable remarks from him. He therefore asked the assessee to show cause as to why the receipts credited in the books of account .....

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..... he timing difference that most of the trades were executed within one minute and majority of orders were executed within five minutes of placing of order. It was stated that no adverse inference on the basis of analysis of trade data could have been made. As regards to the fact that corroborative sworn statements had been given by the dummy directors of 212 companies controlled by SCS, it was stated that the assessee did not know any of those persons and was not aware as to why and under what circumstances these statements were given by those persons. It was also stated that cross examination of SCS and all other persons which were covered alongwith SCS and gave sworn statements, should have been allowed to the assessee. 9. As regards to the decision of investment in M/s PIL the assessee submitted as under: 5. Regarding the decision of investment in M/s PIL, the assessee submitted that, Investment was made on the perception that M/s Prraneta Industries Limited was planning to setup big projects in Gujarat, Mumbai and overseas. The Assessee further came to know that M/s Prraneta Industries Limited was getting a huge contract for land development work from PACL. The company .....

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..... acknowledged that the amount and number of shares recorded in the data seized from entry providers matched with the actual sale of shares of M/s PIL by the assessee and his family members, but stated that no conclusion could have been drawn against him on that basis. 12. With regard to the admission of Shri R.K. Kedia being an entry provider the assessee submitted that Shri R.K. Kedia was not a reliable person and he had taken different stands during the course of statement recorded on various dates i.e. 22/02/2014, 20/03/2014, 13/06/2014 and his letter filed on 20/10/2014. Regarding the maintenance of data of LTCG transactions of BPSL family and group by Shri R.K. Kedia the assessee submitted that he was not aware of the purpose of maintaining such records by him and that he might have been expecting some commission since he had advised for investment in the shares of PIL and the assessee had earned a handsome amount from the said investment. However no such commission was ever agreed or paid to him. 13. As regard to the voluntary surrender of ₹ 250 crores made by the assessee during the course of search proceedings, it was submitted before the A.O. that during the .....

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..... ncerns of assessee had taken share capital at huge premium and have advanced huge sums of money to paper concerns controlled and managed by SCS. He also observed that the assessee had accepted that RTGS payments were made by BPSL to various companies managed and controlled by SCS as advance for purchase of capital assets in the normal course of business. Therefore, the stand taken by the assessee that he did not know any person named as Sirish Chanrakant Shah was baseless and contrary to his own submissions. The A.O. observed that nexus between different entry providers operating from various locations had been adequately established and it was not necessary that only one entry provider worked on share for jacking up the price of share and that the evidence found, suggested that different entry operators worked in tandem in trading of shares of penny stock companies for jacking up the price for final purchase. Therefore, he was of the view that the assessee s contention that various parties other than the ones controlled and managed by SCS group purchased the shares of PIL had no relevance. The A.O. pointed out that during the course of assessment proceedings and after the submissi .....

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..... ing accommodation entries for various purposes like share capital, LTCG, bogus bill etc. for earning commission. The A.O. was of the view that M/s PACL India Ltd. siphoned off its funds in garb of land development for which bogus bills were arranged through the companies managed and controlled by Shri Praveen Kumar Agarwal. The A.O. also observed that the assessee had stated that investment in the shares of M/s PIL was made on the perception that it was planning to set up big projects in Gujrat, Mumabi and overseas and that he had knowledge about land development contract awarded to M/s PIL by M/s PACL India Ltd., therefore, he decided to invest in the shares of that company. The A.O. observed that the details found maintained by Shri Praveen Kumar Agarwal established that all those contracts were completely bogus and it was a network created for benefit of all the beneficiaries indulged in tax avoidance practices. Therefore the contention regarding decision of investment in M/s PIL was base-less without any supporting evidence. He also observed that the assessee remained silent with regard to the cash transactions against accommodation entries recorded in BIPL folder and did not c .....

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..... explanation of the assessee at page no. 124 and 125 of the assessment order and mentioned that the assessee stated that the statement of all the persons were recorded at the back and if the department wanted to rely on any part of the statements for drawing any adverse inference against the assessee, then he may be intimated regarding the specific charge made against the assessee out of their statement and he may also be allowed an opportunity to cross examine and that how the conclusion was drawn from financial statements of penny stock which were not doing any meaningful business activity, it was stated that various things regarding those companies attracted him to make investments and that he was not aware of the activity of any entities / individuals involved and nor was assessee in any way connected with the activities if any of such entities / individuals. The A.O. observed that assessee did not elaborate or explain the things which attracted him about those companies and did not file any supporting documents. 14.2 The Assessee submitted to the A.O. that he did not know any of the person whose statements were recorded and was not in any way connected with their activitie .....

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..... expense, finance charge etc which were necessary to conduct genuine activity were negligible and no dividend was ever declared by those companies and the earning per share was almost NIL. He also observed that the financial statement of all the penny stock companies from which the assessee earned huge profits had similar pattern and that any investor could see that there was no future prospects and no meaningful activities in those companies, therefore no prudent person would invest any money in shares of those companies, yet the assessee alongwith his family choose to invest not in one but in at least 15 such companies and earned extraordinary income of approx ₹ 750 crores on sale of shares over a period of five years which was beyond human probability and hence the transactions were treated as sham. 16. With regard to the issue of jacking up the price of shares the A.O. observed that there were direct and circumstantial evidences which established that the price of those penny stocks were artificially jacked up the cartel of various entry providers and this fact had duly been accepted by SCS in his sworn statements. He also observed that the statement of S/Shri R.K. Ke .....

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..... ed representative of the assessee submitted that the assessee wanted to cross examine all the persons whose statements had been relied upon and provided to the assessee. The A.O. was of the view that cross examination was required only where there were no documentary evidence and where the addition was made merely on the basis of statement of a third person but in this case solid evidences were found and the statement only corroborated the evidences found in the form of electronic data seized from various entry provider located at various part of the country which was collected independently from remote locations, tallied and matched not only with each other but also with the regular books of account of the assessee and its group concerns. He further observed that the assessee was confronted with all the data and evidences collected by the department but he could not explain or comment on merits of the evidences. The A.O. pointed out that none of the persons to whom summons were issued appeared for cross examination coupled with the fact that the assessee failed to offer any reasonable explanation on merits of the hardcore evidences established the unholy nexus between the entry pr .....

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..... present case evidences gathered proved that assessee had taken accommodation entries, the statement of the entry provider corroborated the primary evidence, those documentary evidences and the statements were provided to the assessee for his explanation but in response the assessee had not offered any explanation on the merit of the evidences but merely denied any such transactions and knowledge of existence of such evidence. He sought cross examination of the entry providers whose statements were relied upon by the department. The A.O. also pointed out that the summons under section 131 of the Act were issued to 20 such persons but none responded. The A.O. held that having confronted with the evidence indicating sham transaction, the burden of proof shifted back on the assessee and heavy onus was cast on him under section 68 of the Act to prove his case beyond doubt by producing so called investors but the assessee had failed to do so. Therefore the cross examination was not relevant and not necessary for the finalization of the assessment. The A.O. also held that the pattern of movement of funds for layering, non existence of genuine business activities of such investors etc. co .....

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..... equiring him to furnish within such period as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment year: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. (3) It is implicit in the above provisions that .....

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..... Commissioner of Income-Tax (Central) - III vs. Kabul Chawla [(2016) 380 ITR 573 (Delhi)] wherein it has been clearly held that completed assessments can be interfered with by Ld Assessing Officer while making assessment under section 153A only on basis of some incriminating material unearthed during course of search which was not produced or not already disclosed or made known in course of original assessment. While delivering the aforesaid judgement Their Lordships have analyzed the provisions of Section 153A as following:- i. Once a search takes place under Section 132 of the Act, notice under Section 153A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as afresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income&# .....

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..... y Commissioner of Income -tax, Central Circle -5, New Delhi [(2014) 150ITD 692 (Delhi-Trib)] Smt Rashmi Wadhwa vs. DCIT, Central Circle-8, New Delhi [order dated 18.01.2016 in ITA No. 5184/Del/2014 passed by the Hon'ble ITAT Delhi Bench', New Delhi; M/s Siriago Pharma (P) Ltd. vs. DCIT, Central Circle-3, Jaipur [order dated 13.01.2016 in ITA No. 1010/JPI/2013 passed by the Hon'ble ITAT Jaipur Bench, Jaipur; Dy. Commissioner of Income Tax, Central Circle 23 vs. Sh. Himanshu B. Kanakia [order dated 18.01.2016 in ITA No. 3187/Mum/2014 passed by the Hon'ble ITAT H Bench , Mumbai. (9) In particular, it may be noted that the jurisdictional Chandigarh Bench of the Hon'ble Income Tax Appellate Tribunal in the case of Mala Builders (P) Ltd vs ACIT, Central Circle -II, Chandigarh vide order dated 23/08/2016 in ITA Nos. 433 to 437 of 2014 has also unequivocally affirmed the above interpretation of law. It is respectfully prayed that the above ground may kindly be adjudicated in the light of the submissions made above. 20. As regards to the merits of the case relating to the addition by invoking the provisions of Section 68 of the Act the submiss .....

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..... d 29/02/2016 and 11/12/2015 (copies again being enclosed herewith). The entire sale of shares, which had been undisputedly held by the Appellant for more than twelve months before the date of sale, was affected through a broker registered on a recognized Stock Exchange, (BSE in this case) and Securities Transaction Tax (STT) was duly paid on the transaction. (4) As a result of the said sale of shares, the Appellant had earned Long Term Capital Gain(LTCG) of₹ 60,48,79,547/ which was claimed as exempt u/s 10(38) of the Act since all the conditions laid down therein stood duly fulfilled and complied with. (5) However, ignoring the specific provisions of law and the facts of the case, the Ld Assessing Officer has proceeded to unjustifiably add back the entire sale proceeds aggregating to ₹ 62,66,38,865/- to the income of the Appellant u/s 68 of the Act as an alleged unexplained cash credit by denying exemption u/s 10(38) of the Act notwithstanding the fact that all the conditions specified therein for grant of exemption were duly satisfied. (6) While passing a voluminous and, ostensibly, detailed reasoned order justifying the aforesaid action, the Ld Assessing O .....

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..... the Broker through whom the shares have been sold were duly filed before the Ld. Assessing Officer and are again being enclosed herewith. (10) In this connection, before proceeding further, Your Honour's kind attention is invited to the provisions of Section 10(38) of the Act as per which any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity-oriented fund where (a) the transaction of sale of such equity share or unit is entered on or after the date on which Chapter VII of the Finance (No 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter. shall not form part of the total income. (11) The above section provides that any long-term capital gain arising from the transfer of equity shares shall not form part of the total income provided the twin conditions referred in Section 10(38) viz the transaction having been entered into on or after 1st October, 2004 and Securities Transactions Tax (STT) having been duly paid thereon are cumulatively satisfied. In the given case, the transactions giving rise to the LTCG entered by the Appe .....

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..... respective parties viz buyers or sellers. The securities traded, being invariably held in De-materialized (DEMAT) form, are transferred from/to the accounts of the relevant parties involved and the accounts (Delivery of shares as well as financial) are settled inter-se brokers and with their clients, both with respect to the delivery of shares and settlement of accounts due as per in the mechanism of the concerned exchange. It may be mentioned here that the securities markets function with the framework of the rules/regulations/procedures of the relevant exchange and also under the strict regulation, control and monitoring of the Securities and Exchange Board of India, statutory body which functions as the market regulator and watchdog. (14) With the above background, albeit brief, on the functioning of the stock exchanges, and the fact of the manner, mode and procedure for the purchase of shares having not been disputed, it may be mentioned here that the shares in question sold, were of a listed company, and were sold at the prevailing rates through the Bombay Stock Exchange Online Trading (BOLT) platform of the Bombay Stock Exchange and all the payments against the same were .....

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..... h a preferential allotment/purchase from the open market and which were subsequently duly credited to his DEMAT account, stands duly and comprehensively documented. Further, the sales of the securities took place through a registered broker on the NSE/BSE in accordance with the prescribed regulatory procedures, rules and applicable laws whereby both the limbs of the transaction vis purchase and sale of shares gets duly authenticated. The transactions were also, in all cases, concluded through regular banking channels. The said facts and circumstances, though not relevant from the point of view of determining the taxability or otherwise of the Capital Gains under the Act, are decisive determinants as to the genuineness and validity of the transactions and their being in compliance with all the applicable relevant statutory provisions, rules, procedures and practices. (18) A large part of the Ld Assessing Officer's arguments are based on the perceived and alleged price-manipulation and rigging through a perceived arrangement between various parties/brokers and individuals. Given the above discussion on the functioning of stock-exchanges, it should be noted that since the Appe .....

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..... lity to exploit any bits and pieces of information that he may become privy to or even sheer fortitude - none of which call for a negation of the entire transaction so as to strike at the roots of its authenticity, nature and character. (iii) The Ld Assessing Officer has also placed reliance on the fact of the apparently phenomenal rise in the prices of the shares compared to their revenues/ operating results / assets base/ business health and the apparent absence of any new development which promises bright future for the shareholders which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of the capital market wherein price discovery of the underlying security and its movement is the result of the complex interplay of a set of intricate and diverse set of factors, sometimes mutually exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors includ .....

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..... in share price(s) is a natural phenomenon and cannot be made the basis for doubting any transaction for the purchase/sale of shares. (vii) It is pertinent to mention here that the process of preferential allotment of shares as well as follow up public issue(s) is the culmination of a rigorous exercise wherein various statutory/regulatory bodies such as SEBI, the Stock Exchanges etc are involved. The entire process involves a multi-stage, rigorous, coordinated and time-bound process involving comprehensive due-diligence, vetting of documents, background check of the promoters, compliance with well-laid out guidelines and parameters etc. An already listed or an unlisted company intending to go in for a public issue can allot shares by way of a preferential allotment only after getting the approval of SEBI. In fact, in the entire process, SEBI also approves the list of persons/entities to whom shares are to be allotted on preferential basis, also incorporating therein the terms and conditions including, lock in, if any subject to which the share are to be issued. (viii) In this background and situation, to disregard an entire process the foundation of which is laid on a compr .....

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..... pellant. (xi) The efforts of the Ld Assessing Officer, rather unfairly, seek to conjure a negative image with respect to penny stocks . In fact globally, in the context of the working of the securities markets and in the normally used and colloquially accepted terminology of people trading/advising in securities, penny stocks are those which trade at a very low price and have very low market capitalization whereby although there is a high-risk, the probability of a rapid upside and the opportunity to gain from even a small rise in price is very high. In this situation, it is a common practice among investors to look for suitable (penny) stocks where the possibility of earning higher returns with a comparatively lower investment is very high. Such an investment behavior, although somewhat risky, and not generally recommended by conservative investment advisors, is not unusual or unheard of and does not carry the taint of illegality or wrong doing in any manner. Accordingly, it would not be correct to look at any transaction in the so called penny stocks with even a slightly suspicious or slanted view since not only are they perfectly legal but also can be a part of any trad .....

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..... of questionable quality. B Documentary evidence gathered during search, statements of entry/exit provides and Investigation of PIT (Inv) Kolkata and Mumbai (i) At the outset the charge that the Appellant had been the beneficiary of allegedly bogus LTCG entries is vehemently denied. The LTCG arising to the Appellant arose from genuine transactions carried out in accordance with the prescribed procedures and duly compliant with the relevant regulatory laws and regulations. (ii) The action of the Ld. Assessing Officer relies, almost solely, on independent search and survey operations carried out by the Department on some entities, alleged entry operators, the findings of the Investigation Wing and orders passed by SEBI whereby it has been concluded generally that the huge capital gains earned within a very short period of time, by investing in a penny stock whose fundamentals/ financials had no support, was neither the result of a coincidence nor of a genuine investment activity but allegedly created through a well planned and executed scheme in which the company, the brokers and the buyers and sellers of the scrip worked deliberately to achieve predetermined objectives. T .....

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..... s companies alleged to be managed and controlled by SCS, it is submitted that as per the information available with the Appellant, the said payments were made through Sh. RK Kedia and not to SCS. There is no contradiction in the stand taken by the Appellant during the course of the assessment proceedings which remains that the payments were in the nature of advances for purchase of capital assets made by BPSL in the normal course of business to various companies apparently and allegedly controlled by SCS, a fact which was definitely never in the knowledge of the Appellant. To be clear and succinct as per the information available with the Appellant, the capital advances paid by BPSL were made through Sh RK Kedia to various companies which as it comes out are, perhaps, allegedly controlled by SCS with whom the Appellant does not have any dealing directly or even indirectly. (d) Without prejudice to the above, as regards the allegation that the transactions recorded in Kedia 2 sheet found in the search proceedings against SCS are exactly same as recorded in bank account of BPSL with Punjab National Bank and as such the transactions recorded therein are authentic, it is submitte .....

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..... need of maintaining the said record particularly with regard to the entries regarding sale of shares of PIL, which incidentally matches with the Appellant's transactions, it can only be speculated that, since as alleged, SCS was managing and controlling the affairs of PIL, he may have maintained the said record for his own purpose or analysis. It is common, normal and definitely not unusual for persons in control of and managing the affairs of listed companies to keep a track of not only the share price movement but also the volume and number of transactions therein. The data could have been obtained from Bombay Stock Exchange or the stock brokers through whom the transactions had been entered into. The name of the Appellant or any of his family members does not figure anywhere in the said documents. Without prejudice it is also submitted that certain transactions of chequefsj received which have been entered therein on various dates such as 01-11-2010, 10-11-2010, 19-11-2010 do not pertain to the Appellant or any of his family members or group companies which further proves the fact that said sheet has no relevance with the Appellant or any of his family members and any advers .....

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..... ess of recording his statement which started on 13-06-2014 continued right up to 09/07/2014 with only small breaks in between. It needs to be appreciated that any human being required to make a statement before investigating authorities for a period of almost 25 days is bound to be under a lot of stress and psychological pressure whereby the possibility of errors, contradictions and inconsistencies can definitely arise casting a serious doubt on their accuracy/reliability and the extent of reliance that can be placed thereon. (j) The action of the Ld Assessing Officer also relies to a large extent on the statement ofSh. Omprakash Anandilal Khandelwal and Shri Radhey Shyam Sharma, Manager of PIL. In this connection it is submitted as follows: - (i) As regards, his statement that the shares of PIL, under his control, were transferred to various companies and persons off market or through the stock exchange as directed by SCS, it may be mentioned that no shares were purchased by the Appellant off market. It is also submitted that the entire purchase was through preferential allotment made by the Company, after following the due procedure as laid down by SEBI and the other appl .....

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..... e internal activities of all those companies nor was required to do so, whether statutorily or even prudentially. (k) With regard to the statements of Sh. Kumar Rai Chand Madan and Shri Deepak Shanghani, it is submitted that the Appellant had absolutely no connection either with them or with SCS. The statements are in no way connected to the Appellant. Without prejudice to the above and after going through their contents it transpires that they have just tried to explain their nature of activities and there is no mention of PIL or that of the Appellant or any of his family member in the entire statement. (l) With regard to the alleged statement ofSh. Damodar Atal an employee of SCS, on which the Ld Assessing Officer has laid rather under stress, that there was purchase and sale of shares of BSE listed companies through synchronized trading for jacking up the share price of listed companies managed and controlled by SCS, it is again submitted that the Appellant was not aware of the activities of SCS or his associates/employees nor was the Appellant in any way connected with the activities of SCS or his employees. As already separately submitted earlier, as an investor, the A .....

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..... bers. The Appellant is neither aware of nor in any way connected with any transactions between Pintu and Shri RK Kedia if any. The Appellant has not paid any cash to Sh. RK Kedia, Pintu or SCS against sale of shares of PIL. (p) The Ld Assessing Officer has also relied on the alleged cash trail of unaccounted cash and alleged flow of unaccounted cash from the Appellant and his family and group to SCS through Sh RK Kedia and Pintu. In this regard it is again submitted that no cash has ever been paid to Sh RK Kedia or any of his employees. Without prejudice to the said averments, it is submitted that the transactions given in the cash trail relied upon by the Ld Assessing Officer pertain to the period from 28-06-2011 to 27-08-2011, whereas in the case of the Appellant and any of his family members, the last sale of shares of PIL was effected on 03- 05-2011. Accordingly, these transactions could by no stretch of imagination pertain to the Appellant or any of his family members and the Ld Assessing Officer's allegation that cash has been paid by the Appellant and his family members to SCS through Sh. RK Kedia and Pintu is without any basis and drawing any adverse inference on th .....

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..... shares i.e. more than 69% were traded in less than 5 minutes of placing the order leading to the definite conclusion that no adverse inference is warranted on the basis of the same. (u) It should also be noted that in an online mechanism, the matching of buyer and seller could be instant wherein the intention of the various parties (whether buyer or seller) is exhibited instantly and a willing counter party can react instantly, within seconds, what to talk of minutes. Further since the entire system operates in a virtual world, with no physical interaction between the counter parties, the possibility of any collusion between the parties is completely ruled out It should be noted that with the stock markets being open only for a limited period, speed becomes essential to the execution of deals and in case of willing buyer(s) and seller(s) the deals get consummated in seconds. The stock markets operate on a real-time basis wherein the deal get transacted instantaneously given the matching of the intentions of the buyers and seller exhibited in the online market place. (v) Without prejudice to the Appellant's stand that given the fact that the shares were sold on the onlin .....

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..... rs which are used for providing accommodation entries, it is submitted that Appellant does not know any person by the name of Sh. Jagdish Prasad Purohit and is in no way connected with the affairs of the companies alleged to be controlled and managed by him and the composition of the Board of Directors of such company. (b) It is further observed that Sh. Jagdish Prasad Purohit has not stated that he was providing any long-term capital gain accommodation entries through the companies controlled and managed by him. Also, in none of the statements, Sh. Jagdish Prasad Purohit has he mentioned the name of the Appellant or any of his family members/group companies. Mere alleged admission on the part ofSh. Jagdish Prasad Purohit that he had allegedly provided accommodation entries to some beneficiaries cannot be prejudicially extrapolated to arrive at an inimical decision adversely affecting the Appellant. (c) In particular with regard to the allegation/conclusion that Sh. Jagdish Prasad Purohit was controlling and managing the affairs of Blue Circle Services Ltd., it is submitted that as per the information collected online from the website of the Ministry of the Corporate Affai .....

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..... of any new development which promises bright future for the shareholders which apparently defies logic of share trading pattern of primary or secondary markets. The said argument goes against the basic grain, manner and functioning of the capital market wherein price discovery of the underlying security and its movement is the result of the complex interplay of a set of intricate and diverse set of factors, sometimes mutually exclusive, sometimes competing and sometimes even-conflicting and on almost all of whom an investor has no control and of which revenues/operating results is just one solitary factor. The movement of price on the stock exchanges and the underlying indices are dependent on a host of factors including the general economic sentiment, political situation, specific sectoral growth, liquidity, future growth prospects, reputation of the promoters, industrial situation etc. all of which act in tandem and correlation to determine the movement of prices. (h) In fact, in the modern day inter connected world wherein global linkages and factors have acquired prominence, several intricate and even notional factors come into play. The behavior of the stock exchanges is a .....

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..... o have purchased nor does the name of the Appellant or any of his family members/group companies find mentioned in his above referred statements thereby severely denting the reliance that can be placed thereon. (l) With regard to the reliance on the reliance placed by the Ld Assessing Officer on the alleged statement of Sh. Praveen Aggarwal admitting that he was controlling and managing the affairs of 200 paper entities through a number of dummy directors for providing bogus LTCG accommodation entries, it is submitted that the Appellant had no connection or dealing whatsoever with Sh. Praveen Aggarwal or any of the directors of the companies alleged to be managed and controlled by him. Even otherwise on going through the contents of the statement ofSh. Praveen Aggarwal and his so called dummy directors, it transpires that they have merely tried to explain some of their activities without mentioning Appellant or any of his family members what to talk of any wrong doing by him/them. Even no mention has been made by him with regard to transacting on behalf of Sh. Jagdish Prasad Purohit. Thus, no adverse inference is warranted on the basis of their statements recorded at the back o .....

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..... vities/transactions carried out by them or their clients. In their entire statements nothing has been stated regarding any wrong doing by the Appellant and even the name of the Appellant or any of his family members does not find mention in any of the said statements. (p) The Ld Assessing Officer has also relied upon the alleged cash transactions recorded at page no. 18 to 23 and 26 of Annexure A-2 seized during the course of search from the premises of Sh R K Kedia. In this connection, it is submitted that none of the alleged cash transactions recorded on these pages pertain to the Appellant even otherwise, and without prejudice, the aforesaid seven pages pertain to the period from August, 2012 to October, 2012( i.e AY 2013-14) while in the case of the Appellant the entire sale of shares of Blue Circle Services Ltd. was effected during the F.Y 2011-12 (i.e. AY 2012-13) and accordingly, no comments is required to be made with regard to said seized material. Further, as regards reliance placed on Annexure A- 6 seized from the premises ofSh R K Kedia, the same does not contain the name of the Appellant or any of his family members and accordingly cannot be commented upon. (q) .....

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..... Blue, about the sale of shares of M/s Blue Circle Services Ltd, G:\Back Office\back office 128mb[2]\Back Office 128[2]Data\DeIeted Data\[0000050] in respect of sale of shares of M/s Unisys Software Holdings Ltd and G:\Back Office 128mb[12]\Back Ice 128mb[12]\data\[000107] in respect of sale of shares ofDB (International Stock Brokers Ltd it is submitted that the Appellant is neither aware of the purpose of recording details in an excel sheet nor connected/concerned with the maintenance thereof. Simply because some transactions match with sale of these shares by the Appellant cannot lead to any adverse conclusion. Although the investment in the shares was made on the recommendation / advice ofSh. R. K. Kedia, the sale of such shares was made through a stock broker registered with Bombay Stock Exchange. The data of such sale could have been obtained from Bombay Stock Exchange or the stock broker through whom the sale of shares was made. (t) With regard to the transactions recorded in excel sheet at path G:\Back Ofpce\back officel28mb[2]\Back Office 128mb[2]Data\Deleted Data\Blue Circle3, in respect of sale and purchase of shares of M/s Blue Circle Services Ltd. it is submitted .....

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..... trol that the shares could be sold to a particular person/entity. (w) Without prejudice to the averments made above, it is submitted that the Ld Assessing Officer has drawn an adverse conclusion on the basis of the fact that the alleged paper companies had purchased shares worth 37% of the total value of shares sold by the Appellant meaning thereby that shares worth 63% of the value of shares sold by the Appellant were purchased by other entities/individuals. The mere fact that only shares worth 37% of the value of shares sold by the Appellant were purchased by the alleged paper companies need not work to the detriment of the Appellant as he was in no way concerned/connected with their transactions/activities, (x) With regard to conclusion drawn by the Ld Assessing Officer, on the basis of Annual Report of the impugned companies that they were allegedly not doing any meaningful business activity, it is submitted that the investment was made on the basis of future expansion plans of the companies as available either in the public domain or through personal interactions such as the letters of offer, corporate profile, industry scenarios, future expansion plans, etc. Moreover, .....

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..... 8377; 93.95 to 100.95 per share. Subsequently, prices of the shares of DB (International) Stock Brokers Ltd also remained almost stable for the next two and a half years. Accordingly, the allegation of any kind of collusion, price-rigging/manipulation with respect to the transaction can be ruled out since the same borne by the share prices movement subsequently and considering the fact that if such an allegation were true the Appellant would have sold the shares at the highest price and not intermittently at various levels in a falling market (z) With regard to the Ld Assessing Officer's allegation and subsequent conclusion that various entry operators like Sh. Jagdish Prasad Purohit, Sh. R.K. Kedia, Sh. Praveen Aggarwal, Sh. Anand Sharma Sh. Deepak Patwari, Shri Natwar Lai Daga, Shri Kishan Khadaria and Sh S N Daga formed a syndicate for arranging bogus exempt LTCG accommodation entries in the shares of various companies, it is submitted that the Appellant is in no way connected with their transactions/ activities. (aa) With regard to the Ld Assessing Officer's allegation that M/s DB (International) Stock Broker Ltd. is controlled and managed by known accommodation .....

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..... e basis of investigations carried out by the Directorate of Income -tax (Inv), Wing - Kolkata has concluded that various syndicates of alleged accommodation entry providers were operating in tandem to provide allegedly bogus LTCG by rather unfortunately ignoring the fact that the Appellant did not have any dealings with any of the cited brokers. (ae) In so far as reliance has been placed by the Department on the statements of various persons recorded during the course of diverse proceedings at different points of time and uncommitted with the Appellant it is submitted that without prejudice to the arguments advanced separately with regard to the degree of reliance that can be placed on the statements of the said persons, it is submitted that since a conclusion of far-reaching consequence has proposed been drawn, on the basis of statements made/records seized from a third party it was and is incumbent on the Department to provide the Appellant an opportunity to cross-examine the said person(s) whose testimony forms the bedrock of its entire case. It is humbly submitted that any action done/conclusion drawn in the absence thereof would be against the principles of natural justice .....

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..... aw across the Country in a series of decisions asfollows:- Additional Commissioner of Income Tax, Bombay City - Ivs Miss Lata Mangeshkar [(1974) 97ITR 696 (Bom)] SP Goyal v DCIT [(2002) 821TD 85 (Mum)]; ITO, Mumbai vs. Synthetic Hydrocarbon, Mumbai in ITA Nos 5188/Mum/2011; Amarjit Singh Bakshi(HUF) vs. Asstt CIT[(2003) 86ITD13 (Del)]; Prarthana Construction (P) Ltd. vs. Dy CIT[(2001) 118 Taxman 112 (Ahd) (Mag)]; Chuharmal vs CIT[(1988) 38 TAXMAN 190 (SC)]. (Ill) Application of the principle of preponderance of probabilities, test of human profitabilities and reliance on circumstantial evidence (a) The Ld Assessing Officer has greatly relied on the principle of preponderance of probabilities for arriving at his ultimate conclusion which is an enabling theory of providing and accepting proof and basing the verdict on their preponderance i.e. importance/predominance. Although it is a normal rule governing civil proceedings providing that a fact can be said to have been established if proved by a preponderance of probabilities or circumstantial evidence, it should be noted that the same comes into prominence only when it is hard to unearth dire .....

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..... imited v ACIT[(2000) 73 ITD 123 (Mum.)] (e) It may also be submitted here that it has also been judicially held in no uncertain terms that the act of questioning the very basis of a transaction and to brand it as illegitimate or camouflage, has to be based on substantial, concrete and cogent evidence wherein the proof of wrong-doing has to be clear , succinct and irrefutable . In this connection reference, may be made to the observations of their Lordships of the Hon'ble Supreme Court in the case of Union of India vs Azadi Bachao Andolan [(2003) 132 Taxmann 373 (SC)] wherein their Lordships of the Hon'ble Supreme Court have made the following pertinent topical observations: - (i) We may in this connection usefully refer to the judgement of the Madras High Court in M.V Valliappan v. CIT (1988) 170 ITR 238 which has rightly concluded that the decision in McDowell Co Ltd's case (supra) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the Appellant, must be looked upon with .....

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..... 61 Taxman. Com 295 (Mumbai- Trib); Kamal Kishore Aggarwal Sons (HUF) vs ACIT, CC-11 [(ITA No. 504/DeI/2011)]; Shri Kamlesh Mundra vs ITO, Ward 19(2)(3), Mumbai [(ITA No. 6248/Mum/2012)]; Deputy Commissioner of Income Tax vs Asha V Mehta [(ITA No. 6405/Mum/2012 6998/Mum/2012)]. CIT vs Udit Narain Agarwal (judgement dated 12, 2012 in the Hon'ble High Court of Allahabad in IT Appeal No. 560 of2009)]; CIT vsSmtSumitra Devi [(2014) 49 taxmann.com 37 (Rajasthan)]; Commissioner of Income Tax vs Smt Pushpa Malpani [(2012) 20 taxmann.com 597 (Raj)]; ACIT vs SmtSumitra Gaur[(2012)27 taxmann.com 107 (jodhpur - Trib); ACIT, Mathura Vs. Smt Kela Devi Agarwal [(ITA No. 75/Agr/2010)]; DCIT, Mathura Vs Smt Meenakshi Agrwal [(ITA No. 265/Agr/2009)]; Sri PaduchuriJeevan vs ITO, Ananthapur [(ITA No. 452/Hyd/2015)]; ITO, Agra vs Smt Pallavi Garg[(ITA No. 192/Agra/2009 and CO No. 34/Agra/2009)]; Income -tax Officer, Ward -2, Nizamabad vs Smt Aarti Mittal [(2014) 41 taxmann.com 118 (Hyd-Trib)]; ACIT, Mathura vs M/s Ram Chand Keshav Dev (HUF) [(ITA No. 233/Agra/2010)]; Ms Farrah Market v ITO, Mumbai [(ITA No. 3801/Mum/2011)]; ITO vs Ind .....

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..... d for the principles of natural justice which form the bedrock of any legal proceedings in particular those relating toIncome tax which are unquestionably quasi-judicial in nature. (3) The failure of the appointed persons to appear for cross-examination on the appointed date has prompted the Ld Assessing Officer to, again, rather unfairly and unjustly, conjure up an imaginary unnatural nexus between the Appellant, and the alleged entry provider, with absolutely no evidence to back up his conclusion. The said contention is exponentially and conclusively damaging to the Appellant since no such evidence exists to even remotely suggest, let alone prove such a nexus. Apart from routine financial dealings, there are no circumstances even suggestive of such a situation and to conclude the same is again, to say the least, extremely prejudicial to the Appellant. The failure of the said persons to appear on the appointed date cannot be attributable to the Appellant and does not in any manner allow the Ld Assessing Officer to deviate from the principles of natural justice so integral to any incometax proceedings. (4) The positive intent and desire to comply with the laws and coopera .....

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..... specific details of disclosure made amounting to ₹ 159.61 Crores on account of sale of shares of M/s PIL which tantamount to admittance that they had taken accommodation entries from SCS. He further observed that the disclosure of the assessee group was based on the seized documents in the search of the SCS as well as Shri R.K. Kedia who were searched simultaneously with the assessee group and the surrender of income under section 132(4) of the Act was based on the documents seized therefore those documents were certainly incriminating in nature. Ld. CIT referred to the judgment of the Hon'ble Delhi High Court in the case of Smt. Daya Wanti . Vs. CIT dt. 27/10/2016 and in the case of CIT Vs. Harjeev Aggarwal dt. 10/03/2016 respectively. Ld. CIT(A) was of the view that the evidences found during the search of SCS and Shri R.K. Kedia revealed that the undisclosed income was shown in the guise of LTCG by the assessee group and that One Time (OT) entries were taken by the group as share capital from various entry providers including SCS which was arranged through Shri R.K. Kedia and the cheques were issued to various concerns by M/s BPSL as advances for acquisition of capita .....

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..... ts seized from SCS, Shri R.K. Kedia and BPSL were linked which sufficiently showed that the record of incriminating nature was seized from the premises of BPSL at Chandigarh which was maintained on the computers as well as in the printed form. The Ld. CIT(A) observed that the documents seized from the search on SCS was incriminating in nature as accepted by the assessee in his submissions and that the documents seized from the premises of BPSL confirm the transactions recorded by SCS and Shri R.K. Kedia, as such those were also required to be considered as incriminating. Ld. CIT(A) also observed that the documents seized from the premises of SCS were his own documents and as per the prevailing provisions of the Act, the notice under section 153C of the Act could not have been issued to the assessee and even if notices under section 153C of the Act were to be issued to the assessee group by virtue of provisions of second proviso to section 153A(1) of the Act, the assessments would have abated, since the assessee and his wife were searched under section 132 of the Act subsequently and the assessment had to be completed under section 153A of the Act. He therefore held that in the case .....

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..... and that family of the assessee earned LTCG of ₹ 696.44 Crores during the year under consideration in four cases of investment of ₹ 21.36 Crores and none of the family members had made any significant investments in any stock other than 14 penny stock traded and also did not have any income / loss from investment in other shares. The Ld. CIT(A) also observed that the return from the shares in penny stock ranged 29620% to 45740% over a period of approximate 2 years and over all return for the family of the assessee from investment in shares amounting to ₹ 21.36 crores was 32600%. Thus every rupee invested had given a profit of ₹ 326 in two years which could not be considered as normal under any circumstances and even the human probabilities of earning such high return was NIL. The Ld. CIT(A) mentioned the sequence of events to strengthen the theory of improbable returns in the case of the assessee, his family members and business concerns in the following manner: (i) A search and seizure operation u/s 132(1) of the Act was carried at the residential / business premises of the appellant group viz Bhushan Power and Steel Group on 03.3.2010. After the searc .....

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..... indings including complete modus operandi followed by SCS and Shri R.K. Kedia with regard to the share of PIL and the assessee declared the additional income on account of LTCG on sale of shares of PIL. He also mentioned that the different Government agencies had investigated the issue of LTCG declared from penny stock and had given adverse report on the same after investigation. Therefore the assessee could not have brushed aside the facts that the transaction in bank account of BSP, Punajb National Bank, were recorded in Kedia 2 Sheet found in the search proceedings of Shri Shirish Chanderkant Shat (SCS) at different locations which proved the close nexus of the assessee s group with those LTCG entry operator dealing with manipulation of share trading. He therefore disproved the submissions of the assessee that the investment in shares of PIL was made as an ordinary investor. Ld. CIT(A) summarised the facts as drawn from the assessment order at page no. 181 to 184 which read as under: (i) During the year under consideration, the appellant had filed return declaring ₹ 89,93,460/- and claimed exemption u/s 10(38) of the Act amounting ₹ 62,66,38,865/-. The AO made .....

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..... in conducted at the office and residential premises of R.K. Kedia Group on 13.06.2014 by DIT (Inv) Delhi. All the evidences and findings of search action on SCS Group and other related groups were confronted to Shri R.K. Kedia during this seach action. Shri R.K. Kedia stated during oath on 14.06.2014 that he had arranged LTCG accommodation entries for the various individuals of the BPSL group on the request of Shri Sanjay Singhal and Shri R.P. Goyal. He also gave names of the person who used to deliver unaccounted cash of the group to Shri R.K. Kedia or his employees against which he used to arrange LTCG entry for Bhushan Family Group. (ix) Evidence gathered in the case of Shri Praveen Kumar Jain (Pintu Alias Chintan) searched u/s 132 of the Act by the DIT (Inv) Mumbai is discussed at para 9. It is was held by the AO that the entries recorded in the accounts maintained by Pintu and seized in an independent search action conducted by Mumbai Directorate are independently correlated with the entries recorded in the evidence seized/ impounded during the course of search in the case of SCS. This has been backed by the details as per seized documents, wherein it has been noticed t .....

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..... tion has pointed out that price discovery in these companies investigation has pointed out that price discovery in these companies was distorted and not in consonance with the fundamentals of these companies. (xvii) After decoding from the cash book found during search of Shri R.K. Kedia, it was noticed that Shri Kedia had received total amount of ₹ 245.6 crores from BPSL family and group in cash during FY 2013-14 and had provided various kind accommodation entries including OT and LTCG. (xviii) The AO has also given list of disclosure by benifiaries of LTCG and OT entries and disclosure by beneficiaries of LTCG. (xix) The AO has also rebutted the submission of appellant regarding PIL shares furnished in response to show cause as to why the receipts on account of sale of shares of penny stock companies should not be taxed u/s 68 of the Act. 28. The Ld. CIT(A) observed that the assessee submitted copies of all the documents to substantiate the genuineness of the transactions related to purchase and subsequent sale of shares leading to LTCG claimed by him, those documents were also placed before the A.O. who after detailed examination / discussion had gone beyon .....

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..... on which proved that the assessee wanted to take shelter under such documentary evidence which themselves had been created as masks to cover up the true nature of transaction leading to claim of LTCG were distinctly genuine, non bogus, and to contradict the findings that all the 14 companies whose scripts were capable of being traded at high price which resulted into claim of LTCG exempt under section 10(38) of the Act. The Ld. CIT(A) was of the view that once the assessee was made aware of the result of investigation which proved that trading of shares leading to LTCG was not genuine, the onus was on the assessee to prove that he and his family members had earned genuine LTCG under section 101 of the Indian Evidence Act, 1972 as it was the assessee who was asserting a claim that he was engaged in genuine share transactions. The reference was made to the judgment of the Hon'ble Supreme Court in the case of Shri Charan Singh Vs. Chandra Bhan Singh AIR 1988 SC 637 wherein it has been held that the burden of proof lies on the party who substantially asserts the affirmative of the issue and not upon the party who denies it, and that the party cannot, on failure to establish the pri .....

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..... T (1998) 60 TTJ (Bomb-Trib) 308 CIT vs. Durga Prasad More (1972) 82 ITR 540 CIT Vs. Arvinda Raju (TN) (1979) 120 ITR 46 (SC) 33. The Ld. CIT(A) observed that primafacie the assessee had produced documents showing the details of transactions but he miserably failed to satisfy the test of human probability. He also observed that the case laws relied upon by the assessee were apparently in favour of the assessee but probably the role of human conduct, surrounding circumstances and preponderance of probabilities were either not brought to the notice of the authorities or were not as dominant or deciding factors as those were found to be in the present case and that the A.O. had very clearly segregated the apparent from the real by using various evidences gathered from the reliable sources of information and report. The Ld. CIT(A) was of the view that the documents submitted as evidence to prove the genuineness of the transaction were themselves found to serve as smoke screen to cover up the true nature of the transactions in the facts and circumstances of the case as it is revealed that purchase and sale of shares were arranged transactions to create bogus profit in the g .....

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..... t in these assessment years were unabated for the purpose of assessment under section 153A pursuant to the subsequent search action on 21/02/2014. It was stated that a survey operation under section 133A was also conducted in the case of BPSL group on 27/02/2012 and once again nothing incriminating was found with respect to LTCG claimed by the assessee(s). Subsequently search action under section 132(1) of the Act was again carried out in BPSL group of cases including office/residential premises of the assessee(s) on 21/02/2014 and once again nothing incriminating was found in the course of search operation in other words the said search action did not lead to discovery of any iota of evidence indicating any irregular availment of bogus LTCG by the assessee(s). 36.3 It was emphasized that the simultaneous search operation was also conducted on the same date i.e; 21/02/2014 in the case of Shri R.K. Kedia the alleged broker on whose advise the assessee had made the impugned investments in the shares. Once again no incriminating material with respect to the LTCG claimed by the assessee was found in the course of said search action and the statement of Shri R.K Kedia was recorded u .....

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..... n being asked the assessee explained that all the impugned transactions in shares were perfectly genuine and evidence based, in support thereof the assessee filed cogent documentary evidence with respect to acquisition of the share, payment made via account payee cheques, copies of DMAT account, evidence pertaining to sale of shares over recognized stock exchange at prices prevailing on the stock exchange through registered stock broker / broker s notes, receipt of sale consideration via regular banking channels etc. thus conclusively establishing all the requisite ingredients of section 68 of the Act to explain the nature and sums found credited in the books of account, shifting onus to disprove the same on the A.O. 36.6 It was stated that the A.O. made references to certain seized documents and statement recorded by various officers of Investigation Wing pursuant to separate search and seizure operation carried out in the case of various alleged entry / exit operator in earlier years vis Shri Praveen Agarwal on 13/09/2012, Shri Sirish Chandrakant Shah (SCS) on 09/04/2013, Shri Praveen Kumar Jain(Pintu) on 11/10/2013, Shri Jagdish Prasad Purohit on 19/10/2011, 12/02/2013, 17/1 .....

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..... has been held that when statements of witnesses were made the basis of the demand, then not allowing the assessee to cross examine the concerned witnesses was a serious flaw which shall render the order to nullity, as it amounts the violation of principles of natural justice. 36.9 It was submitted that the A.O. made the addition merely on the basis of report of Investigation Wing and statement recorded by the Investigation Wing without any corroborative evidence and examination and without allowing cross examination to the assessee so, it was not sustainable. The reliance was placed on the following case laws: ITO Vs. M/s Softline Creations (P) Ltd. in ITA No. 744/Del/2012 CIT Vs. Gangeshwari Metal Pvt. Ltd. (2014) 264 CTR 277 (Del) M/s Devansh Exports Vs. ACIT (ITA No. 2178/Kol/2017 Adhesive P. Ltd. Vs. ITO in ITA No. 3133/Del/2018 CIT Vs. Fair Invest Ltd. (2013) 357 ITR 146 36.10 It was emphasized that when the search / survey conducted on the alleged third parties i.e; entry / exit operators in earlier years, the assessment under section 153A of the Act was already completed in December 2011 in the case of assessee and if any document was found .....

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..... be connected with something found during the search or requisition viz., incriminating material which reveals undisclosed income but in this case no incriminating material is found, therefore, the earlier assessment would have to be reiterated, the reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of Pr. CIT Othrs Vs. Meeta Gutgutia Prop. Ferns N Petals Ors (2017) 395 ITR 526 which subsequently has been affirmed by the Hon'ble Supreme Court as reported at (2018) 96 taxmann.com 468. 36.13 It was submitted that the search action conducted in the case of the assessee on 21/02/2014 did not lead to discovery of any incriminating material whatsoever indicating any irregular availment of bogus LTCG by the assessee as alleged by the A.O. and simultaneously search action in the case of alleged broker Shri R. K. Kedia also did not lead to discovery of any incriminating material against the assessee. However having not discovered anything incriminating the Department kept inflicting immense pressure on Shri R.K. Kedia with a predetermined mindset of extracting certain illicit statements against the assessee, again examined Shri R.K Kedia on 14/ .....

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..... by the A.O although no incriminating material was found in the course of search action in the case of the Assessee(s) herein. Exorbitant additions have been made by the A.O u/s 68 of the Act despite the fact that the Assessee(s) filed cogent documentary evidences conclusively establishing all the requisite ingredients of section 68 of the Act and the A.O failed to successfully discharge the secondary burden of disproving the same before making the addition u/s 68 of the Act. Uncorroborated third party statements/ documentation gathered by the Investigation Wing in course of separate search/survey actions on third parties have been circuitously used by the A.O for making additions u/s 68 69C of the Act in assessments framed u/s 153 A of the Act: by illegally treating such pre-existing third party statements documentation already available with the Department at the time of initiation of the search action in the case of the Assessee(s) herein as 'incriminating material' discovered pursuant to the search actions in the case of the Assessee(s) and reopening the concluded assessment proceedings of the unabated assessment years u/s 153A of the Act on the said bas .....

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..... g therein that the facts of the present case were similar to the fact of the case of Shri Brijbhushan Singal Ors Vs. ACIT(supra) in the following words: (i) Addition u/s 153A can only be made on the basis of incriminating material found during the course of search - in the present case no incriminating material was found during the course of search at the premises of the Assessee - hence no addition was called for - see para 107 of the order for unabated years (at page 1152 ofPB-5C) (ii) Opportunity of cross examination of the persons whose statements were relied upon by the AO was required to be given to the Assessee - on the date fixed by the AO, the Assessee presented himself through his AR but the concerned persons did not turn up, so it cannot be said that opportunity of crossexamination was provided to the Assessee see para 113 of the order for unabated years (at page 1158 ofPB-5C) (iii) No reliance could be placed on testimony dt. 13.06.2014 of RK Kedia who had been proved to have indulged in double speaking and taking contradictory stands (first retracted from his statement on 14.10.2014 thereafter withdrew his retraction on 31.03.2015) - see para 113 of o .....

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..... f the Assessee without the Assessee beingallowed an opportunity of cross- examination of those parties - see para 29 of order for abated years (at page 1334 of PB- 5C) (ix) Additions cannot be sustained merely by placing reliance on theory of preponderance of probabilities - statements of several persons recorded by the Revenue were not allowed to be cross-examined by the Assessee- Assessee had shown purchase consideration paid by cheque and recorded in its books of account which were accepted by the Revenue in earlier years - shares were sold at prices prevailing at the stock exchange- the regulatory bodies viz. SEBI Stock exchange had not questioned the conduct of the Assessee and the broker selling the shares - Assessee had paid STT and the sale consideration was received from SEBI registered stock broker - Assessee had produced overwhelming evidences which were not proved to be false - AO reliance on preponderance of probabilities to tax the LTCG in the hands of the Assessee held not to be in order - see para 34 of the order for abated years (at pages 1343-1344 ofPB-5C) (x) Even on merit, the LTCG earned by the Assessee could not be charged to tax u/s 68 - see para 44 .....

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..... 002/JP/2018 Principal CIT, Delhi 2 Vs. Best Infrastructure (India) Pvt. Ltd. Others in ITA Nos. 11/2017 to 22/2017 Dharampal Satyapal Ltd. Vs. DCIT (ITA Nos. 3877 to 3881/Del/2016) Pr. CIT Vs. Dharampal Premchand Ltd. (2017) 99 CCH 202 CIT Vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad) CIT Vs. Sri P. Balasubramanium (2013) 354 ITR 116 (Mad) CIT Ors, Vs. Meeta Gutgutia Prop. Ferns 'N' Petals Ors (supra) Sri Krishna Vs. Kurukshetra University, AIR 1976 SC 376 K.T.M.M. Mohd. Vs. UOI: 197 ITR 196 (SC): Vinod Solanki Vs. UOI Civil Appeal No. 7407 of 2008 Francis Stanly @ Stalin v. Intelligence Officer, Narcotic Control Bureau Thiruvanthapuram (2006) 13 SCC 210 S. Khadar Khan (2008) 300 ITR 157 Ratan Corporation 196 CTR 536 (Guj) Ashok Manilal Thakkar Vs. ACIT: 97 ITD 361/ 279 ITR 143 (AT)(Ahd I Govind Ram Chhugani: 77 TTJ 339 (Jodh) 37. As regards to the issue relating to the addition under section 68 of the Act, the Ld. Counsel for the assessee stated that the A.O. while making the additions under section 68 and 69C of the Act on account of sale proceeds of shares alleged unaccounted commission expenses and .....

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..... ot be faulted for relying on a commercial proposition which was duly compliant with law. It was further submitted that the share in question were of listed companies and were sold at prevailing market rates through the Bombay Stock Exchange Online Trading (BOLT) and all the payments were received through account payee cheques. It was reiterated that all the relevant documentary evidences in the form of shares purchase documents, DMAT account, share certificates, contract notes and bank statements evidencing the relevant entries regarding receipt against sale of shares etc were duly filed before the A.O. Therefore the impugned addition made by the A.O. and sustained by the Ld. CIT(A) was not justified. It was further submitted that in making the impugned addition the A.O. predominantly relied upon the statements of third parties without allowing cross examination which is a serious flaw and makes assessment nullitiy. It was stated that a general confession by a person that all his transactions were bogus or that he had indulged only in bogus transactions could not be the basis for the assessment of an assessee who had the transactions with that persons. It was further stated that mo .....

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..... owing case laws: Andaman Timber Industries Vs. Commissioner of Central Excise (2015) 281 CTR 241 (SC) Kishinchand Chellaram (AIR 1980 SC 2117) State of M.P. v. Chintaman Sadashiva Waishampayan AIR 1961 SC 1623 Lakshman Exports Ltd. v. Collector of Central Excise (2005) 10 SCC 634 Rajiv Arora v. Union of India and Ors. AIR 2009 SC 1100 CIT Vs. SMC Share Brokers Ltd., (2007) 288 ITR 345 (Del) Eastern Commercial Enterprise, (1994) (Cal) [210 ITR 103] Prakash Chand Nahta Vs. CIT, (2008) 301 ITR 134 (MP) Bangodaya Cotton Mills Ltd. vs. CIT [2009] 21 DTR 200 (Cal) CIT Vs. Sanjeev Kumar Jain (2009) 310 ITR 178 (P H) CIT Anr. Vs. Land Development Corporation (2009) 316 ITR 328 (Kar) CIT Vs. Rajesh Kumar (2008) 306 ITR 27 (Del) Heirs LRs of Late Laxmanbhai S. Patel Vs. CIT (2009) 222 CTR (Guj) 138 CIT Vs. Pradeep Kumar Gupta (2008) 303 ITR 95 (Del) CIT Vs. Dharam Pal Prem Chand Ltd. (2007) 295 ITR 105 (Del) CIT Vs. A.N. Dyaneswaran (2008) 297 ITR 135 (Mad) P. S. Abdul Majeed, (Kerala) (1994) [209 ITR 821] Prarthana Construction (P) Ltd. [2001] 70 TTJ 122(Ahd Trib) CIT Vs. S.M Aggarwal 292 ITR 43 Straptex .....

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..... eme Court CIT Vs. Rakam Money Matters Pvt. Ltd. dt. 13.10.2015 in ITA No. 778/2015 (Del HC) CIT Vs. Victor Electrodes 329 ITR 271 (Del HC) CIT Vs. UK Shah (1973) 90 ITR 396 (Bom HC) DCIT Vs. GS Control ITA No. 1560 Del/2010 order dt. 13.03.2015 (Del ITAT) Sri Brij Bhushan Singall Ors Vs. ACIT(ITA Nos. 1412-141,1476,147,1482, 1485- 1487/Del/2018) CIT Vs. Eastern Commercial Enterprises (1994) 201 ITR 103 DCIT Vs. Bholsa Nath Radha Krishna (ITA No. 5149/Del/2012) Smt. Smita P. Patil Vs. ACIT, (2014) 159 TTJ 182 CIT Vs. Sunita Dhadda dt. 28.03.2018 (SC) Vinit Ranawat v. ACIT, [2017] 88 taxmann.com 428 (Pune - Trib.) Ganeshmull Bijay Sing Baid (HUF) Ors Vs. DCIT Ors (2015) 45 CCH 306 (Kol Trib) CIT Vs. Anil Khandelwal, (2015) 93 CCH 42 (Del HC): MANU/DE/1326/2015) Straptex India (P) Ltd. v. DCIT, [2003] 84 ITD 320 (Mum) Pradeep Amrut Lai Runwal v. Tax Recovery Officer, [2014] 47 taxmann.com 293 (Pune Trib) ACIT v. Amit D Irshid [IT Appeal No.988 (PN) of 2911, dated 22-4-2013) Prarthana Construction (P.) Ltd., Vs. DCIT [2001] 118 TAXMAN 112 (AHD.) (MAG.) Rama Traders Vs. First ITO (1998) 25 ITO 599 (Pat.) (TM) .....

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..... dustries on 09.04.2013 iv. Praveen Kumar Jain (Pintu/ Chintan), associate of SCS responsible for handling cash on 11.10.2013 v. Sh. Sanjay Singal and others, the appellants on 21.02.2014. vi. Sh. R.K. Kedia (RKK), share broker cum entry operator on 21.02.2014. vii. Sh. R.K Kedia and his accountant, Manish Arora on 13.06.2014. viii. Sh. Jagdish Prasad Purohit (JPP), entry operator at Mumbai and Kolkata on 19.10.2011 and 12.02.2013 ix. Sh. Praveen Kumar Agarwal (PKA), entry operator at Kolkata on 13.09.2012 38.2 Ld. Standing Counsel stated that the transactions recorded / reflected in the books of account of BPSL did not mean that those were explained. It was also stated that the incriminating material would include the following items : a. Documents found at the premises of BPSL which corelate with the transactions recorded in the documents found at the premises of Shri. Shirish Chandra Shah (SCS), Sh. R.K.Kedia and other connected entities b. Statement of Shri. Sanjay Singal u/s 132(4) c. Documents found at the premises of the entities involved in the transaction d. Statements of Stock brokers, entry operators and other connected persons .....

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..... a search or post-search investigation having relevance to the determination of chargeable income. iv. The provisions of Section 153 A contemplate only initiation of search as a pre-condition for assumption of jurisdiction and empower the AO to assess or reassess the total income of six assessment years preceding the year of search. v. What constitutes search is not circumscribed by any definition u/s 153A. The search in the case of a person may be initiated at his place or at the places of certain other persons. In the process of investigation, a situation may also arise where certain persons are searched at one point of time while others are searched at an earlier or later point of time. The material found from the premises of one may be relevant for making assessment in the case of the other and therefore, the expression used by the Courts or Tribunals incriminating material would include all materials recovered from the assesse in whose case search is conducted, or from the premises of other persons who are connected to that search if the material is relevant for determining the income of the assessee. vi. There may arise situations, as in the present case, wher .....

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..... 6 taxmann.com 311 (Gujarat)} at Pages 128- 134 of Revenue's CLC. the Hon'ble High Court of Gujarat held that the document seized from the premises of a person K , which carried a title to which the assessee is related was a relevant material to proceed with the assessment u/s 153C of the Act. x. The material found from the premises of SCS or RKK or Pintu or Pranneta Industries did categorically indicate that the claim of the assessee of a Long-Term Capital Gain (LTCG) at the time of the original assessment proceedings was bogus and the exemption needed to be withdrawn for the correct determination of income. The material had a live nexus with the claim of the assessee and it completely demolished the averments made by the appellants at the time of original assessment. xi. It is incorrect to say that the provisions of Section 153C can be invoked only if the material belongs to the appellant. In the scheme of search assessments, action to reassess certain income in relation to abated or unabated years is done either u/s 153 A or 153C. The provisions of Section 153C stipulate the consideration of documents belonging to or pertaining to or information contained .....

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..... y constitute incriminating material emanating from the search. xiii. In this particular case, the confessional statement came from Sh. Sanjay Singal not under pressure but after he was confronted with the entire material which was recovered by the Investigation Wing from the premises of SCS and other connected entities. The categorical statements given by the entry operator was not only read out, but Mr. Singal was given an opportunity to see the copy of statement and he adequately pondered over it. It was only after full consideration of the implications of the incriminating material found at different places that the statement u/s 132(4) was made offering an additional income represented by false claim of exempt LTCG. This statement was further backed up by subsequent letters and filing of the breakup of the LTCG from Pranneta. All these statements and disclosures cannot be ignored on the basis of unsubstantiated allegation of undue pressure, as contended by the Appellant. xiv. In the light of the above, it is evident that adequate incriminating material seized from different premises of entry operators, brokers which had a live nexus with the documents found from the pre .....

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..... ted and going as far as to suggest that Revenue has fabricated evidence against him and planted the same at the premises of third parties. Having been thoroughly exposed of their fraud, these are lame excuses which will be dealt with hereinafter for the sake of completeness. xviii. Thus, the assessments for unabated years are based on incriminating material found during the course of search operations and there is absolutely no basis to suggest that the assessments have been framed in the absence of any incriminating material during search operations. This proposition of the appellant is highly fallacious in as much as they are seeking to read something which is not in the statute, nor intended in various judicial pronouncements and further, the proposition is wholly against not only the spirit of the provision but also the language employed in the statute. No decision has been rendered to suggest that even if incriminating material is found in connected searches, the AO cannot make any additions merely on the basis that such material has not been recovered from the premises of the assessee. In a peculiar situation where certain persons act in a concerted manner as a co-conspir .....

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..... erial has been recovered during the search operation and gave in writing as under: a. Sections 153A, 153B and 153C were inserted by the Finance Act, 2003 to replace Section 158BC and the earlier scheme of assessment of search and seizure cases. b. The provision starts with a non-obstante clause overriding Sections 139, 147, 148, 149, 151 and 153 in the case of a person who has been subjected to search operations u/s 132/132A. The scheme postulates separate assessments for each of the six years covered in the period. While for the years the assessments of which are pending would be assessed , of those which stand completed would be re-assessed . c. A person who has been searched would be assessed u/s 153 A but a person who has not been searched, but some material flows from the search of the other person would also be assessed u/s 153C but in accordance with the provision of Section 153 A. The assessment proceedings reopened u/s 148 shall also abate and the Assessment or Reassessment shall be made only u/s 153A or 153C r.w.s.l53A. d. The statute does not refer to any incriminating material as forming the basis of proceeding u/s 153A or 153C. This concept evolves .....

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..... he Ld. Counsel for the assesse there was no evidence to link the seized documents found in the premises of third parties with any incriminating material found at the premises of the assessee. However in the present case such a live nexus existed and there was a direct link of the material at the assessee s place with that found at the premises of SCS which has elaborately been discussed by the A.O. at page no. 43 to 58 of the Assessment Order. 39.4 It was emphasized that each and every bit of material with the Department was made available to the assessee even before the voluntary surrender of income was made. It was stated that presumption under section 132(4) of the Act, in the caseof SCS and Shri R.K. Kedia based on material found and their statement that they had acted as entry operator itself was enough to justify the addition made in the assessee s case. 40. Ld. Standing Counsel justified the making of addition in the years under consideration and submitted as under: a. The Assessment Years for which assessments stood completed at the time of search were A.Y. 2008-09, 2010-11 and 2012-13. b. As submitted earlier, there are no fetters on the power of the As .....

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..... completeness. f. Thus, the assessments for unabated years are based on incriminating material found during the course of search operations and there is absolutely no basis to suggest that the assessments have been framed in the absence of incriminating material was found during the search operations. This proposition of the appellant is highly fallacious in as much as they are seeking to read something which is not in the statute, nor intended in various judicial pronouncements and further, the proposition is wholly against not only the spirit of the provision but also the language employed in the statute. No decision has been rendered to suggest that even if incriminating material is found in connected searches, the AO cannot make any additions merely on the basis that such material has not been recovered from the premises of the assessee. In a peculiar situation where certain persons act in a concerted manner as a coconspirator in a scheme of fraud, the material seized from one would always be a material relevant for the assessment of the other. A comprehensive search of connected persons or premises is sought to be dissected into different entities and in an attempt to des .....

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..... ter considerable lapse of time. Therefore, there cannot be any occasion of any duress or coercion. 43. It was contended that the statement given by the assessee was by itself a ground adequate enough for the A.O. to make the addition even if no other documents or statements were to be taken into consideration. 44. The Ld. Standing Counsel justified the addition made by the A.O. by giving in writing as under: i. In the facts and background of the case, it has been amply demonstrated that the appellant obtained accommodation entry from the entry operators with the active help and connivance of Sh. R.K.Kedia, a broker who admittedly helped Singals in these transactions. ii. The records have been meticulously maintained as detailed by the AO to show the receipt of cash by the appellants and the receipt of the corresponding amount of capital gains eceipt from entry providers by cheque. iii. The documents maintained at the premises of SCS fully match with those seized from R.K.Kedia and his associates. These transactions also match with the documents found at the premises of BPSL to satisfactory extent. iv. The appellant or the company BPSL has not given a .....

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..... dematerialization of shares and the relevant documents in this regard apart from the dubious nature of the private placements of such shares and the mode of payment for acquiring such shares. ix. The onus is not on Revenue to establish that unaccounted money was introduced in the accounts. Rather, the onus is on the assessee to establish that the credits were genuine. x. A host of pleas raised by the assessee proceed on the premise that the burden is on the Revenue to establish conclusively that the unaccounted money has been introduced by way of accommodation entries. That is not the legal position. xi. The addition is, therefore, fully justified 45. As regards to the opportunity of cross examination not provided to the assessee by the A.O., Ld. Standing Counsel submitted as under: The most significant material fact in this case is that the entire material by way of seized documents and sworn statements were made available to the appellants at the first available opportunity by the Investigation Wing itself and the Assessing Officer did also provide copies thereof with the Show-cause notice. ii. The disclosure u/s 132(4) was made by the appella .....

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..... 69 taxamnn.com65(Mum) PCITk Vs. NRA Iron and Steel reported at (2019) 412 ITR 161 (SC) CIT Vs. Raj Kumar Arora reported at (2014) 367 ITR 517 (All) E.N. Gopakumar Vs. CIT reported at (2017) 390 ITR 131 (Ker) CIT Vs. St. Francis Clay D cor Tiles reported at (2016) 385 ITR 624 (Ker) CIT Vs. Kabul Chawla reported at (2016) 380 ITR 573(Del) CIT Vs. Anil Kumar Bhatia reported at (2013) 352 ITR 493 (Del) CIT Vs. Sinhgad Educational Society(SC) Goyal Industries Ltd. Vs. ACIT reported at (2015) 372 ITR 514 (Guj) Ganpati Fincap Service (P.) Ltd. Vs. CIT reported at (2017) 395 ITR 692(Del) V3S Infratech Ltd. Vs. ACIT (2019) 104 Taxmann.com 403(Del) Rakesh Gupta Vs. CIT (2018) 405 ITR 213 (P H) Rajesh Sunderdas Vaswani Vs. ACIT (2016) 76 taxmann.com 311(Guj) Smt. M.K. Rajeshwari Vs. ITO (2018) 99 Taxmann.com 339 Sanjay Bimalchand Jain Vs. PCIT (2018) 89 taxmann.com 196(Bom) Udit Kalra Vs. ITO in ITA No. 220/19 order dt. 08/03/2019 (Del) Rajnish Jain Vs. CIT (2018) reported at 402 ITR 12 (All) Kantilal C. Shah Vs. ACIT reported at (2011) 133 ITR 57 (Ahd) Hukum Chand Jain Vs. ACIT reported at (2011) 337 ITR 238(Chattisgarh HC .....

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..... uments contained entries interse between the alleged entry operator. It was stated that no addition can be made, based on third party statement or third party documents unless those were subjected to the cross examination by the assessee particularly when the name of the assessee was not appearing in the said seized documents and the assessee did not know those persons. 47. As regards to the submissions of the Ld. Standing Counsel that the documents seized from SCS had shown that Shri R.K.Kedia acted on behalf of the BPSL group to get bogus accommodation entries of LTCG, it was stated that no incriminating material was found in the case of simultaneously search on Shri R.K. Kedia on 21/02/2014 and that in the statement recorded under section 132(4) of the Act Shri R.K. Kedia categorically admitted that transactions undertaken by the assessee were perfectly genuine. 47.1 It was submitted that the assessee s case is fully covered by the decision of the ITAT Delhi Bench in the case of Shri Brijbhushan Singal Others(supra) therefore the addition made by the A.O. and sustained by the Ld. CIT(A) in the absence of incriminating material found during the course of search was not .....

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..... of making the addition in the assessment made under section 153A of the Act. In the instant case the A.O. proceeded to utilize the statements of the third parties for making the addition while framing the assessment under section 153A of the Act, however no opportunity to cross examine those parties was provided to the assessee. In the present case the Ld. CIT(A) himself admitted at page no. 176 of the impugned order that no incriminating material was found from the possession of the assessee during the course of search. 48.1 During the course of hearing the Ld. Standing Counsel for the Department heavily relied on the judgment of the Hon'ble Delhi High Court in the case of M/s Ganpati Fincap Services (supra) wherein it has been held that documents found from the premises of third parties were also relevant if they incriminate the assessee. However, in the present case nothing is brought on record to substantiate that the name of the assessee was mentioned in any of the documents / material found from the premises of the third parties i.e; SCS or Shri R.K. Kedia or Pintu or PIL. 48.2 In the instant case the Ld. Standing Counsel stated that the decision of the Hon' .....

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..... ent case are identical to the facts involved in the case of Shri Brij Bhushan Singal Others (supra) wherein the similar issue has been decided vide order dt. 31/10/2018 and the relevant findings have been given in para 104 to 121 which read as under: 104. We have considered the submissions of both the parties and perused the material available on the record. In the present case, the assessee had raised the legal issue in the additional ground as well as the main ground no. 1 by challenging the jurisdiction of the AO and the ld. CIT(A) in making the additions/enhancement u/s 153A of the Act in the absence of incriminating material pertaining to the years under consideration found during the course of search. 105. In the instant case, it is an admitted fact that the search and seizure operation u/s 132(1) of the Act was conducted at the premises of the assessee on 13.06.2014 and thereafter notice u/s 153A of the Act dated 08.09.2014 was issued to the assessee for furnishing the return of income. In response to the said notice, the assessee filed its return of income on 12.07.2016 declaring the same income which was furnished in the original return of income filed on 31. .....

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..... ating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the [Principal Commissioner or] Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside. Explanation.-For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. 106. From the second proviso to the aforesaid Section, it is clear that the assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in Sub-Section (1) of Section 153A of the Act, is pending on the date of initiation of search u/s 132 of the Act or making of requisition u/s 132A of the Act as the case may .....

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..... O/TPO made the addition on account of differential interest on FCCDs undertaken with the AE, in our opinion, no such adjustment could have been made to the income which was already assessed prior to the date of search. 19. On a similar issue, the Hon ble Karnataka High Court in the case of CIT Anr. Vs IBC Knowledge Park P. Ltd. (2016) 385 ITR 346 (supra) held as under: A search was conducted on Y, Z and IBC on June 17, 2008. One of the offices of the assessee was in the same premises where the search took place. Certain documents belonging to the assessee were seized and the Assessing Officer of the persons in whose cases search was conducted transferred the documents to the Assessing Officer of the assessee under section 153C of the Act. Assessment orders under section 143(3) read with section 153C were passed for the assessment years 2004-05 to 2008-09. In respect of the assessment year 2004-05, the Tribunal noted that as on the date the search was conducted i.e., on June 17, 2008, no assessment proceeding was pending and as no undisclosed income was detected, the assessment made under section 153A read with section 153C of the Act the Tribunal quashed the assessme .....

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..... rd parties recorded u/s 132(4) of the Act on the basis of alleged entry in hard/soft data seized from premises of third parties in the course of search action in their cases. In the present case, copies of the Panchanama are placed at page nos. 1 to 58 of the assessee s compilation. From a bare perusal of the Panchanama of the assessee, it may be seen that nothing incriminating was found in the course of search. It is also apparent from the search document that no incriminating material in the form of undisclosed, document, unaccounted money, bullion, jewellery etc. indicating the factum of undisclosed income were found or seized in the course of search operation u/s 132(1) of the Act for any of the assessment years under consideration. In the instant case, the AO relied upon the statement of Sh. Raj Kumar Kedia his employee Sh. Manish Arora, Sh. Ankur Agarwal, an employee of BSL and Sh. Chandrakant Mahadev Jadhav. However, Sh. Raj Kumar Kedia retracted his statement on 14.10.2014 (copy of which is placed at page nos. 446 to 451 of the assessee s compilation). Thereafter, he filed letter dated 31.03.3015 withdrawing his retraction, copy of which is placed at page nos. 452 to 455 of .....

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..... 36. Turning to the facts of the present case, it requires to be noted that the statements of Mr. Ami Aggarwal, portions of which have been extracted hereinbefore, make it plain that the surrender of the sum of ₹ 8 crores was only for the AY in question and not for each of the six AYs preceding the year of search. Secondly, when Mr. Anu Aggarwal was confronted with A-1, A-4 and A-n he explained that these documents did not pertain to any undisclosed income and had, in fact been accounted for. Even these, therefore, could not be said to be incriminating material qua each of the preceding AYs, 37. Fourthly, a copy of the statement of Mr. Tarun Goyal, recorded under Section 132 (4) of the Act, was not provided to the Assessees. Mr. Tarun Goyal was also not offered for the cross-examination. The remand report of the AO before the CIT(A) unmistakably showed that the attempts by the AO, in ensuring the presence of Mr. Tarun Goyal for cross-examination by the Assessees, did not succeed. The onus of ensuring the presence of Mr. Tarun Goyal, whom the Assessees clearly stated that they did not know, could not have been shifted to the Assessees. The onus was on the Revenue to ensur .....

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..... plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that crossexamination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them. 7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as .....

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..... xpressed by the Hon ble Jurisdictional High Court in the case of CIT Vs SMC Share Brokers Ltd. (supra) wherein it has been held as under: 6. We are of the opinion that the Tribunal was right in its view that in the absence of Manoj Aggarwal being made available for cross-examination, despite repeated requests by the assessee, his statement could not be relied upon to his detriment. 112. Similarly, the ITAT Mumbai B Bench in the case of Straptex (India) (P) Ltd. Vs DCIT 84 ITD 320 (supra) held as under: Presumption under Section 132(4A) is not limited only to the proceedings under Section 132(5); presumption under Section 132(4A) is applicable only against the person from whose possession books of account or other documents were found and not against any other person. 113. In the present case, the opportunity to the assessee to cross-examine the person whose statements were relied upon by the AO was required to be given, on the date fixed by the AO, the assessee presented himself through his Authorized Representative but the concerned person did not turn up, so it cannot be said that the opportunity to cross-examination was provided to the assessee, alt .....

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..... losed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course, of search/survey operations or thereafter while framing the relevant assessment orders. 116. The aforesaid directions were once again reiterated by the CBDT vide Circular No. 286/98/2013-IT dated 18.12.2014 which read as under: Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light. 2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, .....

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..... o the person in respect of whom search was conducted requiring him to file returns for six assessment years immediately preceding the previous year relevant to the assessment year in which the search takes place. (ii) Assessments and reassessments pending on the date of the search shall abate. The total income for such assessment years will have to be computed by the Assessing Officers as a fresh exercise, (iii) The Assessing Officer will exercise normal assessment powers in respect of the six years previous to the relevant assessment year in which the search takes place. The Assessing Officer has the power to assess and reassess the total income of the six years in separate assessment orders for each of the six years. In other words, there will be only one assessment order in respect of each of the six assessment years in which both the disclosed and the undisclosed income would be brought to tax. (iv) Although section 153A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the Assessing Officer which can be related to the evidence found, it does not mean that .....

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..... not point out any material found during the course of search which could give even remote possibilities of altering the income of the assessee based on any incriminating documents. Admittedly both the assessment years in these appeals are completed assessments in case of the assessee. The reliance placed upon by the learned authorized representative on the decision of the Hon'ble Delhi High Court in the case of C/T v. Kabul Chawla [2016] 380 ITR 573 (Delhi) where original assessment have been made under section 143(1) of the Act is apt and squarely covers issue in favour of the assessee. The Hon'ble High Court in paragraph No. 37 of that decision has held that no addition can be made in the hands of the assessee in the absence of any incriminating material unearthed during the course of search or requisition of documents. On reading of the order of the Assessing Officer we could not find that there is any incriminating material referred to by the Assessing Officer which is found during the course of search for making these additions. Therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla (supra) we confirm the .....

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..... 97 ITR 153 (supra) held as under: Section 153A of the Income-tax Act, 1961, bears the heading assessment in case of search or requisition . The heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning. From the heading of the section, the intention of the Legislature is clear, viz., to provide for assessment in case of search and requisition. When the very purpose of the provision is to make assessment in case of search or requisition, it goes without saying that the assessment has to have relation to the search or requisition. In other words, the assessment should be connected with something found during the search or requisition, viz., incriminating material which reveals undisclosed income. Thus, while in view of the mandate of subsection (1) of section 153A of the Act, in every case where there is a search or requisition, the Assessing Officer is obliged to issue notice to such person to furnish returns of income for the six years preceding the assessment year relevant to the previous .....

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..... word reassess to completed assessment proceedings, (vi) In so far as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under section 153A merges into one. Only one assessment shall be made separately for each assessment year on the basis of the findings of the search and any other material existing or brought on the record of the Assessing Officer, (vii) Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment. 26. A similar view has been taken by the Hon ble Jurisdictional High Court in the case of Pr. CIT Vs Meeta Gutgutia Prop. M/s Ferns N Petals (2017) 395 ITR 526 (supra) wherein it has been held as under: Any and every document cannot be and is not an incriminating document. No addition can be made for a particular assessment year without there being an incriminating ma .....

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..... e court, was extensively dealt with in CIT v. Kabul Chawla [2016] 380 ITR 573 (Delhi) which has, by now, been followed consistently in several appeals. The non obstante clause, in the opinion of the court, was necessary, given that there is a departure from the preexisting provisions, which applied for the previous years and had a different structure where two sets of assessment orders were made by the Assessing Officer during block periods. With the unification of assessment years for the block period, i.e. only one assessment order for each year in the block period, it was necessary for an overriding provision of the kind actually adopted in section 153A. But for such a non obstante clause, the Revenue could possibly have faced hurdles in regard to unadopted/current assessment years as well as reassessment proceedings pending at the time of the search in respect of which proceedings were to be completed under section 153A/ 153C. Having regard to the above directions, we are of the opinion that the Income-tax Appellate Tribunal's decision does not call for interference. Both the appeals are accordingly dismissed. 120. Similarly, the ITAT Delhi Bench E , New Delhi in th .....

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..... for each of the six years. In other words, there will be only one assessment order in respect of each of the six AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously, an assessment has to be made under this Section only on the basis of seized material. v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall b .....

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..... here was no independent evidence to link the seized documents found in the premises of the third party with any incriminating material found in the course of search operation at the premises of the assessee. Therefore, the entries in the documents seized from third party s premises would not be sufficient to prove that the assessee was indulged in such transactions. In the present case, the pen drive of Sh. Ankur Agarwal corroborated/substantiated, the share transactions carried out by the assessee which were duly found recorded in the regular books of the assessee and the said pen drive did not contain anything incriminating against the assessee. Therefore, merely on the basis of the statement of Sh. Ankur Agarwal, the addition made u/s 153A of the Act was also not justified, particularly when Sh. Ankur Agarwal retracted his statement later on. In the instant case, the AO also failed to establish any link/nexus of the alleged cash trail. We, therefore, by considering the totality of the facts and the various judicial pronouncement discussed in the former part of this order are of the view that the additions made by the AO and sustained by the ld. CIT(A) u/s 153A of the Act in the .....

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