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TMI Blog2022 (3) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... pleted u/s 143(3) of the Act on 29.12.2017 determining total income at Rs. 13,04,82,190/-. 3. During assessment proceedings, Assessing Officer noticed that assessee had declared long term capital gain on sale of Shares of Parasrampuria Credit and Investment Limited (PCIL), now it is known as MaaJagdambe Trade Links Ltd (MJTL) during the year and claimed exemption u/s 10(38) of the Act. The quantum of claim made by the assessee made the Assessing Officer to make the detailed investigation. The Assessing Officer heavily relied on the investigation made by the Investigation Wing, Kolkata, discussed in detail on the aspects of making profit by the various operators, the modus operandi etc., in his order, it is general in nature not specific to the assessee. He also investigated with the share broker who had dealt with the shares sold by the assessee. 4. Coming to the specific enquiry made in the case of assessee, Assessing Officer observed that PCIL is one of the scrips identified by the Kolkata Investigation Wing and it was being used to provide accommodation entries to the beneficiaries. Therefore, he heavily relied on the findings of the Investigation wing, further he observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aria, However, Mr. Dharmendra Karia did remember that he started business as sugar trader and later on shifted his business towards builders and developers in early 1990s. He also deposed that he had made approx. 100 buildings in Mumbai and Navi Mumbai. But when he was asked about the transaction in the scrips of MJTL, he submitted that he did not remember most of the details. (c) Mr. Dharmendra Karia had made false deposition regarding sale of shares of MJTL through share broker M/s.Focus Shares & Securities Pvt. Ltd. It was thus evidently clear that the reality of the transactions was not such which was represented by the documents submitted by the appellant. Further, it also proved that there were deliberate attempts to hide the truth behind the transactions. (d) The appellant and his family members had made investment in unknown scrips in respect of whom they did not know directors, nature of work and address of the company. As per statement of Mr. Dharmendra Karia, he did not even know as to whether M/s.PCIL was a profit making company or loss bearing. Such huge investment in an unknown company itself suggested that the appellant was having knowledge about the future occur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y knowledge about the basics of this stock. (r) As the trading in these shares were at a pre-determined time between pre-determined brokers at a pre-determined price, there was virtually no scope of any genuine trades in share to buy or sell these shares. As private sales of these shares were made by the brokers with ab-initio mala fide intentions of providing accommodation entries in the nature of bogus LTCG/loss, there was no scope of any genuine person to acquire these scrips in off market transactions. (s) Thus whoever had benefitted on large scale from transaction in these shares had transacted in accordance with the scheme and had admittedly converted his unaccounted cash equal to the sale proceeds of shares in to white in the guise of exemption under section 10(38) of the I.T. Act, (t) The appellant declared transactions in his name but as per his statement, he knew very meagre details or knew nothing about the transaction in the shares of MJTL. This showed that a kind of benami transaction was being carried out. (u) No proof was submitted as to whether any other share was held by the appellant till its value surged considerably. (v) Despite extravagant increase in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r share and profits for the relevant period were negligible and in contrast with the price rise of the share of the company which were unusually high. (bb) The investigations carried out by various investigation directorate had revealed that in the accounts of the entry providers, the cash had been routed from various accounts to provide accommodations to appellant. (cc) The transactions entered by the appellant involved the series of preconceived steps, the performance of each of which was dependent on the others being carried out. The true nature of such share transactions lacked commercial contents, being artificially structured transactions, entered into with the sold intent to evade taxes. (dd) The appellant had failed to appreciate that how a company who had no substantial business was being traded at such a high value and increase in sale price. In the circumstances the modus operandi of price rigging had been established by the department through various action. (ee) The appellant had failed to furnish the details/evidences about what acumen and foresight he had before purchasing about a no substantial means private limited company i.e.M/s.PCIL. The appellant had sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred an appeal before Ld CIT(A) and filed detailed submissions for each of the points discussed by the Assessing Officer. Ld.CIT(A) considered the detailed submissions of the assessee and in his order he acknowledged that assessee has invested along with his family members in the shares of MJTL and he also acknowledged that assessee has followed instruction of his brother to make investments. Further he analysed the SEBI report. The SEBI investigation was undertaken to investigate whether there was connection between the company and the entities which had been identified by the integrated surveillance department. SEBI has investigated all those peoples who are involved in manipulating the prices within the small group of persons. In the SEBI investigations the name of the assessee's brother Shri Dharmendra Karia and his wife Smt Meena Deepak karia were included. After the investigations the SEBI has exonerated the charges of price manipulation in the case of the assessee's brother and his wife. Ld.CIT(A) discussed all these issues in his report and he proceeded to dismiss the appeal filed by the assessee by accepting the reasons for making addition by the Assessing Officer. Even L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in presuming that 2.5% of the total sale consideration has been paid as commission (i.e. 2.5% of Rs. 12,28,62,584) and sustaining an addition of Rs. 30,71,564/- u/s 69C." 9. At the time of hearing, Ld. AR made the submissions in detail and also filed the written submissions for the sake of brevity, written submissions are reproduced below: - "2.1.1. The Assessee, aged 56 years, is assessed to tax since last more than 25 years. He is in the business of real estate and proprietor / partner / director of various concerns. 2.1.2 He is staying in a joint family, along with his family, his parents and the family of his brother with joint business in real estate development and consultancy. As per the family tradition, the share investments were looked after by the elder brother Shri Dharmendra Karia. Refer the submission of the Assessee before the A.O. as reproduced at Para 7 on Pg. 74 of the assessment order r.w. the statements of the Assessee (Q. 6, 7, 13 and [6 dt. 18.12.2017]) and of his brother Dharmendra (Q. 10, 15) as reproduced in the assessment order. This basic fact is admitted and undisputed. 2.1.3 The family was regular investor in shares since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale of the shares and claimed exemption u/s 10(38) of the Act with respect thereto. III. SURVEY OPERATION AGAINST THE ASSESSEE ON 13.09.2016 3.1 Very significantly, absolutely no incriminating material was found during course of the survey, much less indicating any undisclosed income, undisclosed expense or undisclosed investment. 3.2 Only statements of the Assessee and his brother were recorded, in which both denied involvement in any alleged price manipulation. No copy is provided to the Assessee. However, some statements reproduced in the assessment order. IV. ASSESSMENT PROCEEDING 4.1 The Assessee filed various replies from time to time [Refer one reply dated 22.12.2017 at Pg. 73 to 80 of the assessment order]. To the admission of the A.O., there was full compliance to all the requirements and notices and no recourse was taken to section 144 and / or section 145 of the Act. Refer Para 2 of the assessment order. 4.2 The most important aspect is that a copy of none of the material / report / statement was provided to the Assessee nor the Assessee was confronted with the same. Further, no opportunity of cross - examination of any of the persons was provided to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examination of certain Mumbai based parties. This is wrong and misleading. A bare perusal of the summons so issued (Annexure - 'A') would reveal that this was a simple summons sent u/s 131 of the Act directing the Assessee to remain present for his examination. There was not a whisper about any cross - examination. 5.6 A.O. relied upon various case laws, laying down general propositions. VI. BEFORE CIT (A) Refer: Statement of Facts, Grounds of Appeal and documents annexed along with Form 35. Among other, specific ground was raised challenging the action of the A.O. in refusing to provide the Assessee with a copy of the material /statements relied upon as well as to provide an opportunity to cross examine the concerned persons. (Ground 2.3). This aspect was also raised in the written submissions filed before the CIT (A). [Refer, for example, para 5.7 & 5.8 at page 22-3 and para 5.5 at page 34 of his order] 6.1 The Assessee filed exhaustive submissions and various evidences. [Page 1 to 10 of the P.B. and also page 20 to 27 & 30 to 36 of the order of CIT (A).] 6.2 Even during the remand proceeding, a written request was once again made on 22.02.2020 for a copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . which gets referred in the Assessee's case at Sr. 31 at Pg. 57 of the assessment order. 7.2 In any case, most respectfully, the Assessee draws attention to the following aspects which highlights the biased and pre - determined approach while framing the assessment, apart from attempts to mislead. Some such examples are as under: (i) First of all, in the assessment order it has not been acknowledged / brought to the knowledge the vital fact that the very same addition has been made, that too, on substantive basis, in the hands of the counter - parties / buyer of the shares. (ii) Similarly, in the assessment order it has not been acknowledged / brought to the knowledge that the statement of Shri Vipul Bhatt - on which heavy reliance is placed - already stood retracted to the knowledge of the Department. The Assessee craves leave to refer and rely upon the same when produced. (iii) In the assessment order, a serious allegation of the Assessee / Dharmendra not telling the truth on the aspect of the meetings with the share broker is not only made but repeated often and for which a part of the answer given by Dharmendra is reproduced (Refer Answer No. 11 at Para 6.7.1 at Pg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manipulation, buy and sells such script are also put on the same footing. Consequently, they are equally amenable for all the actions and the consequences under the SEBI Act and Rules. Under the circumstances, not proceeding against the Assessee and exonerating Dharmendra and Meena is a conclusive proof of their non -involvement in any wrong doings with respect to the sale transactions. 1.2 Further, the very starting point of the enquiry by the SEBI was the reference received from Investigation Wing of Income - tax Department, Kolkata and others, regarding alleged generation of bogus capital gains in the scrip of MJTL [Refer Para 2 at Pg. 237 (back) r.w. 244 (Para I) of P.B.]. 1.3 The Investigation Wing of Department had also forwarded statements of various alleged accommodation entry providers, their associates, etc. The SEBI also had sought Report from BSE. It appears that the BSE Report had not made any adverse comment (Refer para 2, Pg. 244 - 5 of P.B). 1.4 Interestingly, in this Report, SEBI has dealt with this very source of its enquiry, that is, the report from Income Tax Investigation Wing, in only one small paragraph as under (Refer Para 4, Pg. 244 back of P.B.): & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 07 3. It was observed that the top 10 net sellers by value during post-split period were preferential allottees of the company. 4. As this case has been referred by DIT, hence details of trades of these entities and list of their counterparts may be referred to DIT.' In other words, the company had allotted shares to 77 preferential allottees (including the Assessee). Only 44 preferential allotees had sold shares in market. No connection could be established between the preferential allottees and entities who allegedly manipulated the price. This categorical finding, therefore, demolishes the very basis of the entire addition made by the A.O. Importantly, the Report also categorically exonerates the company as well as the promoters of the company from any wrong doing and held that they had no role to play in this alleged manipulation (Refer Para 17 & 18 at Pg. 255 of P.B.). This is very crucial as these factors also clearly contradict the allegation of penny stock transaction; being contrary to the usual parameters of a penny stock scheme. 3 Specific Thereafter, the Report has analysed in very detailed manner the transaction of purchase and sale in the script du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 57 trading days with volume in small quantity of single digits and price above LTP and with each trade manipulated the scrip price as explained above." [ Refer para 29 page 12 of Report] Patch -II: Similarly, only same 9 entities from Group 1 found violating PFUTP regulations. Patch -III: No adverse inference was drawn against any entity. Apart from group entities, Top 10 sellers based on net negative UP contributors were also analysed and no adverse inference was drawn against them. (List included the Assessee's brother and wife). Also top 10 buyers in negative UP contributors were analysed and no adverse inference was drawn against them. Undisputedly, the Assessee had no direct or indirect connection with any of the entities mentioned in the Report, nor any material is brought on record to controvert this fact. 5.2 SAT in its order dated 24.08.202 1 further absolved 3 out of the above 9 entities. 5.3. In summary, the transaction undertaken by the Assessee are not found to be violative of any Act or Rules of the SEBI or part of any price manipulation scheme by the SEBI. 11. Ld. AR also filed a Comments by Ld. CIT(A) while rejecting claim of the Assessee, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the behest of some unnamed 'friends" through private placement are all suggestive of the fact that shri Dharmendra Karia was informed and aware of the impending manipulation in the price of the scrip. [Page 42]. Again, misleading averment, as already discussed earlier. Refer Part C [Sr. No. C of (3)]. Similar situation arose in the matter before Hon'ble Mumbai ITAT in the case of Vijayrattan B. Mittal. In that case also, the concerned assessee's investment was guided by information made available to him by third party. In that case also, the assessee's father was looking after his affairs of investment in shares etc. The Hon'ble Mumbai ITAT in that case in its judgment reported in 121 Taxmann.com 100 (2020) still held that such arguments are not relevant to hold the gain as manipulated and allowed the appeal. Family's investment in shares shows that the allegation of lack of knowledge of share market is an incorrect allegation. Scrip was trading in the market around the issue price only at the time of offer being made of private placement. Whether scrip was worth or worthless can never be envisaged at the time of investment. Investment in start - up co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after consideration of the surrounding circumstances, no reliance can be placed upon the documentary evidences submitted by the appellant in support of his claim of having earned exempt LCG.[Page 45]. First of all, none of the evidences brought on record have been disputed, much less controverted by any cogent evidence. It was the onus of the A.O. to provide cross examination of the so-called Mr. Vipul Vidur Bhatt with whom he was trying to link the Assessee. On the other hand, the Assessee repeatedly requested for cross examination of Mr. Vipul Vidur Bhatt & buyers of the shares of so-called associates of Mr. Vipul Vidur Bhatt during the original and even during the remand proceeding. Nothing was brought on record by the A.O. or CIT (A) which would establish that the Assessee was a beneficiary of the alleged accommodation entries provided by Mr. Vipul Vidur Bhatt. The A.O. had simply relied upon the findings of investigation wing, without carrying out any independent investigation of his own. In fact, SEBI did not place much reliance on the Report. Even, no contrary and conclusive evidences were brought on record to dispute all the relevant direct documentary evidences brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial / information / statements as referred in the assessment order and ultimately relied upon by the A.O. to support the addition were not confronted the Appellant during the assessment proceeding, this material has to be completely ignored." Assessee for the above proposition relies on the following case law: - (i). Kishinchand Chellaram v. CIT [(1980) 125 ITR 713 (SC)] (ii). CIT v. Smt. S. Jayalakshmi Ammal [(2017) 390 ITR 189 (Mad)] "2B. If no copy of the statements as referred in the assessment order and ultimately relied upon by the A.O. to support the addition were not confronted to the Appellant during the assessment proceeding and no cross - examination granted of the concerned persons, such statement has to be ignored completely. Therefore, it is not permissible in law to take any cognizance of such material / information statement. statement. Therefore, it is not permissible to draw any inference based upon such material. Assessee for the above proposition relies on the following case law: - (i). Andaman Timber Industries v. CCE - [(2015) 127 DTR 241 (SC)] (ii). State of Kerala v. K. T. Shaduli Yusuff[(1977) 39 STC 478 SC)] (iii). Mehta Parikh & Co. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suration with the market price. As such, during the same period, there were similar price / quote patterns of various others reputed companies, which have been accepted as genuine and proper. Assessee for the above proposition relies on the following case law: - (i). CIT v. Orissa Corporation P. Ltd., [(1986) 159 ITR 78 (SC)] (ii). CIT v. Daulat Ram Rawatmul [(1973) 87 ITR 349 SC). 7. SECTION 68 CANNOT BE APPLIED TO THE CASE OF THE APPELLANT Section 68 has absolutely no application to the facts of the Appellant's case. The source of the credit entries was clearly established, being from recognised stock brokers, who had made payment in terms of the stock exchange rules and regulation in discharge of the statutory contract notes, and which transactions have not been held to be bogus by any concerned regulatory authority. The sale transaction was conducted through screen - based stock exchange mechanism, executed at the prevailing market rate. The relevant STT was collected by the broker and paid to the government treasury. The transaction is concluded automatically through the stock exchange mechanism on the matching of the parameters of price and up to that quantity, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court affirmed by Hon'ble Supreme Court in SLP (Civil) No. 20146 of 2012] (ii) CIT v. Damyanti Mukesh Marolia - [ITXA 154 of 2009, Order Dated 19.03.2009 Bombay High Court] (iii) CIT v. Shyam R. Pawar - [(2015) 54 taxmann.com 108 (Bom)] (iv) CIT v. Jamnadevi Agarwal [(2010) 328 ITR 656 (Bom HC)] (v) Dipesh Ramesh Vardhan v. DCIT [ITA No. 7648/M/2019, Order dated 11.08.2020] (vi) Chhaya Hasmukhlal Ranawat v. ITO [ITA No. 3278/M/2019, Order dated 03.02.2021] (vii) Vijayrattan Balkrishna Mittal v. DCIT (2020) 121 taxmann.com 100 (Mum Trib.)] 9. In case of allegation of bogus cash credit that the Assessee has given cash and received back cheque entry, Department has to bring evidence to prove the aforesaid allegation Assessee for the above proposition relies on the following case law: - (i) CIT v. Lavanya Land (P) Ltd. 397 ITR 246 (Bom.) (ii) CIT v. Jamma Devi Agarwal (2010) 328 ITR 656 (Bom.) (iii) Baijnath Agarwalla Vs ACIT (2010) 40 SOT 475 (Agra) 13. On the other hand, Ld. DR submitted that assessee has made a small investment and within a short period of time it has grown several times, he submitted that assessee has not aware of share trading and it seems h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought anything on record to link the assessee or his brother in any of the price manipulation taken place in the scrip of MJTL. Even the SEBI has exonerated assessee's brother and his wife from any of the charges of price manipulation. Assessing Officer has discussed in detail the price manipulation happened in this scrip and various intermediaries were involved and none of the intermediators were anyway connected with the assessee or his family members directly/indirectly. Even Assessing Officer proceeded to make investigations with the share broker through whom assessee has made the sales. These statements or any of the statements recorded by Shri Vipul Vidur Bhatt or any of the intermediaries were never shared with the assessee. Even Assessing Officer has not extended the opportunity of cross examination to the assessee. 16. We observe from the assessment record that during the assessment proceedings assessee has raised several contentions vide letter dated 22.12.2017, in the contentions No. 12 and 13 in which assessee has demanded cross examination of persons whose statements have been discussed in foregoing paragraphs. The assessee also submitted that they do not know any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough an authorized representative the documents as per annexure "A" and not to depart until you receive my permission to do so. Without prejudice to the provisions of any other law for the time being in force if you intentionally omit to so attend and give evidence or produce the books of account or documents, a fine upto Rs. 10,000/- may be imposed upon you under section 272A(1)(c) of the Income-tax Act, 1961." sd/- (Ravi Ranjan) Income Tax Officer, Ward 28(1)(3), Mumbai 20. From the above show-cause notice dated 26.12.2017 in which assessee was asked to attend personally on 27.12.2017 at 11AM. It is pertinent to note that there is absolutely no mention about cross examination of Mumbai based parties at his office. It clearly indicates that no opportunity was extended to the assessee and it is also important to note that the assessment was completed on 29.12.2017 and the opportunity for cross examination was extended only on 27.12.2017 even though there is no mention about such cross examination opportunity extended to the assessee anywhere in the show-cause notice. Therefore, it is clear that assessee was not extended of any opportunity of cross examination and the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, order dated 17.03.2005 was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal." 21. The Hon'ble Supreme Court in the case of Andaman Timber Industries v. CCE (supra) held that when the assessment was made on the basis of the statements recorded from third parties and those statements were not provided nor cross examination was given to the assessee, the Assessment Order ..... 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