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TMI Blog2023 (6) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Parin Shah, AR And Ms. Urvarshi Sodhan, AR For the Revenue : Shri Purushottam Kumar, Sr.DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present two appeals have been filed by the assessee against order passed by the ld. Commissioner of Income Tax (Appeals)-5, Ahmedabad[hereinafter referred to as Ld.CIT ] dated 9.3.2018 and 26.03.2019 pertaining to the Asst. Year 2014-15 and 2015-2016 under section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as the Act for short). It was common ground that the issues involved in both the appeals was similar involving identical facts. Therefore both the appeals were taken up together for hearing and are being disposed of by this common order. 2. The grounds raised in both the appeals are as under: ITA No.1121/Ahd/2018 (Asst.Year 2014-15) 1. That Hon. CIT(Appeal) has erred in confirming addition of Rs. 10,40,265 u/s 68 of the act. 2. That Hon.CIT(Appeal) has erred in confirming that long term capital gain earned by the appellant is not genuine. On the facts of the case, no addition should be made u/s. 68 of the Act and long term capital gain should be treated as exempt as claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, this despite the assessee asking for cross-examination and for all material evidence against it ;that the assessee was denied opportunity for cross examination. Reliance was placed on the decision of the Hon ble Apex Court in the case of Andaman Timber Industries Vs. Comm. Of Central Excise, Kolkata (2015) 62 taxmann.com 3 (SC). 5. The ld.DR, on the other hand contended that the issue was squarely covered against the assessee by the judgment of the Hon ble Calcutta High Court in the case of Pr.CIT Vs. Swati Bajaj, (2022) 446 ITR 56 (Cal) where based on the similar investigation report of the Investigation Wing, Kolkatta and in identical set of facts, the Hon ble Court had held that mere filing documentary evidences did not discharge onus cast on the assessee to prove genuineness of the transaction, more particularly, since the huge price rise in the shares sold was not shown to be supported by financials of the company, and there was no justification for the same, and considering large scale scam unearthed by the department, where entry operators and brokers involved had admitted to providing accommodation entries through bogus long term capital gain on sale of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action stood discharged. 9. The Hon ble High Court dealt with each and every contention raised by the ld. Counsel for the assessee before it. 10. Regarding the contention of the assessee that investigation report was a general report and could not form the basis for holding the impugned transaction as bogus, it was discarded by the Hon ble court holding that the report was prepared by an authority of the Department, i.e DDIT on the basis of Investigation conducted when matter of large scale scam of providing accommodation entries in the guise of long term capital gains came to their notice. That therefore it was an internal report and needed to be given due weightage to commence proceedings under the Act against assesses who fall within the ring of suspicion. The findings in this regard by the Hon ble High court are at para-43 to 51 of the order as under: 43. From the assessment order passed in the case of the assessee Smt. Swati Bajaj, we find that the genesis of the issue commenced from an investigation report submitted by the Directorate of Income Tax, Investigation, Kolkata (DIT). The investigation report has been prepared by the Deputy Director of Income Tax, Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidence. The Division Bench of the Bombay High Court while testing the correctness of the said submissions observed that in so far as the allegations of under-invoicing by the exporters is concerned, it is nothing but a matter of expression of opinion by the Commission of Inquiry. Further the Court noted that the report of the Commission of Inquiry was a subject matter of challenge in a writ petition by the mining lessees and exporters including the assessee Sesa Sterlite Ltd. (supra). The Court further held that the report of the Commission neither constitutes a binding judgment nor a definitive pronouncement. Further by referring to the decision of the Hon'ble Supreme Court in State of Karnataka v. Union of India [1977] 4 SCC 608, it was held that the report submitted by the Commission of Inquiry may or may not be accepted by the authority appointing the Commission of Inquiry. In the background of these findings, the Court held that the re-opening of the assessment could not have been done exclusively based on the report of the Commission of Inquiry. 46. Mr. Surana, learned senior counsel relied on the decision of the Allahabad High Court in Smt. Kavita Gupta and submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion of Inquiry may or may not be binding on the authority appointing the Commission, held that the re-opening of the assessments under section 147 of the Act could not have been solely based upon such report. Firstly, we need to note that the report of the DDIT is by an authority of the investigation wing of the Income-tax department. Therefore, at the threshold it cannot be treated to be a third-party report. That apart the effect of a report submitted in terms of the provisions of the Commission of Inquiry Act is quite different and distinct from a report submitted in-house by the Income Tax department. Therefore, in our view the decision in Sesa Sterlite Ltd. (supra) is distinguishable. In so far as the decision in Kavita Gupta (supra) the challenge was whether the assumption of jurisdiction by the Commissioner of Income-tax under section 263 of the Act was justified in the eye of law. In the said case, the Court noted the legal position that when an inquiry is launched under section 143(3) of the Act, the findings will not depend only upon the presumption, the onus of proof could not be cast entirely upon the revenue and such onus would shift on the revenue only if the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report in the later part of this judgment. 49. An investigation is commenced when allegations crops up regarding tax evasion. The Income-tax department was nowhere in the picture when the assessees effected purchase of the shares and subsequently sold the shares well after the period of 12 months. It is only when the assessees, substantially in large numbers, made fanciful claims of LTCG, time had come to examine its genuinity of such claims. While on this issue, it would be relevant to take note of the decision of the Hon'ble Supreme Court in Ram Jethmalani (supra). The matter before the Hon'ble Supreme Court was in respect to transfer of monies and accumulation of monies which were unaccounted for by many individuals and legal entities in the country in foreign banks. The degree of control on such transactions by the states was explained by the Hon'ble Supreme Court in the following terms: If the State is soft to a large extent, especially in terms of the unholy nexus between the law makers, the law keepers, and the law breakers, the moral authority, and also the moral incentives, to exercise suitable control over the economy and the society would vanish. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation into the matters concerning allegations against Hassan Ali Khan and the Tapurias; and further that such a committee would also enable the taking of appropriate steps to bring back the monies stashed in foreign banks, for which purposes a need may arise to register further cases. The Union of India also claims that the formation of such a committee indicates the seriousness with which it is viewing the entire matter. 51. The above decision would render support to cause an investigation by the Income-tax department when matters come to their notice showing abnormally high and inflated claims of LTCG especially when the share market in the country during the relevant time was not progressive. Therefore, no fault can be attributed to the Income-tax department for causing an investigation and any finding rendered pursuant to such investigation could very well be a material to commence further proceedings under the Act against the assessees who fall within the ring of suspicion. Mr. Surana, learned Senior Counsel would contend that unlike in the cases relied upon by him, there is nothing to show that the Government of India or the CBDT had directed conduct of an investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the copy of the investigation report was not furnished to them despite specific written request made on behalf of the assesses to furnish the copy of the report, the statements recorded and provide those persons from whom statements were recorded to be cross examined on behalf of the assessee. There is no dispute to the fact that the copy of the statement said to have been recorded during the course of investigation has not been furnished to the assessees and the request made by some of them for cross examining of those persons was not considered. The question would be as to whether the noncompliance of the above would render the assessments bad in law. The argument of the revenue is that the assessments cannot be held to be illegal merely on the grounds that the copy of the report was not furnished as the respective assessing officers have clearly mentioned as to the nature of investigation done by the department and as the report itself states that the investigation commenced not from the assessees end but the individuals who dealt with these penny stocks who were targeted. It is equally true invariably in all cases, the statement of the stock brokers, the entry operators o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and arrive at an appropriate decision. 57. In a very recent decision of the Hon'ble Supreme Court in M.J. James (supra) after referring to a catena of decisions on the point the Hon'ble Supreme Court pointed out that natural justice is a flexible tool in the hands of the judiciary to reach out in fit cases to remedy injustice. The breach of the audi alteram partem rule cannot by itself, without more lead to the conclusion that prejudice is thereby caused. Where procedural and/or substantive provisions of law embodied the principles of natural justice, their infraction per-se does not lead to invalidity of the order passed. The prejudice must be caused to the litigant, except in the case of a mandatory provision of law which is conceived not only in individual interest but also in public interest. Further by referring to the decision in State of Uttar Pradesh v. Sudhir Kumar Singh [2020] SCC Online SC 847, it was held that the prejudice exception must be more than a mere apprehension or even a reasonable suspicion of a litigant, it should exist as a matter of fact or to be cast upon a definite inference of likelihood of prejudice flowing from the non-observance of na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e right of hearing cannot include the right of cross examination and the right must depend upon the circumstances of each case and must also depend on the statute under which the allegations are being enquired into. 61. Having noted the above legal position, it goes without saying there is no vested right for the assessee to cross examine the persons who have not deposed anything against the assessee. The investigation report proceeds on a different perspective commencing from a different point and this has led to the enquiry being conducted by the assessing officer calling upon the assessee to prove the genuineness of the claim of LTCG. 62. In the light of the above conclusion we hold that the decision in Gorkha Security Services (supra) does not lend any support to the case of the assessees and is distinguishable. 63. The copy of the recommendations of SIT on black money as contained in the third SIT report as published by the Press Information Bureau, Government of India, Ministry of Finance, dated 24-7-2015 was placed before us with reference to the misuse of exemption on LTCG for money laundering and the recommendations are as hereunder: A company with very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged on behalf of the assessees. The assesses have not been shown to be prejudiced on account of non- furnishing of the investigation report or non-production of the persons for cross examination as the assessee has not specifically indicated as to how he was prejudiced, coupled with the fact as admitted by the revenue, the statements do not indict the assessee. That apart, we have noted that the investigation has commenced targeting the individuals who dealt with the penny stocks and after examining the modus seeing the cash trail the report has been submitted recommending the same to be placed before the DGIT (investigation) of all the states of the country. It is thereafter the concerned assessing officers have been informed to consider as to the bonafideness and genuineness of the claims of LTCG/LTCL of the respective assessees qua the findings which emanated during the investigation conducted on the individuals who dealt with the penny stocks. Therefore, the assessments have commenced by the assessing officers calling upon the assessee to explain the genuineness of the claim of LTCG/LTCL made by them. In all the assessment orders, substantial portion of the investigation rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitive position of other entities. While considering the correctness of the submissions made on behalf of the SEBI, the Hon'ble Supreme Court held that if the disclosure of the report would affect third party rights the onus then shifts to the appellant to prove that the information is necessary to defend the case appropriately. On facts it was found that the appellant therein did not sufficiently discharge his burden by proving that the nondisclosure of the information would affect his ability to defend himself. 67. In the cases on hand, undoubtedly the report contains information about various penny stocks companies about the directors of the companies and also the stock brokers, entry operators and others who have been named in the report. It is an admitted case that the names of the assessees do not figure in the report. Therefore, non-furnishing of the report has in no manner prejudiced the rights of the assessees to discharge the onus cast upon them in terms of section 68 of the Act. 68. It is equally not in dispute that whatever information which was required to be made known to the assessee has been informed to the assessee by the assessing officer by issuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich trading had been done wherefore illiquid scrips meaning thereby that such scrips though listed in the BSE were not a matter of every day buy and sell transactions. Further it was held that trading in such illiquid scrips is not impermissible yet voluminous trading over a period of time in such scrips is a fact that should attract the attention of a vigilant trader engaged in such trades. It was further pointed out that though proximity of time between the buy and sell orders may not be conclusive in an isolated case such an event in a situation where there is a huge volume and trading can reasonable point to some kind of a fraudulent/manipulative exercise with prior meeting of minds. Such meeting of minds so as to attract the liability of the brokers / sub-broker and may be between the brokers/sub-broker and the client or it could be between two brokers/sub- brokers engaged in the buy and sell transactions. Further it was pointed out that when over a period of time such transactions have been made between the same set of brokers or a group of brokers a conclusion can be a reasonable reached that there is a concerted effort on the part of the brokers concerned to indulge in syn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of preponderance of probabilities to ascertain as to whether there has been violation of the provisions of the Income-tax Act. In such a circumstance, the conclusion has to be gathered from various circumstances like the volume from trade, period of persistence in trading in the particular scrips, particulars of buy and sell orders and the volume thereof and proximity of time between the two which are relevant factors. Therefore, in our considered view the methodology adopted by the department cannot be faulted. 12. The aspect of discharge of onus of the assessee by filing documentary evidences, is dealt with at para 75 to 88 of the order , holding that the burden in the said cases where the facts showed phenomenal and fanciful rise in shares in a short span of time and thereafter steep fall, all unsupported by the financials of the companies , was heavy and could not be said to be discharged by filing mere documentary evidences of sale and purchase of shares. The- relevant portion of the order isas under: 75. While it may be true that M/s. Swati Bajaj, Mr. Girish Tigwani or other assessees who are before us could have been regular investors, investors could or could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year 1940 which was a big sum during the relevant time. The Tribunal disbelieved the story of the assessee and held it to prima facie be a fantastic story, a story that does not accord with human probabilities. It was further held that the Courts and Tribunals have to judge the evidence before it by applying the test of human probabilities, human minds may differ as to the reliability of a piece of evidence but in that sphere, the decision of the final fact finding authority is made conclusive by law. 78. In SumatiDayal (supra), the appeals were filed by the assessee against the order passed by the Income-tax Settlement Commission. On the aspect of burden of proof, it was pointed out that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act, lies upon the assessee. With regard to the effect of Section 68 of the Act, it was held that where any sum is found credited in the books of the assessee in previous year, the sum may be charged to Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court and in this regard, it will be beneficial to refer to the decision in P. Mohanakala (supra). The questions of law which were framed for consideration are more or less identical as the substantial questions of law raised before use with regard to the burden of proof cast on the assessee under section 68 of the Act. It was held that the expression the assessee offers no explanation means where the assessee offers no proper, reasonable and acceptable explanation as regard the sums found credited in the books maintained by the assessee. Further it was pointed out that in cases where the explanation offered by the assessee about the nature and source of sums found credited in the books is not satisfactory shows, prima facie evidence against the assessee namely, the receipt of money, the burden is on the assessee to rebut the sum and if he fails to rebut, it can be held against the assessee that it was a receipt of an income nature. Further, it was held that in the absence of satisfactory explanation of the assessee, the Income-tax Officer may assume that cash credit entries in the books represented income from undisclosed sources. In the said case also the Court took note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med for consideration was whether the Tribunal was right in deleting the additions under section 68 of the Act and whether the decision of the Tribunal is perverse. While answering the said question, it was pointed out that the Assessing Officer is both an investor and an adjudicator. The Assessing Officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response and a general and universal procedure or method to be adopted by the Assessing Officer while verification of facts cannot be laid down. Further, the manner and mode of conducting assessment proceedings has to be left to the discretion of the Assessing Officer and the same should be just, fair and should not cause any harassment to the assessee. Further, it was held that the provisions of the Evidence Act are not applicable but the Assessing Officer being a quasi judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the balance of equity, fairness of justice and the principle of preponderance of probabilities apply. The assessee argued that the revenue must have evidence to show circulation of money from the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istillation of the precedents yields the following propositions of law in the context of s. 68 of the IT Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register etc., it would constitute acceptable proof or acceptable explanation by the assessee; (5) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (6) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the AO take such repudiation at face value and construe it, without more, against the assessee; (7) the AO is duty bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which payments/investment was made etc. It was held that these facts are basically and primarily in the knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certification of incorporation of company payment by bank channels etc. cannot be in all cases tantamount to satisfactory discharge of onus. 87. Mr. Agarwal sought to distinguish the decision in Manish D. Jain by pointing out the facts of the case and the modus operandi of the assessee. As pointed out earlier, what we are required to examine in a judgment is the ratio and if we bear the said concept in mind, we would be guided in a proper manner. In the said decision, the judgment in SumatiDayal was referred to which decision was followed in Sanjay Kaul (supra) wherein it was held that where the assessee was not a regular investor in shares and had only invested in high risk stocks of obscure companies with no business activities or assets, which were identified as the penny stocks, the assessing officer had correctly concluded that the assessee entered into a pre-arranged sham transaction so as to convert unaccounted money into accounted money in guise of capital loss and there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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