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TMI Blog2022 (7) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... department are not acceptable, which are based on general practices of the entry operators, their modus operandi, report of the investigation wing without having any specific observation on the transactions by the assessee. Such observation of the revenue authorities are based on presumptions having no specific evidence against the assesee, thus is not sustainable and deserves to be set aside. Accordingly, we set aside the orders of authorities below and direct the AO to delete the addition. Thus, we allow the appeal of the assessee. - SHRI RAVISH SOOD, JM AND SHRI ARUN KHODPIA, AM For the Assessee: Shri R.B. Doshi, CA For the Revenue: Shri G.N. Singh, Sr. DR ORDER Per Bench : The assessee has filed this appeal arising out of the order passed by the ld. CIT(A)-II, Raipur, dated 27.03.2019 for the assessment year 2014-2015. 2. The sole ground raised by the assessee in this appeal is as under :- 1. Ld. CIT(A) erred in confirming addition of Rs. 3,67,940/- made by AO on account of long term capital gain claimed exempt by appellant u/s. 10(38). The addition made by the AO and sustained by the CIT(A) is arbitrary, baseless not justified. 3. Brief facts of the case are that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI and what are the findings: - It is not known: - i) What are the findings of SEBI. ii) Whom all the report of SEBI mentions. iii) In what context the enquiries were conducted. Unless any investigation was carried out in the context of Income Tax Act, findings of any such enquiry could not be used in Income Tax proceedings without any further enquiry by the AO. iv) Whether the AO had the report of SEBI in his records. v) Whether name of scrip is mentioned in the report of SEBI or whether name of the assessee or his broker is appearing therein. Alleged report of DIT(lnv.) i) Copy of the report neither provided to the assessee nor contents reproduced in assessment order. Nobody knows what does it contain and whether it has any reference of the scrip, the assessee, the broker, assessee s transaction etc. ii) AO simply adopted borrowed conclusion; not permissible. Material utilized by AO not confronted; nor provided to the assessee i) Such material is liable to be ignored. If it is so ignored then there is nothing on record. ii) AO violated the principles of natural justice. Reliance on:- Case laws referred to in the last para on PN 6 of PB (5 Cases). Apparent to be considered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to crash on the floor/portal of the Stock Exchange. Another fairly common phenomenon noticed in LTCG scam is that often the operators split the face value of shares after manipulating the market prices of the shares to a reasonably high level and repeat the operation to manipulate the prices again after splitting. The major reaping of bogus LTCG is generally done only after the split of face value of the shares. 6. Information available with this office through the Income Tax Department portal confirms the investments in penny Stocks Company. The information on record was based on various surveys u/s 133A and statement recorded u/s 131, in a countrywide operation by the Income Tax Department which also gave rise to above mentioned information. Due diligence and careful extrapolation of this country-wide Bogus LTCG exercise, revealed names of BSE/NSE listed companies where manipulation of shares had taken place in order to benefit few individual and companies/entities through penny stock. 6. Based on above observations of the AO, which were further substantiated by the Ld CIT(A) by upholding the same, ld DR has submitted that the transaction are proved to be unexplained and ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal Vs ITO, Ward -35(3), Kolkata in ITA 2281/Kol/2017 is relevant where in it is observed that: 17. The Hon'ble Supreme Court way back in the case of Lalchand Bhagat Ambica Ram vs. CIT [1959] 37 ITR 288 (SC) held that assessment could not be based on background of suspicion and in absence of any evidence to support the same. The Hon'ble Court held: Adverting to the various probabilities which weighed with the Income-tax Officer we may observe that the notoriety for smuggling food grains and other commodities to Bengal by country boats acquired by Sahibgunj and the notoriety achieved by Dhulian as a great receiving centre for such commodities were merely a background of suspicion and the appellant could not be tarred with the same brush as every arhatdar and grain merchant who might have been indulging in smuggling operations, without an iota of evidence in that behalf. The cancellation of the food grain licence at Nawgachia and the prosecution of the appellant under the Defence of India Rules was also of no consequence inasmuch as the appellant was acquitted of the offence with which it had been charged and its licence also was restored. The mere possibility of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be implicated against the assessee. 18. We now consider the various propositions of law laid down by the Courts of law. That cross-examination is one part of the principles of natural justice has been laid down in the following judgments: a) Ayaaubkhan Noorkhan Pathan vs. The State of Maharashtra and Ors. 23. A Constitution Bench of this Court in State of M.P.v. Chintaman Sadashiva Vaishampayan AIR 1961 SC1623, held that the rules of natural justice, require that a party must be given the opportunity to adduce all relevant evidence upon which he relies, and further that, the evidence of the opposite party should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party. Not providing the said opportunity to cross-examine witnesses, would violate the principles of natural justice. (See also: Union of India v. T.R. Varma, AIR 1957 SC 882; Meenglas Tea Estate v. Workmen, AIR 1963 SC 1719; M/s. Kesoram Cotton Mills Ltd. v. Gangadhar and Ors., AIR 1964 SC708; New India Assurance Co. Ltd. v. Nusli Neville Wadia and Anr. AIR 2008 SC 876; Rachpal Singh and Ors. v. Gurmit Singh and Ors. AIR 2009 SC 2448; Biecco Lawrie and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. 30. The aforesaid discussion makes it evident that, not only should the opportunity of cross-examination be made available, but it should be one of effective cross- examination, so as to meet the requirement of the principles of natural justice. In the absence of such an opportunity, it cannot be held that the matter has been decided in accordance with law, as cross- examination is an integral part and parcel of the principles of natural justice. b) Andaman Timber Industries vs. Commissioner of C. Ex., Kolkata-II wherein it was held that: 4. We have heard Mr. Kavin Gulati, learned senior counsel appearing for the Assessee, and Mr. K.Radhakrishnan, learned senior counsel who appeared for the Revenue. 5. According to us, not allowing the Assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounted to violation of principles of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the show cause notice. 19. On similar facts where the revenue has alleged that the assessee has declared bogus LTCG, it was held as follows: a) The CALCUTTA HIGH COURT in the case of BLBCABLES CONDUCTORS [ITA No. 78 of 2017] dated19.06.2018. The High Court held vide Para 4.1: ..we find that all the transactions through the broker were duly recorded in the books of the assessee. The broker has also declared in its books of accounts and offered for taxation. In our view to hold a transaction as bogus, there has to be some concrete evidence where the transactions cannot be proved with the supportive evidence. Here in the case the transactions of the commodity exchanged have not only been explained but also substantiated from the confirmation of the party. Both the parties are confirming the transactions which have been duly supported with the books of accounts and bank transactions. The ld. AR has also submitted the board resolution for the trading of commodity transaction. The broker was expelled from the commodity exchange cannot be the criteria to hold the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. Firstly, the documents on which the Assessing Officer relied upon in the appeal were not put to the assessee during the assessment proceedings. The CIT (Appeals) nevertheless considered them in detail and found that there was no co-relation between the amounts sought to be added and the entries in those documents. This was on an appreciation of facts. There is nothing to indicate that the same was perverse or irrational. Accordingly, no question of law arises. d) The BENCH D OF KOLKATA ITAT in the case of GAUTAM PINCHA [ITA No.569/Kol/2017] order dated 15.11.2017 held as under vide Page 12 Para 8.1: In the light of the documents stated i.e. (I to xiv) in Para 6(supra) we find that there is absolutely no adverse material to implicate the assessee to have entered gamut of unfounded/unwarranted allegations leveled by the AO against the assessee, which in our considered opinion has no legs to stand and therefore has to fall. We take note that the ld. DR could not controvert the facts supported with material evidences which are on record and could only rely on the orders of the AO/CIT (A). We note that in the absence of material/evidence the allegations that the assessee/broke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions relevant to the purchase and sale of shares resulting in long term capital gain. Neither these evidences were found by the AO nor by the ld. CIT(A) to be false or fictitious or bogus. The facts of the case and the evidence in support of the evidence clearly support the claim of the assessee that the transactions of the assessee were genuine and the authorities below was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence. It further held as follows: We note that the ld. AR cited plethora of the case laws to bolster his claim which are not being repeated again since it has already been incorporated in the submissions of the ld. AR (supra) and have been duly considered to arrive at our conclusion. The ld. DR could not bring to our notice any case laws to support the impugned decision of the ld. CIT(A)/AO. In the aforesaid facts and circumstances of the case, we hold that the ld. CIT(A) was not justified in upholding the addition of sale proceeds of the shares as undisclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not concerned with the activity of the broker and have no control over the same. We found that M/s Basant Periwal and Co. never stated any of the authority that transactions in M/s Ramkrishna Fincap Pvt. Ltd. On the floor of the stock exchange are ingenuine or mere accommodation entries. The CIT (A) after relying on the various decision of the coordinate bench, wherein on similar facts and circumstances, issue was decided in favour of the assessee, came to the conclusion that transaction entered by the assessee was genuine. Detailed finding recorded by CIT (A) at para 3 to 5 has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of CIT (A). h) The Hon'ble Punjab and Haryana High Court in the case of VIVEK MEHTA [ITA No. 894 OF 2010] order dated 14.11.2011 vide Page 2 Para 3 held as under: On the basis of the documents produced by the assessee in appeal, the Commissioner of Income Tax (Appeal) recorded a finding of fact that there was a genuine transaction of purchase of shares by the assessee on 16.3.2001 and sale thereof on 21.3.2002. The transactions of sale and purchase were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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