9911796707
TMI Blog2023 (6) TMI 1474X X X X Extracts X X X X X X X X Extracts X X X X ..... substantiate the sale of shares, which were not found to be false, fabricated, or fictitious, as also noted by the coordinate bench in the aforesaid decision.
AO placed reliance upon the statements of third-party, wherein there is no allegation that the assessee himself has participated in any price rigging of shares. Thus, reference to the preponderance of probabilities without refuting the direct evidence or finding fault in the same is not justified. Therefore, we find no infirmity in the impugned order deleting the additions made under section 68 and section 69C - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... s income from salary, rental income, capital gains, and income from other sources. The search and seizure operation under section 132(1) of the Act was conducted on the assessee on 09/04/2015. During the course of the search, the residential premise/lockers of the assessee were searched. During the proceedings under section 153A of the Act, it was observed that the assessee has earned huge long-term capital gains and short-term capital gains which are of suspicious nature. Accordingly, information with respect to the assessee was gathered by the Department that he had earned these long-term capital gains in a suspicious manner, using dubious means. The AO took into consideration the investigation report received from the Directorate of Investigation, Delhi, whereby it was brought to the notice that certain scrips, namely Radford Global Ltd and Global Infratech and Finance Ltd, in which the assessee has also dealt, were being used for the purpose of providing accommodation entry for bogus long term capital gain claims. The AO also referred to the orders passed by the Securities and Exchange Board of India ("SEBI") in the case of Radford Global Ltd and Global Infratech and Finance Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 78368689.8 5. Unisys Softwares and Holding Industries Ltd. 34608122 34608122 6. Rander Corporation Ltd. 7840804 3514070 11354874 7. Wagend Infra Venture Ltd. 37688695 37688695 Total: 343331715.6 7. Thus, by treating the aforesaid 7 scrips as penny stocks used for providing accommodation entry of bogus long-term capital gains/short-term capital gains, the AO made the addition of the sale consideration under section 68 of the Act. The AO further made an addition under section 69C of the Act by treating 7% of the total sale consideration as unaccounted expenditure on payment of commission to the parties who have assisted the assessee to claim bogus long-term capital gains/short-term capital gains. The additions made by the AO under section 68 and section 69C of the Act in the years under consideration, i.e. assessment years 2012-13 to 2015-16, are as under:- A.Y. Sale consideration (relating to LTCG) Sale consideration (relating to STCG) Total 2012-13 4,23,72,172 4,23,72,172 2013-14 7,82,23,206 3,76,14,150 11,58,37,356 2014-15 18,09,70,565 18,09,70,565 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The original return of income for the assessment years 2012-13 and 2013-14 were filed by the assessee on 31/08/2012 and 30/07/2013, respectively. Thus, the time period for issuance of notice under section 143(2) of the Act for the aforesaid assessment years was already expired on the date of the search and no assessment proceedings were pending on the date of the search. Therefore, in the present case, it is undisputed that the assessment years 2012-13 and 2013-14 are unabated assessment years as per the 2nd proviso to section 153A(1) of the Act. Thus, the existence of incriminating material is sine qua non in order to initiate the proceedings under section 153A of the Act. The said aspect has recently been affirmed by the Hon'ble Supreme Court in PCIT v/s Abhisar Buildwell (P.) Ltd., [2023] 149 taxmann.com 399 (SC), wherein the Hon'ble Supreme Court held that if no incriminating material is found during the search, the AO cannot make any additions to the completed/unabated assessments. We find from the assessment order in Shri Dilip B. Jiwrajka, for the assessment year 2012-13, that the following transactions in the similar scrips were examined by the AO, and additions under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying out certain activities outside books of accounts which is not disclosed to the Department. Incriminating material also comprises of document or evidence found in search which demonstrates or proves that what is apparent is not real or what is real is not apparent. In other words, if an assessee has recorded transactions in his books or other documents maintained in the ordinary course then in order to hold the material or evidence found in the course of search to be incriminating in nature, then seized document should lead to conclusion that the entries made in the books of the assessee do not represent true and correct state of affairs. Rather the evidence unearthed or found in the course of search should establish that the real transaction of the assessee was something different than what was recorded in the regular books and therefore the entries in the books did not represent true and correct state of affairs i.e. the assessee has undisclosed income/expense outside the books or that the assessee is conducting income earning activity outside the books of accounts or all the revenue earning activities are not disclosed to the tax authorities in the books regular maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation', search action u/s 132 of the Act was conducted upon the assessee and according to Ld CIT(A), based on analysis of books of accounts, recording of statements etc., certain information came to light which constituted 'incriminating evidence' against the assessee. The Ld. CIT(A) also referred to the third-party statements of the purported entry operators/exit providers as 'incriminating material' qua the assessee. 15. It is noted by us that the information' referred to by the Ld. CIT(A) was the inputs received by the Investigating authorities from the SEBI and other Investigation Wings of the Department. The AO has noted at Para 4.3 of the impugned order that the SEBI had passed an interim order dated 19-12-2014 in the matters of the scrip, M/s Radford Global Ltd this scrip (not pertaining to AY 2012-13 & AY 2013-14 ie un-abated assessment years we are dealing with legal issue) and the assessee was found guilty therein of manipulation and rigging of prices on this scrip on stock exchange. Based on these inputs, search action u/s 132 of the Act was conducted upon the assessee on 0904- 2015 to unearth the modus operandi of the assessee. As already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation' received by the Investigating authorities prior to the date of search nor was any incriminating 'information' gathered from the assessee in the course of search. As far as the shares of M/s Dhenu Buildcon Ltd (formerly known as Hingir Rampur Coal Ltd) is concerned, it is noted that although the Investigating officer is noted to have questioned the assessee but in the answers given to Q Nos. 37 & 47, Shri Surendra Jiwrajka (brother of assessee) did not admit of any wrong doing. Also, unlike the questions which were put in relation to the shares of M/s Radford Global Ltd in the backdrop of the inputs received from SEBI, it is noted that the relevant Questions Nos. 37 & 47 posed by the Investigating Officer were general in nature and there was no reference to any 'information' gathered from SEBI or any other Department of Investigation Wing. In fact, it is noted by us, that like Dhenu Buildcon Ltd, similar questions at Q Nos. 48 & 58 were put to the assessee regarding his transactions in the shares of M/s KGN Industries Ltd to which similar replies were furnished by the assessee. Upon enquiry by the Bench, it was gathered that the AO had accepted the genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Hon'ble Delhi High Court in the case of CIT Vs Best Infrastructure (India) Pvt Ltd (397 ITR 82). In this case along with assessee's search, simultaneous search was also conducted upon Mr. T who admitted to providing accommodation entries to the assessee in form of share application monies, in lieu of cash. Relying on the statement of Mr. T, the AO made additions u/s 68 in the assessments framed u/s 153A for unabated AYS 2005-06 to 2009-10. On appeal the Hon'ble High Court reiterated the settled legal position that unless there is incriminating material qua each of the AYs in which additions are sought to be made, pursuant to search and seizure operation, the assumption of jurisdiction under Section 153A of the Act would be vitiated in law. In view of the aforesaid legal position, the Hon'ble High Court observed that the director of the assessee had admitted undisclosed income only in relation to the year in which search was conducted and no income was admitted in relation to any of the earlier six years. It further observed that no incriminating material was found from the assessee's premises which could justify the additions made u/s 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venience and clarity, the relevant instructions dated 10.3.2003 issued by CBDT is reproduced hereunder:- To All Chief Commissioners of Income tax (Cadre Contra) & All Directors General of Income Tax Inv. Sir, Sub:- Confession of additional Income during the course of search & seizureand survey operation regarding Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search& seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on' collection of evidence of income which leads to information on what has not been disclosed or is notlikely to be disclosed before the Income Tax Departments. Similarly, while recording statement during the course of search it seizures and survey operations no attempt should be made to obtain confession as to the undisclosed income. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly following the decision of the coordinate bench of the Tribunal cited supra, we uphold the plea of the assessee that there was no incriminating material or information found during the course of the search in relation to the transactions conducted by the assessee during the assessment years 2012-13 and 2013-14. Therefore, in light of the law laid down by the Hon'ble Supreme Court in Abhisar Buildwell (P.) Ltd. (supra), the grounds raised in assessee's cross objections for the assessment years 2012-13 and 2013-14 are allowed. 14. Accordingly, the appeals by the Revenue for the assessment years 2012-13 and 2013-14 have been rendered academic and therefore are dismissed as infructuous. 15. Insofar as assessment years 2014-15 and 2015-16 are concerned, the same are admitted to be abated assessment years. We find that while dealing with a similar factual matrix in the case of assessee's brother in Shri Dilip B. Jiwrajka, the coordinate bench of the Tribunal vide order dated 29/11/2022 cited supra deleted the additions made by the AO under section 68 and section 69C of the Act, observing as under:- 29. We have considered the rival submissions and perused the material available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulation in these scrips. Vide order dated 20-09-2017, the earlier interim order was modified by SEBI and the entities including the assessee against whom directions were issued vide aforesaid interim orders/actions were found to be not in violation of provisions of SEBI Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities) Market Regulations, 2003. Accordingly, SEBI vide aforesaid order dated 2009-2017, revoked the directions issued vide earlier interim orders in exercise of powers conferred under section 19 of SEBI Act, 1992 read with section 11, 11(4) and 11B thereof, with immediate effect. The Ld. CIT(A) is noted to have taken note of the aforesaid order of the SEBI, whose relevant portion is reproduced below: "5. Upon completion of investigation, the SEBI had passed order in the case of Radford Global Limited on 20.09.2017 vide order no. SEBI/WTM/MPB/EFD-1-DRA-III/30/2017. In this order it is concluded as under: "9. ...... investigation did not find any adverse evidence/adverse findings in respect of violation of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Officer wing's had questioned the genuineness of the capital gains earned in the shares of M/s. Radford Global Ltd in light of the interim SEBI's adverse order dated 19.12.2014. Similarly, the Investigating Officer had also suspected the gains derived in the shares of M/s. Shree Shaleen Textiles Ltd & M/s. Global Infratech & Finance Ltd (formerly Asianlak Capital Finance Ltd.). Faced adversely with the strenuous, complex situation when the Investigations Officer proposed to disallow the exemption to the LTCG u/s 10(38) of the Act, the assessee's brother on mistaken belief of fact [which was based on the adverse interim order of SEBI in 2014 which was subsequently on 20.09.2017 modified and assessee was exonerated] instead offered it to tax under the head 'Income from Other Sources'. The Ld. AR has rightly explained that, since at that material time (i.e. 09.04.2015) the interim directions of the SEBI against the assessee were in force and even the demat account of the assessee had been frozen, in order to avoid further harassment and protracted litigation, the brother of the assessee in the course of the search was left with no option but to accede to withdraw the exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by AO cannot be justified based solely on statements recorded during the course of search, which is otherwise not backed by corroborative evidence. For this, we may gainfully refer to the Instruction F. No. 286/2/2003-IT (Inv. II), dated 10-3-2003 issued by the CBDT to the Assessing Officers: "Instances have come to the notice of the Board where assessees have claimed that they have been forced to confess the undisclosed income during the course of search and seizure and survey operations. Such confession, if not based upon credible evidence, are later retracted by the concerned assessee while filing returns of income. In these circumstances, such confessions during the course of search and seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income . Any action on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein he has discussed their financial statements and future prospects and concluded that their financials did not inspire confidence to justify the upward trend of price movements on the stock exchange. To this, the Ld. AR first submitted that, the assessee had furnished contemporaneous evidences to substantiate its transactions in all these shares. For AY 2014-15, he invited our attention to the following facts relating to the transactions in the shares which were noted by the Ld. CIT(A). "6.3 I have considered the assessment order and the written submission made by the appellant, and perused the material on record and also the legal position on the issues at hand. From the details available on records, the undisputed factual matrix in this case is that the appellant has share transactions as under: Radford Global Limited: The appellant was allotted 2,50,000 shares of Radford Global Limited through preferential allotment on 16.02.2012. These shares were purchased at Rs. 15/per share (Rs. 10/- face value and a premium of Rs. 5/-). The purchase price was paid by the appellant though banking channels. These shares were credited in the demat account on 31.03.2012 which was he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween 11.03.2013 to 13.03.2013 for a value of Rs. 8,52,867/-. Entire holding was sold on 28.05.2014 for a total consideration of Rs. 35,00,871/-. The appellant has earned STCG on sale of shares of Rander Corporation Ltd." 37. The Ld. AR contended that no objective enquiry was conducted by the AO in respect of the contemporaneous transactional documents and evidences furnished by the assessee. Rather, these evidences were mechanically rejected by the AO. It is noted by us that, the assessee had furnished the following documents in support of his transaction in these four (4) scrips in question viz., M/s Radford Global Ltd, M/s Global Infratech & Finance Ltd, M/s Shree Shaleen Textiles Ltd & M/s Rander Corporation Ltd : (i) Copy of Bank Statement; (ii) Copy of demat account statement; (iii) Confirmation of invoices issued upon preferential allotment of shares; (iv) Copy of the contract notes issued by share broker upon sale of shares; (v) Copy of the ledger accounts of the share broker; 38. We note that the aforesaid documents filed by the assessee before the lower authorities in order to substantiate the sale of listed shares has not been found to be false, fabricated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, Companies are operating in different segments and sectors which are not possible to be related and the price of the scrips cannot be correlated with one or two such factors. As a matter of fact these factors may run into hundreds and still it may not be possible to say that all have been accounted for. Weak financial should not be the only parameter to suspicious trading of a company on Stock Exchange and as per the statistics 30% of listed companies on BSE are loss-making at any time and then their trading ought to be treated with suspicion." 40. To buttress his contention further, the Ld. AR submitted that, even otherwise the AO's premise that, the financials of these companies did not inspire confidence and that it did not correlate with the price movements so as to justify the genuineness of the capital gains, was factually untenable. For instance, in the context of M/s. Global Infratech & Finance Ltd, (formerly known as M/s. Asianlak Capital and Finance Ltd.), he pointed out that in the year of preferential allotment of shares, the turnover of the company had grown from Rs. 8.90 lacs to Rs. 191 lacs representing growth of 2046.07%. Correspondingly, the profit had increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sold the shares at the peak price to enjoy higher capital gains, and since that's not the case as evident from the aforesaid relevant facts, according to Ld AR, the AO's alleged theory fails. Before us, the Ld. CIT, DR was neither able to cogently rebut these averments of the Ld. AR, nor able to factually disprove the aforesaid relevant facts brought to our notice to counter the theory propounded by the AO to doubt the transaction. In such a scenario, even this contention of the Ld. CIT, DR cannot be the ground to over-look the documents submitted by the assessee to substantiate the transactions in question. 43. As far as the statements of brokers/entry operators etc., that have been relied upon by the Ld. CIT, DR, are concerned, the Ld. AR showed us that, neither in the sworn statements of the so-called entry operators had anyone admitted of providing accommodation entries to the assessee, nor had anyone admitted to have received any cash from the assessee in lieu of cheques. The Ld. AR further pointed out to us that the so-called entry operators were not even shareholders or directors of these listed companies so as to have been able to exert influence over the companies. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... publicly listed shares of the companies, in which any person could have traded/invested, had any connection with the averments made by Shri Kedia. Even otherwise, this statement also was not tested on the touch stone of cross examination, and so such third party statement could not have been acted upon to the disadvantage of the assessee, since it would be fragile for violation of the principles of natural justice. In this regard, we may gainfully refer to the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that, failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice. It is a serious flaw which renders the order a nullity. We also gainfully refer to the judgment of the Hon'ble Apex Court in the case of CIT Vs. Odeon Builders Pvt. ltd. (418 ITR 315) wherein also it was held that, the addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross-examination of the third party renders the addition/ dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n levelled by the SEBI in as much as this watchdog had directly suspected the assessee of price rigging to reap LTCG, in their interim order passed in 2014. As noted earlier, upon completion of the investigation, SEBI has specifically exonerated the assessee of any wrong-doing or manipulation of shares prices of these companies on the BSE (Bombay Stock Exchange). Hence, on the peculiar facts of this case, since the direct evidences brought on record by the assessee shows that, unlike others, he was not a party or beneficiary of any price rigging or manipulation, the Revenue's reliance on the above referred third party statements, which as noted above, does not even pertain to the assessee, was clearly misplaced and so erroneous and is unsustainable in eyes of law. 46. to 54. ............. 55. In view of the above therefore we do not find any infirmity in the order of the Ld. CIT(A) deleting the additions made u/s 68 of the Act and the consequent addition of unexplained commission expenditure made u/s 69 of the Act and uphold to the same. 56. Before parting, it is relevant to mention another important fact which came to our notice. For argument sake, even if all the above ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Market, Regulations, 2003 in respect of scrip of Radford Global Ltd. During the hearing, the learned AR also placed on record similar order dated 29/07/2022 passed by SEBI under section 15-I of the SEBI Act, 1992 read with rule 5 of SEBI (Procedure for Holding Enquiry and Imposing Penalties) Rules, 1995, wherein at para 63 of the order, the assessee was found to be not involved in price manipulation, volume manipulation, circular trades, reversal trades, synchronised trades, selling shares at an artificially inflated price, etc. of scrip of Global Infratech and Finance Ltd. We find that in the aforesaid decision, the coordinate bench of the Tribunal from para 46-55, considered in detail various decisions relied upon by the learned CIT(A). We find that the coordinate bench also considered the decision of the Hon'ble Calcutta High Court in PCIT v/s Swati Bajaj (288 Taxman 403) and found the same to be factually distinguishable in paragraph 51-53 of the aforesaid order. During the hearing, the learned DR made submissions against the conclusion reached by the coordinate bench in the aforesaid decision. However, no material has been brought on record to show that the said decision has e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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