Income Tax Appellate Tribunal - Jaipur
Purushotam Soni, Jaipur vs Ito, Jaipur on 6 April, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM
vk;dj vihy la-@ITA No. 288/JP/2017
fu/kZkj.k o"kZ@Assessment Years : 2013-14.
Shri Purushotam Soni, cuke The Income Tax Officer,
Prop. M/s.Tripti Gems, Vs. Ward 1(1),
Shop No. 95, Gopal Ji Ka Rasta, Jaipur.
Johari Bazar, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AGCPS 2970 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by : Shri S.L. Poddar (Advocate)
jktLo dh vksj ls@ Revenue by : Shri Varinder Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 18/01/2018
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 06/04/2018
vkns'k@ ORDER
PER VIJAY PAL RAO, J.M.
This appeal by the assessee is directed against the order dated 29.03.2017 pertaining to A.Y. 2013-14. The assessee has raised the following revised grounds of appeal :-
1. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the addition of Rs. 49,14,686/- on account of the long term capital gain treating the same as undisclosed income of the assessee whereas the assessee has shown the long term capital gain income exempt u/s 10(38) of the Income Tax Act, 1961.2 ITA No. 288/JP/2017
Shri Puroshotam Soni, Jaipur.
2. Under the facts and circumstances of the case the learned CIT (A) has erred in confirming the addition of Rs. 49,16,686/- without providing opportunity to the assessee for cross examination and rebutting the material collected at the back of the assessee.
3. The assessee craves your indulgence to add, amend or alter all or any grounds of appeal before or at the time of hearing.
2. The only issue arises in this appeal of the assessee is regarding long term capital gain on sale of shares and claimed as exempt under section 10(38) of the Act was treated by the AO as undisclosed income of the assessee. The assessee is an individual and engaged in the business of trading of gems stone in the name and style of M/s. Tripti Gems. The assessee filed his return of income on 31st July, 2013 declaring total income of Rs. 5,92,500/-. The assessee has claimed long term capital gain of Rs. 48,14,686/- from the sale of shares of M/s. Paridhi Properties Ltd., amalgamated with M/s. Luminaire Technologies Ltd. The AO received information from the Investigation Wing, Kolkata that during the search conducted under section 132 of the IT Act at the premises of the broker in case of Anand Sharma, it was found that Shri Anand Sharma and his associates were indulged in providing accommodation entries and in the form of bogus long term capital gain in the shape of sale of shares. The AO further noted that during the course of survey on broking house, it was gathered that Shri Deepak Patwari had also traded in penny stock of M/s. Luminaire Technologies Ltd. Since the assessee has sold the shares of M/s.
Luminaire Technologies Ltd. after M/s. Paridhi Properties Ltd. amalgamated with M/s. Luminaire Technologies Ltd., therefore, the AO issued a show cause notice dated 22nd January, 2016 as to why the accommodation entries obtained amounting 3 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
to Rs. 49,14,686/- in the shape of sale of shares of M/s. Luminaire Technologies Ltd.
should not be added to the total income of the assessee. The assessee filed his reply vide letter dated 22nd February, 2016 and explained the details of the transactions, payment of purchase consideration, dematerialization of shares, amalgamation of M/s. Paridhi Properties Ltd with M/s. Luminaire Technologies Ltd.
and finally transactions of shares are recorded in the demat account of the assessee.
The AO did not accept the contention and explanation of the assessee and held that as per the list of beneficiaries who have taken entries from the companies of the above group of Shri Deepak Patwari as extracted by the Investigation Wing of Kolkata, the assessee is the beneficiary obtaining the accommodation and bogus capital gain entry in the form of sale of shares of M/s. Luminaire Technologies Ltd.
and accordingly the sale consideration of Rs. 49,14,686/- was added. The assessee challenged the action of the AO before ld. CIT (A) but could not succeed.
3. Before us, the ld. A/R of the assessee has submitted that the assessee purchased 10,000 shares of Rs. 10/- each of M/s. Paridhi Properties Ltd. on 11.3.2011 against the payment of Rs. 100,000/- by cheque which is duly reflected in the bank account of the assessee. The ld. A/R has referred to the bank statement at pages 1 to 4 of the paper book and submitted that the payment of Rs. 100,000/-
has been recorded in the bank statement and, therefore, the transaction of purchase of shares against the consideration of Rs. 100,000/- is duly supported by the independent evidence. The ld. A/R has then referred to the allotment letter dated 21st March, 2011 of 10,000 shares by M/s. Paridhi Properties Ltd. placed at page 5 of the paper book. The assessee was, thereafter, issued share certificate having registered portfolio no. P000004 dated 19th March, 2011 at page 6 of the paper 4 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
book. Subsequently, the assessee dematerialized the shares with DP Stock Holding Corporation Ltd. (NSDL). A copy of the demat account is placed at pages 7 & 8 of the paper book. The ld. A/R has submitted that in the meantime M/s. Paridhi Properties Ltd. amalgamated with M/s. Luminaire Technologies Ltd. vide order dated 27th July, 2012 of Hon'ble Bombay High Court approving the scheme of amalgamation. After the amalgamation, the assessee was allotted 100,000 shares of M/s. Luminaire Technologies Ltd. in lieu of the shares of M/s. Paridhi Properties Ltd. These shares were duly credited in the demat account of the assessee. Later on, the assessee sold 90,000 shares on 31st December, 2012 and 10,000 shares on 24th January, 2013 through SHCIL Services Ltd. The ld. A/R has referred to the Contract Note received from NSDL for sale of shares for a total sum of Rs.
49,14,686/- at pages 9 to 11 of the paper book. Thus the ld. A/R has submitted that the sale of shares in question were from the demat account of the assessee and, therefore, the transaction of sale cannot be treated as bogus when the assessee was holding the shares in the demat account. Since the shares were transferred after more than one year from the date of acquisition, therefore, the capital gain on sale of shares is exempt under section 10(38) of the IT Act. The transaction of sale was undertaken on the recognized Stock Exchange and, therefore, cannot be questioned by the taxing authorities. In support of his contention, he has relied upon the decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Smt. Pooja Agarwal and Shri Jitendra Kumar Agarwal dated 11th September, 2017 in DB IT Appeal No. 385/2011. He has also relied upon the decision of Hon'ble Jharkhand High Court in the case of CIT vs. Arun Kumar Agarwal (HUF) dated 13th July, 2012 in ITA No. 4/2011. The ld. A/R has further contended that the AO has passed the 5 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
assessment order solely on the basis of the statement of Shri Deepak Patwari without giving an opportunity of cross examination to the assessee. Therefore, in view of the decision of Hon'ble Supreme Court in the case of Andaman Timber Ind.
Vs. Commission of Central Excise, 281 CTR 211/127 DTR 241 (SC), the order of AO is not sustainable in law.
3.1. On the other hand, the ld. D/R has submitted that the AO has clearly brought out the facts that certain brokers were indulged in providing accommodation entries of bogus capital gains from the sale of shares including the shares of M/s. Luminaire Technologies Ltd. Undisputedly, the assessee has claimed long term capital gain from sale of shares of M/s. Luminaire Technologies Ltd. and further there is manifold increase in the price from the alleged cost of acquisition of Rs. 100,000/- to more than Rs. 49,00,000/- within a short span of period which shows that the transaction of sale of shares showing long term capital gain is not genuine but the assessee has obtained the accommodation entries from these operators. He has relied upon the orders of the authorities below. The ld. D/R has further submitted that the facts clearly show that the price of the script has been rigged and, therefore, the penny stock claimed to have been purchased at par was sold at a very high price which is not possible in normal course of transaction of purchase and sale of shares.
4. We have considered the rival submissions as well as the relevant material on record. The assessee purchased 10,000 shares of M/s. Paridhi Properties Ltd. on 11.3.2011 under private placement as these shares were issued by the company itself. The assessee paid the purchase consideration of Rs. 100,000/- through 6 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
cheque and the payment is duly reflected in the bank account of the assessee at page 4 of the paper book showing clearance of cheque of Rs. 100,000/- on 7th March, 2011. The assessee has also placed a copy of the allotment advice dated 21st March, 2011 whereby the company has allotted 10,000 shares giving the portfolio number and certificate number. The share certificate dated 19th March, 2011 is also placed in the paper book at page 6. The shares of M/s. Paridhi Properties Ltd. were dematerialized and credited to the demat account of the assessee as per the transaction statement issued by NSDL. In the meantime, M/s.
Paridhi Properties Ltd. was amalgamated with M/s. Luminaire Technologies Ltd. vide decision dated 27th July, 2012 of Hon'ble Bombay High Court and consequently the assessee was allotted 100,000 shares of M/s. Luminaire Technologies Ltd. in lieu of 10,000 shares of M/s. Paridhi Properties Ltd. The shares of M/s. Luminaire Technologies Ltd. were subsequently credited to the demat account of the assessee duly reflected in the copy of the demat account as on 20th October, 2012. The AO has doubted the transaction on the basis of the report of the Investigation Wing, Kolkata that during the search and seizure action under section 132 it was found that some of the brokers were indulged in providing accommodation entries of bogus capital gain in the shares of various companies including the shares of M/s.
Luminaire Technologies Ltd. In this respect statement of Shri Deepak Patwari was recorded by the Investigation Wing of the revenue department, Kolkata. Thus the AO has passed the assessment order based on the information received from the Investigation Wing Kolkata as well as the statement recorded by the Investigation Wing of Shri Deepak Patwari. However, we find that the holding of shares by the assessee as on the date of dematerialization cannot be disputed and, therefore, the 7 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
sale of shares from the demat account consequently is a real transaction and cannot be held as bogus transaction. What can be questioned in these facts is only the purchase consideration for which the shares were acquired by the assessee. The assessee has shown the payment of purchase consideration through cheque which is not in dispute. However, since there is a spike in the price of the shares at the time of sale in comparison to the cost of acquisition, the actual purchase consideration can be doubted. But in the absence of any material brought on record by the AO to show that the assessee has brought its unaccounted income back in the shape of long term capital gain, it cannot be held merely on the basis of suspicion that the assessee has paid the difference amount of consideration in cash to convert its unaccounted income into tax free income in the shape of long term capital gain.
The Hon'ble Jurisdictional High Court in the case of CIT vs. Smt. Pooja Agarwal and Shri Jitendra Kumar Agarwal (supra) while dealing with an identical issue has held in para 12 as under :-
"12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:-
"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details 8 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
like copy of contract note regarding purchase and sale of shares of Limtex and Konark Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed. Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his 9 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant."
We further note that an identical issue was considered by the Coordinate Bench of this Tribunal in the case of Pramod Jain and Others vs. DCIT vide order dated 31st January, 2018 in ITA No. 368/JP/2017 as well as in the case of Shri Meghraj Singh Shekhawat vs. DCIT vide order dated 7th March, 2018 in ITA No. 443 & 444/JP/2017 in paras 5 & 6 as under :-
"5. We have considered the rival submissions as well as relevant material on record. The assessee has produced record of allotment of 3,50,000 equity shares of M/s Rutron International Ltd. under preferential issue at par of face value of Rs. 10/- each vide allotment letter dated 08.03.2012. The Assessing Officer has not disputed the genuineness of the letter of allotment issued by the company to the assessee wherein it has been communicated that the assessee has been allotted 3,50,000 equity shares vide allotment letter dated 08.03.2012 against the application of the assessee at par of face value of Rs. 10/- each without any premium. The assessee has also produced the bank statement showing the payment of consideration of the acquisition of shares on 29.02.2012. It appears that the said payment was made by the assessee at the time of applying for allotment of shares and subsequently the shares were allotted by the company on 01.03.2012. Thus, it is clear that the shares acquired by the assessee 10 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
is not a trading transaction but these were allotted directly by the company under the preferential issue and hence, the role of intermediate is ruled out. Once, the shares were directly allotted by the company M/s Rutron International Ltd. against the consideration paid by the assessee through cheque. Then the role of any intermediately particular of Shri Anil Agrawal is said allotment does not appear from any of the record. Even as per the statement as reproduced by the Assessing Officer in the assessment order Shri Anil Agrawal has stated that he is having business nexus with the companies including M/s Rutron International Ltd. The department put a question about the association with as many as 13 companies and in response to that he has accepted that he is having business nexus with these companies including M/s Rutron International Ltd. The nature of service was also explained by Shri Anil Agrawal as the consultancy services. For ready reference we quote question No. 4 and 5 and answer, thereto in the statement of Shri Anil Agarwal as reproduced as under:-
Q 4. Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the following companies or have ever had any business transactions with the companies as mentioned below:
1. First Financial Services Ltd. (FFSL)
2. Splash Media and Infra Ltd. ( SPMIL)
3. D B (International) stock Brokers Ltd. ( DBSBL)
4. Unisys Softwares & Holdings Industries Ltd. (USHL)
5. Fact Enterprises Ltd. ( FEL)
6. Parikh Herbal Ltd. ( now Safal Herbs Ltd)
7. Premier Capital Service
8. Rutron Internationa Ltd.
9. Radford Global Ltd
10. JMD Telefilms Industries Ltd
11. Dhanleela Investments & Trading Co. Ltd.
12. SRK Industries Ltd.
13. Dhenu Buildcon Infra ltd.11 ITA No. 288/JP/2017
Shri Puroshotam Soni, Jaipur.
Ans. M/s Comfort Securities Ltd. has business nexus with the following companies Name of the Company Nature of Business Transaction
1. First Financial Services Ltd. Brokerage and Consultancy Services
2. Splash Media and Infra Ltd. Brokerage, Share Holding and Consultancy Services
3. Fact Enterprises Ltd Broking as well as share holding
4. Rutron International Ltd. Consultancy Services
5. D.B. (International) Stock Consultancy Services Brokers Ltd.
6. Unisys Software & Holding Broking Services Industries ltd.
Apart from the above mentioned companies neither I nor M/s Comfort Securities Ltd. has any business nexus with the companies mentioned supra.
Q5. Do you know the promoters and directors of the above said companies? Whether M/s Comfort Securities Pvt. Ltd. or you have any association with the promoters and directors of the above said companies or have ever had any business transactions with the promoters and directors of the above said companies. Ans. Sir, I know some of the directors of the First Financial Services Limited, Splash Media & Infra Services Ltd, Rutron International Limited and FACT enterprise Ltd. Regarding other companies I am not aware who are the directors of these companies."
Thus, it is clear from the relevant part of statement of Shri Anil Agrawal as reproduced by the AO that he has stated having business nexus with these companies and nature of business being consultancy services. Hence, he has not stated anything about providing bogus long term capital gain in respect of the equity shares of M/s Rutron International Ltd. A business nexus with any company will not automatically lead to the conclusion that the shares allotted by the other company is bogus transaction. As per question no. 5 and answer thereto it is clear that Shri Anil Agrawal was not the Director of M/s Rutron International Ltd. but he has stated to know some of the directors of these companies including M/s Rutron International Ltd.
12 ITA No. 288/JP/2017Shri Puroshotam Soni, Jaipur.
Hence, from this relevant part of the statement of Shri Anil Agrawal it cannot be inferred that he has provided the bogus long term capital gain from purchase and shares of equity shares of M/s Rutron International Ltd. much less the specific transaction of preferential issue allotment of shares by the company itself to the assessee. Further, though he has explained the modus oprendi of providing bogus long term capital gain entries in the equity shares however, when the transaction was not routed through Shri Anil Agrawal and the shares were allotted directly by the company to the assessee at par on face value then the same cannot be considered as a penny stock transactions. The assessee has produced the D-mat account and therefore, as on 18.06.2012 the assessee was holding 3,50,000 equity shares of M/s Rutron International Ltd. in D-mat account. This fact of holding the shares in the D-mat account as on 18.06.2012 cannot be disputed. Further, the Assessing Officer has not even disputed the existence of the D-mat account and shares credited in the D-mat account of the assessee. Therefore, once, the holding of shares is D- mat account cannot be disputed then the transaction cannot be held as bogus. The AO has not disputed the sale of shares from the D-mat account of the assessee and the sale consideration was directly credited to the bank account of the assessee, therefore, once the assessee produced all relevant evidence to substantiate the transaction of purchase, dematerialization and sale of shares then, in the absence of any contrary material brought on record the same cannot be held as bogus transaction merely on the basis of statement of one Shri Anil Agrawal recorded by the Investigation Wing, Kolkata wherein there is a general statement of providing bogus long term capital gain transaction to the clients without stating anything about the transaction of allotment of shares by the company to the assessee. Further, Shir Anil Agrawal was not a director of M/s Rutron International Ltd. as perceived by the AO and therefore, the entire 13 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
finding of the AO is without any corroborative evidence or tangible material.
6. The assessee has specifically demanded the cross examined to Shri Anil Agrawal which was denied by the AO as under :-
"(ii) The assessee's pleas that effective opportunity may be provided to cross examination. In this regard, it is pointed out that the Hon'ble Supreme Court in the case of C.Vasantlal & Co. v/s CIT 45 ITR 206 (SC) (3 Judge Bench) has observed that "the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by Private enquiry."
Thus, in view of the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) the assessment based on statement without giving an opportunity is not sustainable in law. We further note that the assessee produced copy of affidavit of Shri Anil Agrawal who has retracted his statement before the Investigation Wing, Kolkata however, without going into controversy of the retraction of the statement we find that the statement cannot be used by the AO without giving an opportunity to cross examination of Shri Anil Agrawal. The Coordinate Bench of this Tribunal in case of Pramod Jain and Others vs. DCIT (supra) whole dealing with an identical issue as held in para 6 to 8 as uder:-
"6. We have considered the rival submissions as well as relevant material on record. The assessee purchases 800 equity shares M/s Gravity Barter Ltd. for a consideration of Rs. 4 lacs the assessee has produced the purchase bill of the shares purchase from M/s Winall Vinimay Pvt. Ltd. which shows that the assessee purchase 800 equity shares having face value of Rs. 10/- each M/s Gravity Barter Pvt. Ltd. in allots of 400 each for a consideration of Rs. 2 lacs each total amount to Rs. 4 lacs @ Rs. 500 per shares. The purchase price of Rs. 500 per share itself shows that it was not a transaction of purchase of penny stock. These shares were duly reflected in the balance sheet as 31.03.2011. The payment of the purchase consideration was made by the assessee vide cheque on 17.05.2011 which is 14 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
evident from the bank account of the assessee at page 40 of the paper book. In the mean time the said M/s Gravity Barter Pvt. Ltd. changed its status from private limited to a public limited and fresh certificate was issued by the Registrar of company on 05.02.2011 which is placed at page 43 of the paper book. Therefore, there is no reason to disbelief the fact of fresh certificate issued by the Registrar of companies on 05.02.2011 and hence, the date mentioned in the order of the Hon'ble Kolkata High Court as 18.04.2011 appears to be typographical mistake. Even otherwise these two dates do not have any effect on the genuineness of the transactions of purchase of equity shares by the assessee of M/s Gravity Barter Pvt. Ltd. The assessee though produced all the relevant records and evidences right from the purchase bills, certificate issued by the Registrar about the change of name, the communication between the assessee and the seller of the shares and thereafter, the amalgamation of M/s Gravity Barter Ltd. with M/s Oasis Cine Communication Ltd. which was duly approved by the Hon'ble High Court vide order dated 28.8.2011. The assessee in the mean time got the physical share certificate dematerialized into Demat account on 16.02.2012. There is no reason to doubt the allotment of the shares to the assessee after amalgamation took place between M/s Gravity Barter Ltd. and M/s Oasis Cine Communication Ltd. and subsequent to amalgamation the assessee was allotted shares of M/s Oasis Cine Communication Ltd. on 04.02.2012. Hence, the allotment of 35,200 equity shares of M/s Oasis Cine Communication Ltd. cannot be doubted or disputed as these shares were issued post amalgamation and by a listed company. It is also not in dispute that these shares of M/s Oasis Cine Communication Ltd. were issued in exchange of the shares held by the assessee of M/s Gravity Barter Ltd. Therefore, once the shares issued by M/s Oasis Cine Communication Ltd. cannot be doubted then the holding of the shares of the M/s Gravity Barter Ltd. by the assessee correspondingly cannot be doubted because of the reasons that the shares of M/s Oasis Cine Communication Ltd. could be allotted only in exchange of shares of M/s Gravity Barter Ltd. The holding the shares of M/s Gravity Barter Ltd. and the allotment of shares M/s Oasis Cine Communication Ltd. are directly interconnected. In the absence of holding of shares M/s Gravity Barter Ltd. the shares of the M/s Oasis Cine 15 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
Communication Ltd. could not be issued or allotted to the assessee. Therefore, holding of the shares by the assessee at least at time of amalgamation took place and shares of the M/s Oasis Cine Communication Ltd. on 04.02.2012 cannot be doubted. Moreover, these shares were dematerialized by the assessee in the Demat account, therefore, on the date of allotment of share of M/s Oasis Cine Communication Ltd the assessee was holding these shares and prior to that the assessee was holding the shares of M/s Gravity Barter Ltd. on exchange of the same the shares of M/s Oasis Cine Communication Ltd. were issued to the assessee. The Assessing Officer has doubted the genuineness of the transactions however, once the holding of shares of the assessee at the time of the same were issued by M/s Oasis Cine Communication Ltd. is not in dispute then the holding of shares of M/s Gravity Barter Ltd. also cannot be dispute because of the fact that without holding of the same the shares of M/s Oasis Cine Communication Ltd. could not be issued to the assessee. Once, the shares were held by the assessee then, the question of genuineness of the transaction does not arise however, the purchase consideration can be doubted by the AO if the shares were claimed to have been purchased against consideration paid in cash which is not in case of the assessee. The assessee has paid purchase consideration through cheque and therefore, even if the said consideration is found to be very less in comparison to the sale price at the time of sale of shares in the absence of any material or other facts detected or brought on record by the AO that the assessee has brought back his own unaccounted money in the shape of long term capital gain and has used the same as a device to avoid tax, the purchase consideration paid by the assessee cannot be doubted in the absence of any corroborating evidence. The Assessing Officer has not disputed that the fair market value of the shares of M/s Gravity Barter Ltd. was more than the purchase price claimed by the assessee. It may be a case that ensuring merger/amalgamation of the said company with M/s Oasis Cine Communication Ltd. the assessee might have anticipant the exceptional appreciation in the share price due to extraordinary event of merger/ amalgamation. However, the same cannot be a reason for doubting genuineness of the transaction if the 16 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
motive of purchase of the share is to earn an extraordinary gain because of some internal information available to the assessee.
7. In case of equity shares M/s Paridhi Properties Ltd. the assessee purchase 50,000 equity share on 26.03.2011 by paying share application money of Rs. 5 lacs which is duly reflected in the bank account of the assessee as paid on 28.03.2011. Therefore, the payment of share application money has been duly established by the assessee through his bank account for allotment of shares of 50,000 equity shares of M/s Paridhi Properties Ltd. The share allotted in private placement as per of Rs. 10/- cannot be termed as penny stock. The AO doubted that the entire process of application and allotment of shares as it have been completed within a short duration of 5 days, which in the opinion of the AO is not possible in ordinary course. However, when the assessee has produced the record including the share application, payment of share application money, allotment of share then merely because of a short period of time will not be a sufficient reason to hold that the transaction is bogus. The shares allotted to the assessee vide share certificate dated 31.03.2011 were dematerialized on 21.10.2011, therefore, on the date of dematerialization of the shares the holding of the shares of the assessee cannot be doubted and hence the acquisition of the shares of the assessee cannot be treated as a bogus transaction. Nobody can have the shares in his own name in demant account without acquiring or allotment through due process hence, except the purchase consideration paid by the assessee holding of shares cannot be doubted when the assessee has produced all the relevant record of issuing of allotment of shares, payment of share application money through bank, share certificate and demat account showing the shares credited in the demat account of the assessee on dematerialization. The said company M/s Paridhi Properties Ltd. was subsequently merged with M/s Luminaire Technologies Ltd. vide scheme approved by the Hon'ble Bombay High Court order dated 27.07.2012. Hence, the assessee got allotted the equity shares of M/s Luminaire Technologies Ltd. as per swap ratio approved in the scheme and consequently the assessee was allotted 5 lacs share of Rs. 1/- each on M/s Luminaire Technologies Ltd. The evidence produced by the assessee leave no scope of any doubt about the holding of the shares by the assessee.
17 ITA No. 288/JP/2017Shri Puroshotam Soni, Jaipur.
8. As regards the purchase consideration when the assessee has shown the share application money paid through his bank account and the AO has not brought on record any material to show that apart from the share application money paid through bank account the assessee has brought his own unaccounted money back as long term capital gain. It is also pertinent to note that the shares of M/s Oasis Cine Communication Ltd. are still held by the assessee in its demat account to the extent of 17,200 shares and therefore, the holding of the shares by any parameter or stretch of imagination cannot be doubted. The AO has passed the assessment year based on the statement of Shri Deepak Patwari recorded by the Investigation Wing of Kolkata however, the assessee has specifically demanded the cross examination of Shri Deepak Patwari vide letter dated 15.03.2016 specifically in paras 3 and 4 as reproduced by the AO at page No. 7 of the assessment order as under:-
"3. Since, the shares were allotted by the company through private placement after completing the formalities of ROC and were sold through the recognized Bombay Stock Exchage (BSE) there is no question of knowing individual persons or company official personally in the whole process, so the assessee is not in position to produce any one for cross examination before your good self. Since your good self has got the authority, we humbly request you to kindly issue the notice u/s 131 of the Income tax Act 1961 to the concerned individual persons or company officials for cross examination. Please note that the assessee is ready to bear the cost of their travelling in this regards.
4. As regard your opportunity given to us to read the recorded statement of Shri Deepak Patwari and to produce him from the cross examination before your good self, we have to submit that from the reading of the statements of Shri Deepak Patwari it is clear that he has never taken the name of the assessee, nor the assessee is aware of any Shri Deepak Patwari neither he has made any transaction with him, so in what capacity he can call him for cross examination before your good self. Since your good self has got the authority, we humbly request youto kindly issue the notice u/s 131 of the income Tax act 1961 to him also for cross examination. We also request your good self to kingly provide us the copy of statements of Shri Deepak Patwari along with the other relevant documents. Please note that the 18 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
assessee is ready to bear the cost of his travelling in this regard."
It is manifest from the assessee's reply to show cause notice that the assessee had specifically demanded the cross examination of Shri Deepak Patwari however, the Assessing Officer did not offer the opportunity to the assessee to cross examine Shri Deepak Patwari. Further, the AO asked the assessee to produce the Principal Officers of the M/s Gravity Barter Ltd. and M/s Paridhi Properties Ltd. However, in our view if the Assessing Officer wanted to examine the principal Officers of those companies he was having the authority to summon them and record their statements instead of shifting burden on the assessee. It is not expected from the assessee individual to produce the principal Officers of the companies rather the AO ought to have summoned them if the examination of the officers were considered as necessary by the AO. Hence, it was improper and unjustified on the part of the AO to asked the assessee to produce the principal Officers of those companies. As regards the non grant of opportunity to cross examine, the Hon'ble Supreme Court in case of Andaman Timber Industries vs. CCE (supra) while dealing with the issue has held in para 5 to 8 as under:
"5. 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.
6. 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 inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that 19 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid 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 cross- examination 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 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.
8. 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 Notice."
Therefore, the statement of witness cannot be sole basis of the assessment without given an opportunity of cross examination and consequently it is a serious flaw which renders the order a nullity. The Mumbai Special of the Tribunal in case of GTC Industries vs. ACIT (supra) had the occasion to consider the 20 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
addition made by the AO on the basis of suspicion and surmises and observed in par 46 as under:-
"46. In situations like this case, one may fall into realm of 'preponderance of probability' where there are many probable factors, some in favour of the assessee and some may go against the assessee. But the probable factors have to be weighed on material facts so collected. Here in this case the material facts strongly indicate a probability that the wholesale buyers had collected the premium money for spending it on advertisement and other expenses and it was their liability as per their mutual understanding with the aseessee. Another very strong probable factor is that the entire scheme of 'twin branding' and collection of premium was so designed that assessee-company need not incur advertisement expenses and the responsibility for sales promotion and advertisement lies wholly upon wholesale buyers who will borne out these expenses from alleged collection of premium. The probable factors could have gone against the assessee only if there would have been some evidence found from several searches either conducted by DRI or by the department that Assessee-Company was beneficiary of any such accounts. At least something would have been unearthed from such global level investigation by two Central Government authorities. In case of certain donations given to a Church, originating through these benami bank accounts on the behest of one of the employees of the assessee company, does not implicate that GTC as a corporate entity was having the control of these bank accounts completely. Without going into the authenticity and veracity of the statements of the witnesses Smt. Nirmala Sundaram, we are of the opinion that this one incident of donation through bank accounts at the direction of one of the employee of the Company does not implicate that the entire premium collected all throughout the country and deposited in Benami bank accounts actually belongs to the assessee-company or the assessee-company had direct control on these bank accounts. Ultimately, the entire case of the revenue hinges upon the presumption that assessee is bound to have some large share in so-called secret money in the form of premium and its circulation. However, this presumption or suspicion how strong it may appear to be true, but needs to be corroborated by some evidence to establish a 21 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
link that GTC actually had some kind of a share in such secret money. It is quite a trite law that suspicion howsoever strong may be but cannot be the basis of addition except for some material evidence on record. The theory of 'preponderance of probability' is applied to weigh the evidences of either side and draw a conclusion in favour of a party which has more favourable factors in his side. The conclusions have to be drawn on the basis of certain admitted facts and materials and not on the basis of presumption of facts that might go against assessee. Once nothing has been proved against the assessee with aid of any direct material especially when various rounds of investigation have been carried out, then nothing can be implicated against the assessee."
Therefore, when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above the purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has introduced his own unaccounted money by way of bogus long term capital gain. The Hon'ble Jurisdiction High Court in case of CIT vs. Smt. Pooja Agrawal (supra) has upheld the finding of the Tribunal on this issue in para 12 as under:-
"12. However, counsel for the respondent has taken us to the order of CIT(A) and also to the order of Tribunal and contended that in view of the finding reached, which was done through Stock Exchange and taking into consideration the revenue transactions, the addition made was deleted by the Tribunal observing as under:-
"Contention of the AR is considered. One of the main reasons for not accepting the genuineness of the transactions declared by the appellant that at the time of survey the appellant in his statement denied having made any transactions in shares. However, subsequently the facts came on record that the appellant had transacted not only in the shares which are disputed but shares of various other companies like Satyam Computers, HCL, IPCL, BPCL and Tata Tea etc. Regarding the transactions in question various details like copy of contract note regarding purchase and sale of shares of Limtex and Konark 22 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
Commerce & Ind. Ltd., assessee's account with P.K. Agarwal & co. share broker, company's master details from registrar of companies, Kolkata were filed.
Copy of depository a/c or demat account with Alankrit Assignment Ltd., a subsidiary of NSDL was also filed which shows that the transactions were made through demat a/c. When the relevant documents are available the fact of transactions entered into cannot be denied simply on the ground that in his statement the appellant denied having made any transactions in shares. The payments and receipts are made through a/c payee cheques and the transactions are routed through Kolkata Stock Exchange. There is no evidence that the cash has gone back in appellants's account. Prima facie the transaction which are supported by documents appear to be genuine transactions. The AO has discussed modus operandi in some sham transactions which were detected in the search case of B.C. Purohit Group. The AO has also stated in the assessment order itself while discussing the modus operandi that accommodation entries of long term capital gain were purchased as long term capital gain either was exempted from tax or was taxable at a lower rate. As the appellant's case is of short term capital gain, it does not exactly fall under that category of accommodation transactions. Further as per the report of DCIT, Central Circle-3 Sh. P.K. Agarwal was found to be an entry provider as stated by Sh. Pawan Purohit of B.C. Purihit and Co. group. The AR made submission before the AO that the fact was not correct as in the statement of Sh. Pawan Purohit there is no mention of Sh. P. K. Agarwal. It was also submitted that there was no mention of Sh. P. K. Agarwal in the order of Settlement Commission in the case of Sh. Sushil Kumar Purohit. Copy of the order of settlement commission was submitted. The AO has failed to counter the objections raised by the appellant during the assessment proceedings. Simply mentioning that these findings are in the appraisal report and appraisal report is made by the Investing Wing after considering all thematerial facts available on record does not help much. The AO has failed to prove through any independent inquiry or relying on some material that the transactions made by the appellant through share broker P.K. Agarwal were non-genuine or there was any adverse mention about the transaction in 23 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
question in statement of Sh. Pawan Purohi. Simply because in the sham transactions bank a/c were opened with HDFC bank and the appellant has also received short term capital gain in his account with HDFC bank does not establish that the transaction made by the appellant were non genuine. Considering all these facts the share transactions made through Shri P.K. Agarwal cannot be held as non-genuine. Consequently denying the claim of short term capital gain (6 of 6) [ ITA-385/2011] made by the appellant before the AO is not approved. The AO is therefore, directed to accept claim of short term capital gain as shown by the appellant."
In view of the above facts and circumstances of the case, we are of the considered opinion that the addition made by the AO is based on mere suspicion and surmises without any cogent material to show that the assessee has brought back his unaccounted income in the shape of long term capital gain. On the other hand, the assessee has brought all the relevant material to substantiate its claim that transactions of the purchase and sale of shares are genuine. Even otherwise the holding of the shares by the assessee at the time of allotment subsequent to the amalgamation/merger is not in doubt, therefore, the transaction cannot be held as bogus. Accordingly we delete the addition made by the AO on this account."
Thus, it is clear that the Tribunal in the said case has analyzed an identical issue wherein the shares allotted in the private placement @ Rs. 10 at par of face value which were dematerialized and thereafter sold by the assessee and accordingly the Tribunal after placing reliance on the decision of Hon'ble Supreme Court in case of CCE vs. Andaman Timber Industries (supra) as well as the decision of Hon'ble jurisdiction High court in case of CIT vs. Smt. Pooja Agarwal (supra) as held that when the Assessing Officer has not brought any material on record to show that the assessee has paid over and above purchase consideration as claimed and evident from the bank account then, in the absence of any evidence it cannot be held that the assessee has 24 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
introduced his own unaccounted money by way of bogus long term capital gain. Similarly in the case in hand the assessee has produced the relevant record to show the allotment of shares by the company on payment of consideration by cheque and therefore, it is not a case of payment of consideration by in cash. But the transaction is established from the evidence and record which cannot be manipulated as all the entries are part of the bank account of the assessee and the assessee dematerialized the shares in the D-mat account which is also an independent material and evidence cannot be manipulated. Therefore, the holding of the shares by the assessee cannot be doubted and the finding of the AO is based merely on the suspicion and surmises without any cogent material to show that the assessee has introduced his unaccounted income in the shape of long term capital gain. We find that the ld. CIT(A) has also referred to SEBI enquiry against the M/s Anand Rathi Share and Stock Brokers Ltd. However, we note that the said enquiry was regarding financial irregularities and use of fund belonging to the clients for the purpose other than, the purchase of shares on behalf of the clients. Therefore, the subject matter of the enquiry has no connection with the transaction of bogus long term capital gain. The decisions replied upon the ld. DR in case of Sanjay Bimalchand Jain vs. Pr. CIT (supra) is not applicable in the facts of the present case as the said decision is in respect penny stock purchase by the assessee from a persons who was found to be indulged in providing bogus capital gain entries whereas in the case of the assessee the shares were allotted to the assessee by the company at par of face value. Hence, in view of the facts and circumstances when we hold that the order of the Assessing Officer treating the long term capital gain as bogus and consequential addition made to the total income of the assessee is not sustainable. Hence, we delete the addition made by the AO on this account."
25 ITA No. 288/JP/2017Shri Puroshotam Soni, Jaipur.
The facts in the case are identical to the extent that the shares were allotted in a private placement by the company at par which were dematerialized and thereafter sold by the assessee. The decision of Hon'ble Jurisdictional High Court in the case of CIT vs. Smt. Pooja Agarwal was followed by the Coordinate Bench of this Tribunal in arriving to the conclusion that the transaction of sale of shares cannot be held as bogus when the shares were sold after the same were dematerialized and credited to the demat account of the assessee. The finding of the AO in the case of the assessee is based merely on suspicion and surmises without bringing any cogent material to establish that the assessee has introduced his unaccounted income in the shape of long term capital gain. Further, we note that the transaction in the case is not a trading of the shares through brokers but it was an allotment by the company in a private placement and thereafter the shares were dematerialized and duly reflected in the demat account of the assessee, therefore, the holding of the shares in the demat account and subsequently transfer of the same from the demat account cannot be doubted and consequently the transaction of sale cannot be held as bogus. In the absence of any material to show that the assessee has paid the amount of capital gain as his unaccounted income to convert the same to the exempt income, the entire transaction of sale of shares cannot be held as bogus.
Following the earlier orders of this Tribunal we decide this issue in favour of the assessee and allow the claim of the assessee. The orders of the authorities below qua this issue are set aside.
4.1. Before part with the issue, we make it clear that the assessment order based on the statement of Shri Deepak Patwari without giving an opportunity of cross 26 ITA No. 288/JP/2017 Shri Puroshotam Soni, Jaipur.
examination to the assessee is not sustainable in law as held by the Hon'ble Supreme Court in the case of Andaman Timber Industries vs. CCE (supra).
5. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 06/04/2018.
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6. xkMZ QkbZy@ Guard File {ITA No. 288/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar